ISSUES FOR IIM INTERVIEW
PROCESS

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Issues for IIM PI Process http://www.essaysforIIM.com Contents
US‐CHINA ENVIRONMENT DEAL

8

OIL PRICE

9

PAYMENT BANKS

11

SHADOW BANKING

13

NBFCs

14

NEW DEFINITION OF FDI

16

REFORMS IN POWER DISTRIBUTION

16

SECURITIES LAWS (AMENDMENT) BILL 2014

18

JUVENILE JUSTICE BILL, 2014

18

HUMAN DEVELOPMENT: INTERNATIONAL COMPARISON

19

INEQUALITY

20

SOCIO‐ECONOMIC PROFILE OF STATES AND INTER‐STATE COMPARISONS

21

ASER 2013: Main Findings

23

SKILL DEVELOPMENT

24

HOW INDIA NEEDS TO FACE CLIMATE CHANGE

24

AGENDA FOR ECONOMIC REFORMS

28

INFRASTRUCTURE

30

WHY LONG‐RUN MATTERS

30

FIVE PRONGED STRATEGY TO CONTROL INFLATION

31

URJIT PATEL COMMITTEE

32

Some Major Issues in India's Merchandise Trade Sector

32

MAKE IN INDIA OPPORTUNITY

34

Make for India or Make in India – The debate begins!

37

VULNERABILITY COMPARISON OF INDIAN ECONOMY

38

PM JAN DHAN YOJANA

39

COOPERATIVE FEDERALISM

40

ZERO DEFECT, ZERO EFFECT

41

DIGITAL INDIA

42

TWO FACTOR IDENTIFICATION ISSUE

43

MINSK AGREEMENT

44

WILFUL DEFAULT

44

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Issues for IIM PI Process http://www.essaysforIIM.com ‘MAKE IN INDIA’

45

Features of the ‘Make In India’ campaign .............................................................................................. 46
PM MODI’S ADDRESS TO UN GA

46

‘CHALEIN SAATH SAATH’

47

DEEPAK PAREKH COMMITTEE ON INFRASTRUCTURE

48

‘JAPAN PLUS’

48

WHY CRONY CAPITALISM PERSISTS

49

ISSUES IN THE SHG BLP

51

INCLUSIVE RURAL FINANCIAL SYSTEM

52

NEED FOR REGULATION

54

COMPANIES ACT 2013

54

The Board of Directors ............................................................................................................................ 54
Audit function ......................................................................................................................................... 55
Corporate Social Responsibility .............................................................................................................. 56
KYC COMPLIANCE

56

COMPULSORY VOTING IN INDIA

58

Right to vote in India ............................................................................................................................... 59
Compulsory voting in other countries .................................................................................................... 59
What compulsory voting would mean .................................................................................................... 60
REMOVAL OF GOVERNORS

60

INDIA’S EBOLA READINESS

61

Steps Taken ............................................................................................................................................. 63
RBI’s Charter on Consumer Rights

63

INDUSTRIAL DISASTERS

64

DEVELOPING HUMAN CAPITAL

67

THE GROWTH DIVIDE

68

MASALA BONDS DEMYSTIFIED

69

NET NEUTRALITY

70

TRADE FACILITATION AGREEMENT

72

PEACE CLAUSE CONUNDRUM

74

SECTION 3(D) OF PATENTS ACT

75

SYSTEMICALLY IMPORTANT BANKS

77

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Issues for IIM PI Process http://www.essaysforIIM.com NEW POVERTY LINE

78

NSEL SCAM

79

PLUGGING OF LOOPHOLES IN DTAA

81

TALKS FOR INDIA‐EU FTA SUSPENDED

82

TELANGANA AND WATER DISPUTES

83

WARSAW CLIMATE CHANGE NEGOTIATIONS

83

INDIA AND CLIMATE TALKS IMPERATIVES

84

CHINA AND SEA AIR ZONE

86

IMPROVEMENT IN CAD

87

RUSH FOR GOLD

88

WHO GETS LPG SUBSIDIES?

90

NEW DBTL SCHEME ................................................................................................................................ 91
.
BUILDING UP FX RESERVES

91

ISSUES WITH LIABILITY RULES

92

INDIA’S TWIN ENVIRONMENTAL CHALLENGES

93

INDIGENIZATION OF MILITARY HARDWARE

94

CHINA’S NEW ECONOMIC MODEL

95

INDIA‐IRAN TALKS

96

LEGISLATIVE PROCESS TO MAKE AN ACT

97

CRIMINALITY IN THE POLITICAL SYSTEM

98

FOREIGN DONATIONS TO POLITICAL PARTIES

99

“NO” TOTAL AUTONOMY FOR CBI

100

PATENT BATTLES

101

NATIONAL GREEN TRIBUNAL (NGT)

102

OPINION POLLS

103

DECLINING SEX RATIO

104

TOWARDS ACHIEVING MDGs

106

RBI TO BE GUIDED BY ‘FIVE PILLARS’

110

QUANTITATIVE EASING

110

INDIAN ECONOMY – IMPORTANT INDICATORS

114

NATIONAL MANUFACTURING POLICY

116

FTAs AND INDIA

117

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Issues for IIM PI Process http://www.essaysforIIM.com KELKAR COMMITTEE ON FISCAL CONSOLIDATION

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INTERNATIONAL TRADE

120

TRADE IN VALUE ADDED

121

INDIA‐EU FTA ISSUES

122

POVERTY IN INDIA

123

PITFALLS OF BPL TARGETING

124

POVERTY LINE MEASUREMENT

125

POVERTY AS A CHALLENGE

127

FINANCIAL INCLUSION

128

FAST TRACK COURTS – AN OVERVIEW

130

IMPACT OF ECONOMIC CRISIS ON INDIA

132

INCREASING VULNERABILITY TO EXTERNAL SHOCKS

132

INDIA’S BALANCE OF PAYMENTS: SITUATION AND SOLUTIONS

133

NEED TO ADDRESS TWIN DEFICITS

134

NEED FOR AN INDEPENDENT MEDIA REGULATOR

135

ROLE OF CIVIL SOCIETY

136

JUDICIAL ACTIVISM

137

INCREASING IMPORTANCE OF BRICS

139

EXPANSION OF UNSC

141

REASONS FOR FAILURE IN TACKLING NAXALISM

141

NAXALISM‐ NEED FOR HOLISTIC APPROACH

143

NUCLEAR ENERGY – PROS AND CONS

144

CRITICAL POLICY CHALLENGES BEFORE INDIA

145

STEPS FOR TRANSFORMING THE ELEPHANT INTO A TIGER

149

REAPING THE DEMOGRAPHIC DIVIDEND

153

GROWING JOBS CHALLENGE

154

G‐20 AND INDIA

155

VIOLENCE AGAINST WOMEN

159

SECTION 66A OF THE IT ACT

161

LOBBYING

162

CREATION OF NEW STATES

162

LEGISLATURE VERSUS JUDICIARY

163

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Issues for IIM PI Process http://www.essaysforIIM.com DIRECT TAXES CODE (DTC)

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GAAR / GENERAL‐ANTI‐AVOIDANCE RULES

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INDIA’S SOVEREIGN DEBT: SUSTAINABILITY ATTRIBUTES

167

CAN ASIA STEP UP TO 21ST CENTURY LEADERSHIP?

167

EUROZONE CRISIS

169

PAK‐ INDIA MFN ISSUE: IMPLICATIONS

171

IMPACT OF RUPEE DEPRECIATION

172

REPOS: CONCEPT, MECHANICS AND USES

172

FACTORS DRIVING FOOD INFLATION

174

RAISE AGRICULTURAL PRODUCTIVITY

175

INFLATION IMPACT ON ECONOMY

175

FACTORS THAT WILL SHAPE INFLATION TRAJECTORY

176

TEN CHALLENGES FOR INDIA FOR A SUSTAINED GROWTH PATH

177

DEREGULATION OF SAVINGS BANK DEPOSITS INTEREST RATE

179

BUFFETT TAX

180

ELECTORAL REFORMS

180

PROBLEMS WITH THE AVIATION SECTOR

181

PIIGS – DEMYSTIFYING THE CRISIS

182

CORPORATE SOCIAL RESPONSIBILITY

184

TOTALIZATION AGREEMENTS

185

BASE RATE

187

RIGHT TO PRIVACY

187

LAND ACQUISITION – EMINENT DOMAIN

189

LAND ACQUISITION, REHABILITATION AND RESETTLEMENT BILL

190

PAID NEWS

192

MICROCREDIT

193

FOREIGN DIRECT INVESTMENT

196

CIVIL NUCLEAR COOPERATION

197

NEW INTERNATIONAL POLITICAL AND ECONOMIC ORDER

199

MEASURES TO CONTROL RAPES

201

FERTILISER REFORMS

202

REFORMING OUR AGRICULTURE SECTOR

203

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Issues for IIM PI Process http://www.essaysforIIM.com WHY BASE RATE REPLACED BPLR REGIME

204

GOODS AND SERVICES TAX

204

NEED FOR COORDINATION OF REGULATORS

207

DEMAND FOR SMALLER STATES AFTER TELANGANA

209

BLUE REVOLUTION – FULFILLING ENERGY NEEDS

211

GDRS/ADRS REFORMS

212

FISCAL CONSOLIDATION – A PRIMER

213

THIRTEENTH FINANCE COMMISSION

214

CAPITAL CONTROLS BASICS

215

UID SYSTEM

216

POLICY SUGGESTIONS FOR SERVICES SECTOR

217

COMMODITY FUTURES MARKETS

218

INITIATIVES TO CONTROL ENVIRONMENTAL POLLUTION

218

HIV/AIDS – SOCIAL PROBLEM

219

ENVIRONMENTAL DEGRADATION

221

COMMUNALISM

223

YOUTH UNREST

225

CORRUPTION

226

MIGRATION AND DISPLACEMENT

228

PROBLEM OF SUICIDES

231

SUBSTANCE ABUSE

231

POLITICAL RESERVATIONS FOR WOMEN

233

INDIA’S HIGHLY POLLUTED RIVERS

235

NATIONAL GANGA RIVER BASIN AUTHORITY (NGRBA)

236

NOISE POLLUTION

237

DISINVESTMENT: STRATEGIES & ISSUES

238

INCLUSIVE GROWTH

242

CHALLENGES TO ENABLE INCLUSIVE GROWTH

244

MARKET ECONOMY STATUS

246

BENCHMARK RBI RATES – A PRIMER

246

WORLD TRADE

248

ANTI‐COUNTERFEITING TRADE AGREEMENT (ACTA)

249

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Issues for IIM PI Process http://www.essaysforIIM.com WTO BASICS ‐ PRIMER

250

WTO ‐ INDIA’S STAND ON VARIOUS ISSUES

256

INDIA'S DEMOGRAPHIC DIVIDEND

258

MULTILATERALISM VS BILATERALISM

259

FOREIGN DIRECT INVESTMENT

260

FOREIGN INSTITUTIONAL INVESTMENT

261

CURRENT ACCOUNT DEFICIT PROBLEM

262

INDIA’S TRADE DATA

263

REORGANISATION OF UP

266

HUNGAMA REPORT

266

INDEPENDENT DIRECTORS

267

ENERGY SECURITY IN INDIA

268

REGIONAL PARTIES

271

COLD START DOCTRINE

275

FREEDOM OF SPEECH

275

JUVENILE CRIME

276

HOW INDIA HAS CHANGED

277

QUOTATIONS ON INDIA

279

OVERALL QUOTATIONS OR INCIDENTS WHICH CAN BE USED IN THE ESSAY

281

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Issues for IIM PI Process http://www.essaysforIIM.com

US‐CHINA ENVIRONMENT DEAL

China

Goals announced US

As emissions rise it sets a target for emissions to peak in 2030 or earlier. First time China has set any deadline for stopping emissions Would increase the share of clean energy sources like wind and solar power to 20 percent by
2030, about double what it is today. Sets a goal to make its 2025 emissions between 26 ‐28 % lower than they were in 2005
Would help the U.S. achieve its longer‐term goal of bringing emissions 80% lower than 2005 by
2050.
U.S. emissions peaked in 2007, but about half the reductions since have been due to the recession.

Significance of
Targets

China is the biggest source of greenhouse gas pollution, with about a quarter of the world’s emissions. The U.S. is No. 2 with about 15%
The two countries are often adversaries at U.N. climate talks, and their unprecedented joint announcement sends an important signal that a deal is possible next year.
Last month, the European Union said that its 2030 emissions would be
40 percent lower than in 1990.
With pledges from the top three emitters on the table a year ahead of the Paris climate summit, pressure now builds on other countries including India, Russia and Japan to present their own targets.

Challenges

Coal still fuels about 80% of China’s electricity. Move away would need transformation in whole economy as heavy industries such as steel, cement and chemicals heavily depend on coal.
The government has already been trying to boost less polluting sectors of the economy, such as high‐tech, and in fact coal use fell by a percentage point last year. Still, quitting coal will require a massive investment in natural gas and renewable energy.

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A significant proportion of promised reductions hinge on cutting carbon pollution from coal‐fired plants. But
Republicans are fighting the plans both at the state level and in Congress.
Lawsuits have already been filed against the proposals, setting the stage for a lengthy battle that’s likely to continue well beyond Obama’s term.
Without the support of the next president, the new pollution standards aren’t likely to survive.

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What other issues need to be solved for a global climate deal?
a) Developing countries want a Kyoto protocol style deal with no legally binding commitments for them b) Developed countries including US want developing also to take commitments o Since they began more than two decades ago, the U.N. climate talks have been bogged down by arguments between rich and poor countries over who should do what to fix global warming. Rich countries say developing countries need to act because they account for most of the growth. Developing countries say the rich have already pumped out so much pollution for so long that they should take the lead. o The U.S. and China have been on opposite sides of that debate, which is why their joint announcement is seen as such a breakthrough.
c) Low chances of US congress ratifying any binding treaty
d) Developing countries want the rich nations to make firm commitments to live up to their pledges for eg: the pledge to provide $100 billion a year by 2020 to poor countries
What impact will the US‐China deal have on global warming?
The graph of China’s commitments is very unclear with only 1 sanctity i.e. peak in year 2030. No clarity on the y‐axis (emissions) as to how high that peak will be. No clarity on x‐axis( time) as to whether emissions would plateau or decline quickly or slowly after that.
Moreover, China’s increase in emissions till 2030 will dwarf, US’s decreases and hence overall global emissions will continue to rise.
Global temperatures have risen 0.8 degrees Celsius since pre‐industrial times, and the U.N. climate talks are aimed at keeping that number from topping 2 degrees C .
The U.N.’s expert panel says that would require cutting global emissions by 40 percent to 70 percent by 2050 and to zero by the end of the century.

OIL PRICE
Major stakeholders:
a.
b.
c.
d.

OPEC (a 12‐member cartel of hydrocarbon rich countries)‐ Supply
US especially its Shale gas producers ‐ Supply
Developing countries – Demand
Developed countries ‐ Demand

How much have prices fallen

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Issues for IIM PI Process http://www.essaysforIIM.com From roughly $114 per barrel in June, prices began to hover around $90 in the second half of the year. Now it is being speculated that prices may even fall to the $40 level in the near future.
On Dec 1st , one benchmark, West Texas Intermediate (WTI) was trading at less than $65 per barrel.
Another global indicator, Brent Crude, stood just above $67 per barrel, tumbling further from the
$72 per barrel last week. These price levels are the lowest since 2009.
Some Facts and recent happenings:‐
OPEC – Supplies 30 million barrels per day (bpd). Has decided to keep production at that level for now while many analysts were expecting them to cut production as global prices have been falling. Led to a downward swing in prices.
The story of falling oil prices has two parts.
a. One reason for this decline was the discovery of huge non‐traditional hydrocarbon sources, especially shale reserves in North America. As crude oil prices rose, production of shale oil, otherwise considered economically unviable, became attractive. Graph below shows increased production of US mainly due to shale gas
b. The increase in oil and product stock levels in OECD countries coupled with the ongoing rise in non‐OECD inventories, are indications of an extremely well‐supplied market.

Why OPEC kept production constant:‐
a. The decision not to cut production went against the demand of OPEC members like Iran and
Venezuela, who had demanded that production be cut. A falling oil price is hurting these countries badly given that money earned from selling oil is a major source of revenue for the respective governments. Also, in the past, OPEC has been quick to cut production whenever prices have fallen and that has ensured that prices don't fall any further. But that doesn't seem to be happening this time around.
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Issues for IIM PI Process http://www.essaysforIIM.com b. Decision was motivated by existing oil inventories and the diminishing returns from any production cutbacks for the cartel. Any decrease in supply when economic growth is slow will lead to a decrease in consumption and not increase in prices of oil.
c. Many analysts believe that OPEC’s decision is a response to Shale oil threat. They want to bleed out competitors by making shale development unviable. The breakeven price for Shale has been estimated in the range of $50‐70 by various studies. As prices go south, shale players become unviable and could be driven out of market. [Has followed this strategy earlier in mid‐80s when it drove oil price from to just under $10 a barrel by 1986.]
d. It would also funding alternative sources of energy unviable and slow down the research and development process of new technologies. Risks and opportunities
The moment global growth is restored, prices may march north again. Hence, locking in long term prices is important for countries like India with a huge import dependence on oil
For India, this is a recipe for continuing dependence on imported oil and gas.
Cheaper oil means a lower import bill, a better current account balance and consequently, lower fuel inflation.
The good comes from the boost that lower oil prices provide to consumers and manufacturers in oil‐importing economies
There is also a positive distributional effect within these economies, although it is marginal rather than decisive. Because energy spending constitutes a bigger part of the budget for lower‐ income families, lower oil prices help counter some forces that have worsened the inequality of income, wealth and opportunities.
For one thing, they lead to immediate cuts in energy companies’ investment budgets, both in the traditional sector and among promising alternative technologies. As a result, longer‐ term energy potential will be undermined, both overall and in its more environmentally friendly components. The lower oil prices, which would normally be seen as producing “good” disinflation in oil‐ importing countries, could accentuate the general deflationary tendency in Europe—one that could be quite detrimental to the continent’s immediate and longer‐term economic well‐being.
A third risk relates to certain segments of the financial markets. Look for the plunge in oil prices to be disruptive for the commodities markets as a whole, and for securities issued by energy companies and oil‐exporting countries. Given the weight of investments in these securities in certain emerging‐market and high‐yield indexes, the result could mean generalized pressure to sell in these asset classes

PAYMENT BANKS
Background
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Issues for IIM PI Process http://www.essaysforIIM.com In the Union Budget 2014‐2015, the Hon’ble Finance Minister announced that: “RBI will create a framework for licensing small banks and other differentiated banks. Differentiated banks serving niche interests, local area banks, payment banks etc. are contemplated to meet credit and remittance needs of small businesses, unorganized sector, low income households, farmers and migrant work force”.
Key features of the Payments Banks guidelines are:
i)

Objectives: to further financial inclusion by providing (i) small savings accounts and (ii) payments/remittance services to migrant labour workforce, low income households, small businesses, other unorganised sector entities and other users.

ii) Eligible promoters :
c. Existing non‐bank Pre‐paid Payment Instrument (PPI) issuers; NBFCs, corporate Business
Correspondents(BCs), mobile telephone companies, super‐market chains, companies, real sector cooperatives etc
d. A promoter/promoter group can have a joint venture with an existing scheduled commercial bank subject to equity stake as per Banking Regulation Act, 1949.
e. ‘fit and proper’ with a sound track record of professional experience or running their businesses for at least a period of five years
f. Promoter's contribution: minimum initial contribution atleast 40% for first 5 years
g. Foreign shareholding: as per FDI policy for private sector banks iii) Scope of activities :
b. Acceptance of demand deposits. Will initially be restricted to holding a maximum balance of Rs.
100,000 per individual customer.
c. Issuance of ATM/debit cards. Payments banks, however, cannot issue credit cards.
d. Payments and remittance services through various channels.
e. BC of another bank, subject to the Reserve Bank guidelines on BCs.
f. Distribution of non‐risk sharing simple financial products like mutual fund units and insurance products, etc. iv) Deployment of funds :
a. The payments bank cannot undertake lending activities.
b. Separate SLR requirement:‐ required to invest minimum 75% of its "demand deposit balances" in Statutory Liquidity Ratio(SLR) eligible Government securities/treasury bills with maturity up to one year and hold maximum 25 per cent in current and time/fixed deposits with other scheduled commercial banks for operational purposes and liquidity management.

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Issues for IIM PI Process http://www.essaysforIIM.com v) Capital requirement: Minimum paid‐up equity capital shall be Rs. 100 crore with leverage ratio not less than 3% i.e. outside liabilities should not exceed 33.33 times its net worth viii) Other conditions:
a. The operations of the bank should be fully networked and technology driven from the beginning, conforming to generally accepted standards and norms.
b. The bank should have a high powered Customer Grievances Cell to handle customer complaints.

SHADOW BANKING
What is Shadow Banking?
Shadow banking is a universal phenomenon, although it takes on different forms. In advanced economies where the financial system is more matured, the form of shadow banking is more of risk transformation through securitization; while in the economically backward economies where financial market is still in a developing stage, the activities are more of supplementary to banking activities. However, in both the structures, shadow banking operates outside the regular banking system and financial intermediation activities are undertaken with less transparency and regulation than the conventional banking. In a sense, shadow banks are like icebergs ‐ more deeply spread than what they seem to be.
In the context of developing economies, shadow banks play a gainful role in credit delivery and financial inclusion as they can facilitate credit availability to certain sectors that might otherwise have difficulty in access to credit. They play both a substitute and complementary role for commercial banks as they are able to map the financing needs of the borrowers with the financing provision where the formal banking systems are confronted with regulatory constraints and/or where the formal banking system's requirements are onerous for the clients to comply with.
How are Shadow Banks Dissimilar to Banks?
Shadow banks, like conventional banks undertake various intermediation activities akin to banks, but they are fundamentally distinct from commercial banks in various respects.
1. First, unlike commercial banks, which by dint of being depository institutions can create money, shadow banks cannot create money.
2. Second, unlike the banks, which are comprehensively and tightly regulated, the regulation of shadow banks is not that extensive and their business operations lack transparency.
3. Third, while commercial banks, by and large, derive funds through mobilization of public deposits, shadow banks raise funds, by and large, through market‐based instruments such as commercial paper, debentures, or other structured credit instruments.
4. Fourth, the liabilities of the shadow banks are not insured, while commercial banks’ deposits, in general, enjoy Government guarantee to a limited extent.

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Issues for IIM PI Process http://www.essaysforIIM.com 5. Fifth, in the times of distress, unlike banks, which have direct access to central bank liquidity, shadow banks do not have such recourse.
While there may be stark differences in the way the shadow banks operate as compared to banks, sometimes there is only a thin line separating the two. For instance a regulated bank may float a Special
Purpose Vehicle (SPV) to hold some specific assets, with a view at removing them from its balance sheet.
Shadow Banking and Indian Economy
The type of entities which are called shadow banks elsewhere are known in India as the Non‐Banking
Finance Companies (NBFCs). Are they in fact shadow banks? No, because these institutions have been under the regulatory structure of the Reserve Bank of India, right from 1963 i.e. 50 full years before many in the world are thinking of doing so!
In 1996, in the wake of the failure of a big NBFC, the Reserve Bank tightened even more the regulatory structure over the NBFCs, with rigorous registration requirements, enhanced reporting and supervision.
Reserve Bank also decided that no more NBFC will be permitted to raise deposits from the public. Later when the NBFCs sourced their funding heavily from the banking system, thereby raising systemic risk issues, sensing that it can cause financial instability, the Reserve Bank brought asset side prudential regulations onto the NBFCs.

NBFCs
The ‘NBFCs’ of India include not just the finance companies, but also a wider group of companies that are engaged in investment, insurance, chit fund, nidhi, merchant banking, stock broking, alternative investments etc. as their principal business. NBFCs being financial intermediaries are playing a supplementary role to banks.
NBFCs especially those catering to the urban and rural poor, namely NBFC‐MFIs and Asset Finance
Companies have a complimentary role in the financial inclusion agenda of the country.
Further, some of the big NBFCs viz; infrastructure finance companies are engaged in lending exclusively to the infrastructure sector, and some are into factoring business, thereby giving fillip to the growth and development of the respective sector of their operations.
In short, NBFCs bring the much needed diversity to the financial sector.
Profile of NBFCs
The total number of NBFCs as on March 31, 2014 are 12,029 of which deposit taking NBFCs are 241 and non‐deposit taking NBFCs with asset size of Rs. 100 crore and above are 465, non‐deposit taking NBFCs with asset size between Rs. 50 crore and Rs. 100 crore are 314 those with asset size less than Rs. 50 crore are 11009.

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Issues for IIM PI Process http://www.essaysforIIM.com As on March 31, 2014, the average leverage ratio (outside liabilities to owned fund) of the NBFCs‐ND‐SI stood at 2.94, return on assets (net profit as a percentage of total assets) stood at 2.3%, Return on equity
(net profit as a percentage of equity) stood at 9.22% and the gross NPA as a percentage of total credit exposure (aggregate level) stood at 2.8%.
The Dangers and the Regulatory Challenges
The growing size and interconnectedness of the NBFCs in India also raise concerns on financial stability.
Reserve Bank’s endeavour in this context has been to streamline NBFC regulation, address the risks posed by them to financial stability, address depositors’ and customers’ interests, address regulatory arbitrage and help the sector grow in a healthy and efficient manner.
Some of the regulatory measures include identifying systemically important non‐deposit taking NBFCs as those with asset size of Rs. 100 crore and above and bringing them under stricter prudential norms (CRAR and exposure norms), issuing guidelines on Fair Practices Code, aligning the guidelines on restructuring and securitization with that of banks, permitting NBFCs‐ND‐SI to issue perpetual debt instruments, etc.
Just as the shadow banks (i.e. the NBFCs) in India are of a different genre, the dangers posed by them are also of different genre. Consequently, the regulatory challenges that we face today are different which are as follows:
First, there are law related challenges viz. o there are a number of companies that are registered as finance companies, but are not regulated by the Reserve Bank, o there are unincorporated bodies who undertake financial activities and remain unregulated, o there are incorporated companies and unincorporated entities illegally accepting deposits, o there are entities who camouflage deposits in some other names and thus illegally accepting deposits. o The law as it stands today is inadequate to deal with these issues. In order to correct these and initiate action against violations, we need to bring in suitable amendments to the statutory provisions. Reserve Bank is working with the government for such improvements in the law.
Secondly, as the entities, especially the unincorporated ones, can sprung in any nook and corner of the country and can operate with impunity unnoticed, but endangering their customers interest, we need arrangements and structures for effective market intelligence gathering. The Reserve Bank is restructuring its organisational setup, especially in its regional offices, for gathering market intelligence. Thirdly, empowering law and gathering intelligence by themselves are not sufficient. Enforcement of the law is a challenge. This is primarily because of the various agencies involved in regulating the non‐ banking financial activities of entities. Right from the central government ministries like finance and
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Issues for IIM PI Process http://www.essaysforIIM.com corporate affairs, agencies like CBI and FIU‐IND, regulatory agencies like the Reserve Bank, SEBI, the
Registrar of Companies, the state government agencies like the police and others, all have to share information and coordinate and cooperate to bring in an effective, timely and unified enforcement of the law. The Reserve Bank's State Level Coordination Committees (SLCC) are being strengthened and a National level Coordination Committee is also being considered.
Fourthly, the international requirement is that the shadow banks be brought under tighter regulations. G‐20 has already expressed it as a mission to be achieved by 2015. In our case, bringing them under regulation is not the issue, as they already are. The challenge for us is how differentially or how closely we should regulate the NBFCs?
Summary
To summarise, the shadow banks in India (i.e. the NBFCs) have been under regulation for more than
50 years; they subserve the economy by playing a complimentary and supplementary role to mainstream banks and also in furthering financial inclusion. Yet, they do pose dangers, but of different variety; it primarily relates to consumer protection. It is the constant endeavour of Reserve Bank to enable prudential growth of the sector, keeping in view the multiple objectives of financial stability, consumer and depositor protection, and need for more players in the financial market, addressing regulatory arbitrage concerns while not forgetting the uniqueness of NBFC sector.

NEW DEFINITION OF FDI
Foreign investment of 10% or more in a listed company will now be treated as FDI.
An investor may be allowed to invest below 10% and this can be treated as FDI subject to the condition that the FDI stake is raised to 10% or beyond within one year from the date of the first purchase. If the stake is not raised to 10% or above, then the investment can be treated as portfolio investment. Foreign Portfolio Investors include Foreign Institutional Investors (FIIs) and Qualified Foreign
Investors (QFIs).
Foreign investment in an unlisted company, irrespective of the threshold limit, may be treated as
FDI.

REFORMS IN POWER DISTRIBUTION
Reform of power distribution is today widely viewed as fundamental to improving commercial performance and financial viability of the power sector in India.
In recent years, a number of states have worked to improve the commercial performance of their state utilities, unbundling state entities, creating more independent regulatory systems, and putting in place measures to control losses and theft. However, progress has been difficult, and slower than many originally hoped.

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Issues for IIM PI Process http://www.essaysforIIM.com Besides a shortage of supply, poor T&D infrastructure and a large amount of pilferage are some of the key issues plaguing the power sector
Today, India’s annual per capita power sector consumption is at around 800 units, which is among the lowest levels in the world
A recent World Bank study has identified electricity distribution to the end consumer as the weak link in the sector.
It recommended freeing utilities and regulators from external interference, increasing accountability and enhancing competition in the sector to move it to a higher level of service delivery.
Total accumulated losses in the sector stood at $25 billion in 2011. These losses are concentrated among discoms and bundled utilities — State Electricity Boards (SEBs) and the State Power
Departments.
The Ministry of Power (MoP) has focused on implementing distribution reforms and has introduced several measures to further the process.
The initiatives include the enactment of the Electricity Act 2003 which provides for a framework for more competitive, transparent and commercially driven power sector.
The Act recognizes the need for a strategy that distinguishes urban power distribution from rural electricity supply.
It also facilitates establishment of participatory models for rural distribution including electric cooperatives, rural gram panchayats (local government), distribution franchisees, etc.
The other program focused on implementing distribution is the Accelerated Power Development
Reform Program (APDRP) to finance the modernization of sub‐transmission & distribution networks including a system of local management and energy accounting through widespread metering in every state utility’s distribution circles.
In November, the government approved three key projects in the power sector targeting improvement of transmission and distribution (T&D).
1. It approved Rs 43,033 crore rural electrification scheme, Deendayal Upadhyaya Gram Jyoti Yojana.
This scheme would replace the existing Rajiv Gandhi Grameen Vidyutikaran Yojana ( RGGVY). This should strengthen power distribution infrastructure in rural areas and help the government reach its goal of being able to provide power 24/7 across the country.
2. In addition, the government approved Rs 5,200 crore scheme for strengthening power transmission and distribution network in six North‐east states.
3. It also approved Rs 32,612 crore scheme for strengthening sub‐transmission and distribution network in the urban areas.
Easier and assured access to power will help boost the productivity of the manufacturing sector

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SECURITIES LAWS (AMENDMENT) BILL 2014
Securities Laws (Amendment) Bill 2014 passed in the Lok Sabha. By the virtue of the bill, Securities
Exchange Board of India (SEBI) will be empowered and strengthened to clamp down on fraudulent investment schemes and to seek information from any entity related to an investigation.
Key points in Securities Laws (Amendment) Bill 2014
SEBI will have the authority to seek relevant information and records from any person
Any pooling of funds in any unregistered scheme or arrangement, having corpus of Rs 100 crore or more, shall be deemed to be a collective investment scheme
It provides for express powers for the settlement (compounding)
Authorizes SEBI to set up Special Courts – to expedite trial with powers such as the authority to seek call‐data records
It provides SEBI powers of recovery of amounts
It empowers the institution to increase the penalty imposed by an adjudicating officer
SEBI will have the authority to conduct search‐and‐seizure operations related to probes under a designated court in Mumbai.
Section 15A‐HB of the SEBI Act has been amended and prescribed a minimum penalty to be slapped for each violation.
The law in its current form authorizes SEBI to carry out the search operations only after being permitted by the magistrate of the area, which compromises with the secrecy of the move. Previously, the Section
15A‐HB prescribed one level of penalties to be imposed for various offences but without any minimum level of penalty or range and without giving any discretion to the Adjudicating Officers

JUVENILE JUSTICE BILL, 2014 With a view to amend the Juvenile Justice (JJ) Act, 2000, the Union cabinet approved the Juvenile Justice
(Care and Protection of Children) Bill, 2014. The bill was introduced in the Monsoon session of Parliament in the Lok Sabha.
The bill will place minors above the age of 16, accused of heinous crimes like rape and murder, in the adults’ category. The current JJ Act, 2000 treats any person below the age of 18 as juvenile.
With the new Bill, Juvenile Justice Board will be empowered to decide whether a minor would be tried in a regular court or sent to a correctional centre. However, as per the provision of the bill, if a minor is sent to regular court, he would not be awarded life or death sentence if found guilty.
At present, the maximum punishment under the JJ Act is 3 years confinement at correctional centres. The amendment in the current law comes after it has been observed that minors were involved in many incidences of rapes reported over the last two years.
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Issues for IIM PI Process http://www.essaysforIIM.com As per the Bill:
The bill has the provision of up to 7 years of rigorous imprisonment, Rs 5 lakh fine or both for militant groups who recruit child soldiers or use children for any purpose.
The term ‘corporal punishment’ will include physical and verbal abuse.
Stringent punishment for those who subject a child to corporal punishment causing hurt and emotional distress to the child. Offenders to be punished with jail term of up to 6 months on first conviction. Depending on the seriousness of physical injury and mental trauma of the child, the offender could be punished with 3 to 5 years in jail and up to Rs 1 lakh fine.
In case the wrongdoer is an employee of an institution dealing with children, he could be dismissed from service for repeat offender. Even the management of such institution can be sentenced to up to 3 year jail and Rs 1 lakh fine for non‐compliance or non‐cooperation in any investigation. Ragging within or outside the institution will be dealt with strictly with the provision of punishing the offender with a sentence up to 3 years in jail and fined up to Rs 1 lakh.
An accomplice or anyone propagating ragging can also be punished with imprisonment. If India enacts the Bill it will join 40 other countries where corporal punishment is a penal offence.

HUMAN DEVELOPMENT: INTERNATIONAL COMPARISON
The Human Development Report (HDR) published by the United Nations Development Programme
(UNDP) estimates the human development index (HDI) in terms of three basic parameters: live a long and healthy life, to be educated and knowledgeable, and to enjoy a decent economic standard of living.
According to HDR 2013, India with an HDI of 0.554 in 2012 has slipped down a few notches with its overall global ranking at 136 (out of the 186 countries) as against 134 (out of 187 countries) as per HDR 2012
India has a long way to go as it is still in the medium human development category with countries like
China, Egypt, Indonesia, South Africa, and even Vietnam having better overall HDI ranking within the same category and Sri Lanka moving to the high human development category from medium in the
2012 HDI ranking despite years of internal conflicts.
The existing gap in health and education indicators in India as compared to developed countries and also many of the developing countries highlights the need for much faster and wider spread of basic health and education. Life expectancy at birth in India was 65.8 years in 2012, compared to 81.3 years in Norway, 78.7 years in the United States, 73.8 years in Brazil, 75.1 years in Sri Lanka, 73.7 years in
China, and the global average of 70.1 years.
However the Indian life expectancy figure is significantly higher than that of South Africa (53.4 years) which has higher HDI rank and even higher per capita income within the same category.

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Issues for IIM PI Process http://www.essaysforIIM.com The Indian performance in mean years of schooling (4.4 years) is not only much below that of countries like China, Brazil, Sri Lanka, and Egypt which have higher per capita incomes but also below that of Bangladesh and Pakistan which have lower per capita incomes. It is also much lower than the global average of 7.5 years.
Though lower in HDI ranking, in terms of average annual HDI growth rate for 2000‐12, India is well ahead of many countries with high and very high human development. With 1.50 per cent average annual HDI growth it is ahead of China (1.42), Brazil (0.73), Egypt (0.92), and Bangladesh (1.46), though it is behind Pakistan (1.74). While China and Egypt performed very well in terms of HDI growth in the
1980s and 1990s, there was a deceleration in the 2000s. On the other hand, India, which seems to have faltered in the 1990s, has picked up again during 2000‐12

INEQUALITY
The HDR measures inequality in terms of two indicators.
The first is the income Gini coefficient which measures the deviation of distribution of income (or consumption) from a perfectly equal distribution among individuals within a country. o For India, the income Gini coefficient was 33.4 during 2011‐12. In this respect, inequality in
India is lower than in many other developing countries like South Africa (63.1), Brazil (54.7),
Malaysia (46.2), China (42.5), Sri Lanka (40.3), the Russian Federation (40.1), Thailand (40.0),
Turkey (39.0), and Vietnam (35.6), as well as countries like the USA (40.8), Poland (34.1), and
Switzerland (33.7) that have otherwise very high HDI ranking. o Not only is inequality lower in India than many other countries, it has also decreased as reflected in a 9.2 per cent fall in its Gini coefficient from 36.8 during 2010‐11 to 33.4 during
2011‐12.
The second indicator is the quintile income ratio, which is a ratio of the average income of the richest
20 per cent of the population to that of poorest 20 per cent. o The quintile income ratio for India was 4.9 in 2011‐12. Countries like the United States (8.4),
Switzerland (5.5), Turkey (7.9), Poland (5.5), the Russian Federation (7.3), Brazil (20.6), China
(9.6), Malaysia (11.3), South Africa (25.3), Philippines (8.3), and Thailand (7.1) had higher ratios. o This implies that the inequality between the top and bottom quintiles in India was lower than in a large number of countries.
A related issue is the rural‐urban disparity. o One of the parameters used to estimate the rural‐urban gap is the monthly per capita expenditure (MPCE), which is defined as a value assigned to each household for measuring the level of living. o According to the findings of the NSS 68th round (2011‐12), the average MPCE based on URP estimates at current prices is Rs. 1278.94 and Rs. 2399.24 respectively for rural and urban
India indicating rural‐urban disparities . However, at constant prices (2004‐05), it is Rs. 703.42 and Rs. 1353.82.

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The real MPCE at constant prices has grown over seven years (2004‐05 to 2011‐12) by 25.9 per cent in rural India and by a higher 28.6 per cent in urban India.

SOCIO‐ECONOMIC PROFILE OF STATES AND INTER‐STATE COMPARISONS
Inter‐state comparisons of socio‐economic development of select states based on available indicators from different sources show some interesting results”
Population
o o o

Kerala is the best performing state in terms of the two indicators‐ Decadal growth of population (4.9 per cent) and sex ratio (1084) and is well ahead of other states.
Andhra Pradesh is a distant second in terms of population growth and third in terms of sex ratio with
Tamil Nadu in second place in terms of sex ratio.
Bihar has the highest decadal growth of population (25.4) and Haryana the lowest sex ratio (879).

Growth o o o o o Bihar is the best performing state in terms of growth rate of both gross state domestic product (GSDP)
2012‐13 (15.1 per cent) and average GSDP 2005‐06 to 2012‐13 (9.9 per cent) and also per capita income growth 2012‐13 (13.9 per cent).
Madhya Pradesh is another state that has performed well along all three indicators.
Gujarat and Kerala are the other two states that have performed well in terms of all these indicators and well above the all India average.
However, in terms of absolute values of GSDP and per capita income, Maharashtra and Haryana respectively are at the top. There is no single worst performer in terms of all these indicators.
While Tamil Nadu has the lowest growth in GSDP 2012‐13 and Assam the lowest average GSDP growth, Rajasthan has the lowest per capita income growth in 2012‐13.

Poverty o o o o

Poverty estimates indicate that Bihar which had the second highest poverty headcount ratio (HCR) in
2004‐05 moved to first place in 2011‐12 with the HCR at 33.7 per cent relegating Odisha to second place. While the all India poverty HCR was 21.9 per cent, states like Madhya Pradesh, Assam, and Uttar
Pradesh, besides Bihar and Odisha had above all India poverty levels in 2011‐12.
However, in terms of rural poverty, both Odisha and Madhya Pradesh were at the top followed by
Bihar and Assam.
Kerala had the lowest poverty (7.1 per cent) followed by Himachal Pradesh (8.1 per cent) and Punjab
(8.3 per cent).

Rural‐Urban Disparity

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o

Odisha followed by Bihar, Madhya Pradesh, and Uttar Pradesh had the lowest MPCE in rural areas and Bihar followed by Odisha, Uttar Pradesh, and Madhya Pradesh the lowest MPCE in urban areas in
2011‐12.
The highest MPCE could be seen in Kerala and Haryana in rural and urban areas respectively with least expenditure on food share in Kerala compared to other states.

Unemployment o o

o

o o Rural unemployment rate as per the usual status (adjusted) was lowest in Gujarat followed by Madhya
Pradesh and Rajasthan in both 2011‐12 and 2004‐05. The rural unemployment rate of 3 per thousand in 2011‐12 in Gujarat was much below the 17 per thousand all India average.
In the case of urban unemployment also Gujarat had the lowest rate. Urban unemployment at 8 per thousand in 2011‐12 in Gujarat was way below the all India level of 34 per thousand. Maharashtra with 23 per thousand was a distant second.
While Kerala’s unemployment rate (both urban and rural) has fallen in 2011‐12, it is still the highest.
This could be due to unemployment of educated particularly women who are in search of the right job. This is also indicated in the lower labour force participation rate (LFPR) of females in the age group
15‐59 years, with the LFPR of rural females being lower than the all India average. A fter Kerala, Assam followed by Bihar, West Bengal, Haryana and Odisha had high rural unemployment and Bihar followed by West Bengal, Andhra Pradesh and Haryana had high urban unemployment.

Health o o o Infant mortality rate (IMR) in 2012 was the lowest in Kerala (12) and highest in Madhya Pradesh (56) followed by Assam (55), Odisha, and Uttar Pradesh (53 each) against a national IMR of 42.
Birth rate was also lowest in Kerala (14.9) and highest in Bihar (27.7) against a national average of
21.6.
Death rate was lowest in Maharashtra and West Bengal (6.3) and highest in Odisha (8.5) against a national average of 7.0.

Education o o o o

Madhya Pradesh (135.2) followed by Bihar (127.7) had the highest GER in the age group 6‐10 years during 2010‐11 while Punjab (84.3) had the lowest.
GER in the age group 11‐13 years was highest in Himachal Pradesh (113.8) followed by Tamil Nadu
(112.3) and lowest in Bihar (64.6) followed by Assam (67.9).
The relatively lower 11‐13 years GER compared to 6‐10 years GER indicates that the transition of students from primary to upper primary classes is relatively lower than the entry to primary classes.
Pupil‐teacher ratios at all India levels of education‐primary, middle, and high schools‐are very high in states like Uttar Pradesh and Bihar affecting the quality of education.

Financial Inclusion

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Issues for IIM PI Process http://www.essaysforIIM.com o o The coverage of all types of commercial banks has been expanded in all the states, with a total number of 1,16,448 branches at all India level in 2013.
Uttar Pradesh (14,014) has highest number of bank branches followed by Maharashtra and Andhra
Pradesh in 2013.

ASER 2013: Main Findings
Some Positives o o

o o o

Rising enrolment: In 2013, 96.8 per cent of all 6‐14 year old children in rural India are enrolled in schools with the proportion not enrolled falling marginally, from 3.5 per cent in 2012 to 3.3 per cent in 2013.The proportion of girls in the age group 11 to 14 not enrolled in school dropped from 6 per cent in 2012 to 5.5 per cent in 2013. Private school enrolment of 6‐14 year olds has risen steadily from
18.7 per cent in 2006 to 29.0 per cent in 2013.
Better provision of girls’ toilets: The proportion of schools without toilets (girls + boys) has fallen from
8.4 per cent in 2012 to 7.2 per cent in 2013. The proportion of schools with separate toilets for girls has improved from 32.9 per cent in 2010 to 53.3 per cent in 2013.
More libraries in schools: The proportion of schools without libraries has declined from 28.7 per cent in 2011 to 22.9 per cent in 2013.
Compliance on pupil‐teacher ratio: There has been a consistent rise in the proportion of schools complying with RTE norms on pupil‐teacher ratio, from 38.9 per cent in 2010 to 45.3 per cent in 2013.
Improvement in drinking water facility: The proportion of schools with no provision for drinking water has declined from 17.0 per cent in 2010 to 15.2 per cent in 2013 with useable drinking water facility slightly improving from 73.0 per cent in 2012 to 73.8 per cent in 2013.

Some Negatives o o

o

o

Teacher — Classroom ratio is declining: There has been a decline in the proportion of schools with at least one classroom per teacher, from 76.2 per cent in 2010 to 73.8 per cent in 2013, exceptions being
Andhra Pradesh, Bihar, Gujarat, Haryana, Jammu & Kashmir, Jharkhand, Karnataka, Maharashtra, and
Mizoram. Declining basic reading levels: The percentage of children in standard V able to read a standard II level text declined from 53.7 per cent in 2010 to 47.0 per cent in 2013.
Decline in Arithmetic levels: The percentage of standard III children able to solve simple two‐digit subtraction problems fell from 39.1 per cent in 2009 to 26.1 per cent in 2013. However states like
Haryana, Himachal Pradesh, Jammu & Kashmir, Odisha, Punjab, Rajasthan and Uttar Pradesh are exceptions where arithmetic levels have risen for the classes III‐V.
Children’s attendance has declined: Children’s attendance (for standards I‐V) shows a decline from
72.9 per cent in 2010 to 70.7 per cent in 2013 in rural primary schools with exceptions being Bihar,
Karnataka, Odisha, and Tamilnadu.
Same classroom for different classes: More than half of standard 2 and standard 4 classes sit together in rural government primary schools. Source : Based on ASER 2013, Press Release dated 15 January
2014.

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SKILL DEVELOPMENT o o o o o o

Skill development is vital not only for reaping the benefits of demographic dividend, but also for greater inclusive growth.
To bridge the demand‐supply mismatch of skilled persons, the National Skill Development
Corporation (NSDC) has approved 158 proposals till March 2014.
The overall commitment to 129 training proposals and 29 sector skill councils stands at ` 2215.89 crore. A total of 19,54,300 persons have received job‐oriented skills training through NSDC skilling partners since 2010, of which 60 per cent have been placed in different sectors.
During 2013‐14, NSDC partners trained 10,05,074 people across a wide array of sectors ranging from healthcare, manufacturing, electronics and hardware, tourism, hospitality and travel to banking, f inancial services, retail, information technology, and textiles in 366 districts.
Under the special skills training initiatives called Udaan, a private sector‐led skills training programme for diploma holders, graduates, and post‐ graduates of Jammu & Kashmir, 61,893 people from 47 corporates across the country have been trained. By 31 March 2014, 4318 people had joined training from 36 corporates, of whom 1451 have completed their training. The target for the next year is to enrol 8000 people from Jammu & Kashmir.

HOW INDIA NEEDS TO FACE CLIMATE CHANGE
A closer look at climate data shows that while population and steep economic growth are the two reasons why India has become a major carbon emitter, it is much less responsible for climate change than many other comparable nations.
In the face of the much‐touted US‐China climate deal, India’s strategy of piggybacking on China to avoid taking compulsory carbon emission cuts has backfired. At the Copenhagen climate conference in 2009,
India joined hands with China to stave off pressure from the developed world to introduce binding emission cuts.
Since then, even as China publicly rejected any cuts, it entered into negotiations with the US to help reduce the pace of climate change, which eventually resulted in the latest deal. While the merits of the deal itself are much doubted, with most commentators accusing China of doing too little by agreeing to peak its carbon emissions by 2030, it is clear that the international pressure is now firmly on India—the third largest polluter in the world—to act decisively against climate change.
However, a closer look at climate data shows that while population and steep economic growth are the two reasons why India has become a major carbon emitter, it is much less responsible for climate change than many other comparable nation.

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Issues for IIM PI Process http://www.essaysforIIM.com Here are six charts that show how India should juggle the trinity of international pressure, its own development concerns and the need for a clean environment for its own sake.
Chart 1: The average Indian emits less than 25% carbon‐dioxide (CO2) of what an average
Chinese does, and barely 8% when compared with the average American. Even between 1990 and 2011, Indians were much less guilty of waging war against the environment than others. While India’s per capita emissions have doubled over this period, China’s have tripled. France and Sweden—which derive the bulk of their energy from nuclear and renewable resources, respectively— have the lowest per capita emissions in the developed world. Their figures are even lower than China’s, and have seen a 20% drop since 1990.
Chart 2: Despite the drastically low per capita emissions, India’s massive population means the country stands third in the list of carbon emitters.
However, even this doesn’t nearly put India in the same bracket as China, whose 25% share in global
CO2 emissions is five times that of India.
Since 1990, the share of the US in global emissions has come down by 6 %, though it continues to be very high at 17%. It is noteworthy that France and
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Issues for IIM PI Process http://www.essaysforIIM.com Chart 3: India’s figure for CO2 emitted per unit energy produced is below global average, and nearly 20% below China’s.
That’s somewhat surprising given India’s heavy reliance on coal to produce electricity. In fact, despite much superior technology, US emits more CO2 per unit energy than India. This is a crucial parameter which captures the main reason for global warming.
The global average for emissions per unit energy has remained constant since 1990, while constantly expanding energy production has meant that the amount of
CO2 has gone up unabated. Again, France and Sweden show the way. Owing to usage of clean fuels, the CO2 emitted by them per unit energy is less than half the global average. Chart 4: Energy intensity of gross domestic product (GDP) should be of most concern to
India, if it is to continue on the path to development without wreaking havoc on the environment like China has done. For every tonne of CO2 emitted, India generates $0.76 worth of GDP, much better than China’s $0.55, but well below the global average of $1.67.
According to the International Energy Agency, or IEA, better and cleaner technology has reduced the reliance of economic growth on energy usage by 23% between 1990 and 2011.
However, India’s progress on this front has been tardy.

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Issues for IIM PI Process http://www.essaysforIIM.com Chart 5: Clean energy sources are the only way to ensure meeting energy demands without irreversible climate change. On this parameter, non‐fossil fuels such as hydro
(water), nuclear and wind beat fossil fuels such as coal and gas so much so that energy generated from water is 250 times cleaner than that generated from coal. No wonder then that France and Sweden are models worthy of emulation.
Unfortunately, India is showing an insatiable appetite for coal to meet its need for industrialization. The 12th Five‐Year Plan estimates coal demand at 980 million tonnes, as opposed to 554 million tonnes for the 11th Plan. While there has been an increased emphasis on solar and wind energy in recent times, much more needs to be done.
Chart 6: The intergovernmental panel on climate change has warned that human migration owing to climate change will be one of the most difficult global problems to deal with. This is especially important to India since 98% of the 120 million climate migrants between 2008 and 2012 came from developing countries. That includes 9 million from India in 2012 alone, mostly within the country. In addition, low‐lying island nations face an existential crisis from rising sea levels for which global warming is majorly responsible. Kiribati in the Pacific has already started buying land in Fiji to gradually move its entire population to safety. Similarly, major Indian coastal cities are imperilled by rising sea levels. Agricultural productivity is being impacted as well.
Keeping the above in mind, the only way forward seems to be usage of cleaner fuels, so that India can continue to cater to its developmental needs, while at the same time doing its bit to preserve the environment. However, hyphenating India with China, which has turned into an economic powerhouse and has traversed this long journey without a hint of concern for the environment, and expecting India to accept compulsory emission cuts might be unwarranted.
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AGENDA FOR ECONOMIC REFORMS
The defining challenge in India today is that of generating employment and growth. Jobs are created by firms when firms invest and grow. Hence it is important to create an environment that is conducive for firms to invest. The recent business cycle downturn has seen a sharp decline in investment. Reviving investment, is therefore, on top of the government’s priorities.
Investments are made on the basis of long‐term growth prospects. The key to reviving investment in India lies in reviving the trend growth rate of the Indian economy.

Reforms are needed on three fronts:
i.
ii. iii. creating a framework for sustained low and stable inflation, setting public finances on a sustainable path by tax and expenditure reform, and creating the legal and regulatory framework for a well‐functioning market economy.

First, the government has to work towards a low and stable inflation rate through fiscal consolidation, moving towards establishing a monetary policy framework, and creating a conducive environment for a competitive national market for food. Initiation of reforms on these fronts will reduce inflation uncertainty and restore a stable business environment. Further, lower inflationary expectations would increase domestic household financial savings and make resources available for investment.
Second, public finances need to be put on a sustainable path. India needs a sharp fiscal correction, a new Fiscal Responsibility and Budget Management (FRBM) Act with teeth, better accounting practices, and improved budgetary management. Improvements on both tax and expenditure are needed to obtain high quality f iscal adjustment. The tax regime must be simple, predictable, and stable. This requires a single‐rate goods and services tax (GST), a simple direct tax code (DTC), and a transformation of tax administration.
Government expenditure reform involves three elements: shifting subsidy programmes away from price distortions to income support, a change in the focus of government spending towards provision of public goods, and a systems of accountability through a focus on outcomes. 2.7 Fiscal responsibility and tax and expenditure reform is a medium‐term agenda and likely to take two to three years to implement. The positive effects, however, are likely to become visible as soon as the government makes a commitment to some of these reforms. Improvements in credit ratings, lower inflation, lower cost of capital, and greater business confidence that would ensue will yield short‐term benefits in response to long‐term initiatives.
Third, the government faces the task of putting in place the legal foundations of a well‐functioning market economy for India. This must be a carefully executed project as it involves legislative,
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Issues for IIM PI Process http://www.essaysforIIM.com regulatory, and administrative changes. It involves building state capacity to allow businesses to operate in a stable environment. It involves setting up regulators with clear objectives, powers, flexibility, and accountability.
Theoretically, there are fundamental differences between the legal and regulatory framework of a command‐and‐control economy and a market economy. o In the former, economic activity is restricted to those activities that are permitted by the state. o In a market economy, the economy thrives because the state interferes only when there is
‘market failure’, i.e. monopoly power, asymmetric information or externalities. o As a consequence, laws permit all activities, unless the state specifically restricts them in the context of market failure. The restrictions need to be part of a known and predictable regulatory regime unlike now where a lot of restrictions‐well intentioned as they are—are not part of a stable framework.
The global economic downturn and structural weaknesses in the domestic economy has had an adverse impact on investment. Issues such as getting permissions for land use, raw materials, power, water, and other inputs, and also issues such as obtaining long term finance, as the financial sector is still not deep and developed, need attentions. The inflexibility of labour markets have prevented high job creation. The interventions existing in food markets also contribute to higher food inflation.
The liberalisation of 1991 focused on the industrial sector. While industry was liberalised and allowed to buy from, and sell to, anyone in the world, Indian farmers in many states, are still required to buy and sell only in the government‐designated Agricultural Produce and Marketing Committees (APMC) to licensed entities. Farmers are not allowed to sell their produce directly to the consumers. A national market for food is yet to develop
This reform agenda has three elements: short‐term stroke of‐the‐pen reforms, medium‐term reforms that can be undertaken through executive decisions or the Finance Bill, and long‐term reforms for institutional change.
Long‐term reforms involve the challenging task of building capacity and institutions that provide the foundations of a market economy. This, for example, includes changes in the legal and regulatory environment for factor markets, businesses, financial‐sector regulation, capital flows, and food markets. A well‐developed thought process for reform lies in the field of finance, where the Financial
Sector Legislative Reforms Commission (FSLRC) has drafted the Indian Financial Code, which proposes to transform the regulatory framework of Indian financial markets by bringing in a modern legal and institutional framework. Similar reform projects are required in many areas. The path to sustainable job creation and income generation is to move on all of the above.
Improving India’s long‐ term growth prospects will also feed back into the present and raise investment in the short run.

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INFRASTRUCTURE
The first wave of investment in infrastructure and natural resources, which began in 2002, has run into numerous problems, reflecting inter alia the complexities of PPP contracting and the limited capacity in the system.
Allegations of corruption, and interventions by investigating authorities and courts, have interrupted many projects and adversely affected firms. Problems of land acquisition and environmental regulation have led to stalled projects. The weakness in integrated planning has led to difficulties such as ports that lack railway lines or power plants that lack coal supplies.
Infrastructure projects are best financed through corporate bonds. However, other than issuance by large financial institutions, the corporate bond market in India has been largely missing. In the absence of a vibrant corporate bond market, infrastructure projects have resorted to borrowing from banks and in foreign currency. In the Indian experience, the leverage has often been mechanically set using rules such as 70:30 for debt: equity. In a sound financial system, the leverage of a project should be determined by financial firms based on an assessment of the risks faced by the project.
There is a distinction between developing new infrastructure assets, and operating them. Over the years, we may expect large scale assets in the hands of operating companies, while infrastructure developers with small balance sheets pursue new projects each year. This maturation has not yet worked out. Operating companies, which are low‐risk utilities, have not emerged in the required numbers. The modest balance sheets of developers have been loaded with ever larger assets.
Over‐leveraged firms have made mistakes in bidding based on over‐exuberant traffic projections and on the expectation of being able to renegotiate contracts should problems arise. The renegotiation process has sometimes faced allegations of misconduct and interventions by the courts.
These problems have come together to result in a large number of stalled projects, a balance sheet crisis for many infrastructure and natural resources firms, and difficulties for banks which have lent to them. Subsequently, the pace of investment in infrastructure and natural resources has declined.
The first wave of infrastructure investment in India has been grounded in an array of design flaws that now need to be addressed.

WHY LONG‐RUN MATTERS
In the conventional wisdom, there is a tension between the expedient pursuit of short‐term objectives and the need to nurture the foundations of sustained long‐term growth. With the emergence of a modern market‐based economy, however, nurturing long‐term growth influences the short term through four channels: expected GDP growth, valuation in the stock market, behaviour of households, and foreign capital flows.
The first channel runs through the expectations of GDP growth in the eyes of private firms, both foreign and domestic. When there is an expectation that India will have high GDP growth in the long term, these firms increase their investment in India, which boosts short‐term growth.
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Issues for IIM PI Process http://www.essaysforIIM.com The second channel runs through the stock market. The stock market forms expectations about dividend growth in the coming decade and builds this into the present stock price. When there is an expectation of high GDP growth in the long term, stock prices go up. This increases the gap between market value and replacement cost, which fuels investment. This boosts short‐term growth.
The third channel runs through the behaviour of households. When there is an expectation of high
GDP growth in the long term, households become more confident about their income in the future, and respond by saving less, including through borrowing more. This fuels demand in the economy and boosts short‐term growth. The rise of mechanisms through which the formal financial system is able to give loans to individuals has increased the magnitudes involved. In addition, conf idence about low inflation will reduce the attraction of physical assets for households.
The fourth channel runs through the behaviour of foreign investors. The outstanding fact about international portfolio formation is ‘home bias’, where global investors place too little money in EMs like India. When there is an expectation that India will have high GDP growth in the long term, this creates incentives for global financial firms to build organisational capital in connection with India.
Increased capital flows into India boost short‐term growth.
These channels are stronger in India today when compared with India of the past and also when compared with many other countries.
This encourages focus of policymakers upon the initiatives that will make a difference to long‐term GDP growth in India. In addition, focus on making it easier to do business and providing a stable policy environment will make investment attractive. The market economy is likely to respond to these initiatives with enhanced investment, enhanced consumer demand, and enhanced capital flows, which can revive investment and yield high GDP growth in the short run.

FIVE PRONGED STRATEGY TO CONTROL INFLATION
The strategy to control inflation has to take into account the following factors:
1. Move to market prices: It is important to be cognizant of the fact that deregulation of diesel prices, power–sector reforms, and generally the move from administered to market‐determined prices will release suppressed inflation in the short run. Nevertheless, the consequent reduction in subsidy and fiscal deficit will have the salutary effect of reducing inflation.
2. Improving efficiency of public programmes and breaking the wage‐price spiral: The projects selected for schemes like the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) do not improve the productivity of the agricultural sector commensurately. The increasing wages under such schemes have reportedly created shortage of labour in the agricultural sector as well as caused a wage‐price spiral. The solution lies in selection of productivity enhancing projects for ambitious public policy programmes like the MGNREGS.
3. Rationalization of government support to farmers: If the policy of supporting farmers through MSP and procurement is to continue, the MSP should be scrupulously linked to the cost of production.
Procurement should not be open‐ended, and the practice of some state governments of charging as high as 14‐15 per cent mandi fee/tax and paying high bonuses over and above the MSP must be
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Issues for IIM PI Process http://www.essaysforIIM.com discouraged. Experience has shown that the Food Corporation of India (FCI) has not been able to release enough stocks in the market to soften cereal prices while recovering its economic cost. While farmers can be incentivized by gradually removing restrictions on exports, the FCI can learn to procure stocks from markets more efficiently and manage risks through the futures market.
4. Role of APMC Acts: The State Agricultural produce marketing committee (APMC) Acts have created monopolies and distributional inefficiencies. They constitute a major roadblock in the way of creating a national market for agricultural commodities. Apart from breaking the monopoly and dissuading state governments from treating the APMCs as liberal sources of revenue, substantive efforts have to be made to create alternative trading platforms in the private sector where it is possible to reduce the layers of intermediation. Since this may take time, fruits and vegetables should be taken out of the purview of the APMC Acts immediately. A processor should be able to buy directly from farmers without having to pay any mandi fee/tax to the APMC.
5. Role of public deficits: Fiscal deficit should be brought down by setting stringent time‐bound targets under the Fiscal Responsibility and Budget Management (FRBM) Act

URJIT PATEL COMMITTEE
An expert committee headed by Urjit R. Patel, Deputy Governor of the RBI was appointed on to revise and strengthen the monetary policy framework. The main objective of the committee was to recommend what needs to be done to revise and strengthen the current monetary policy framework with a view to making it transparent and predictable.
The group made the following recommendations with regard to managing inflation in the country:
1. CPI (combined) should be used as the nominal anchor for a flexible inflation targeting (FIT) framework. The choice of CPI as nominal anchor was mainly on account of the fact that the CPI closely reflects cost of living and has larger influences on inflationary expectations than other anchors.
2. Target rate of inflation should be 4% with a tolerance band of 2% to be achieved in a two‐year time frame. 3. The transition path to the target zone should be graduated to bring down inflation from the current level of around 10 per cent to 8 per cent over a period not exceeding 12 months and to 6 per cent over a period not exceeding the next 24 months.
4. Administered prices and interest rates should be eliminated as they act as impediments to monetary policy transmission and achievement of price stability.

Some Major Issues in India's Merchandise Trade Sector
India's export sector is yet to take off in terms of share in world exports, though it has had bouts of high growth at different stretches of time. Some important issues in this sector are the following:
Product diversification: While there has been market diversification and compositional changes in
India's export basket, not much of demand‐based product diversification has taken place.
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In the top 100 imports of the world at four‐digit HS level in 2013, India has only five items with a share of 5 per cent and above. o Most of the items in the top 100 world imports include the three Es— electronic, electrical, and engineering items—and some textiles items. Though the gain in shares of engineering goods in recent years is a positive sign, India lags behind many other competing countries. o Special attention needs to be given to the electronics hardware sector which virtually collapsed with the signing of the Information Technology Agreement (ITA)‐1 by India at a time when India's semiconductor sector was at a nascent stage of development, while that of newly industrialized countries (NICs) and developed countries had already taken off. o Till now our focus was on exporting what we can (or supply based), now we have to shift to items for which there is world demand and we also have basic competence. A demand‐based export basket diversification approach with a perceptible shift to the three Es could lead to greater dividends for India.
Export infrastructure: Export infrastructure, particularly ports‐related infrastructure, which affects trade, needs immediate attention. Even the best of our ports do not have state‐of‐the‐art technology as in Singapore, Rotterdam and Shanghai. Port infrastructure issues include poor road conditions and port connectivity, congestions, vessel berthing delays, poor cargo handling techniques and equipment, lack of access for containerized cargo, and frequent EDI server down or maintenance, resulting in multiple handlings, increased lead time, high transaction costs, and thus loss of market competitiveness. Export infrastructure should be built on a war footing. Just as drastic changes have been brought about in India's airports and metro rail, sea ports should be the immediate priority.
Focus on useful regional trading blocks: Some FTAs/RTAs/CECAs of India have led to an inverted duty structure‐like situation with import duty on some finished goods being nil or lower than the duty on raw materials imported from other countries. So a reality check of existing RTAs//FTAs/CECAs is needed by evaluating the performance of the items for which duty concessions have been given along with the impact on domestic production. Meanwhile there is also need to have some new useful
RTAs/FTAs/ CECAs, for some of which negotiations have already started. More involvement of stakeholders could also help in ironing out differences.
Inverted duty structure: An inverted duty structure is making Indian manufactured goods uncompetitive against finished product imports in the domestic market as finished goods are taxed at lower rates than raw materials or intermediate products. This discourages domestic value addition.
This inversion is not solely because of basic customs duty but also other additional duties. The regional/ bilateral FTAs with countries like Japan and South Korea and ASEAN, have added to a new inverted duty‐like situation with some final goods of these partner countries having nil or low duty while materials for these items from other countries have higher duty. Inverted duties are found in different sectors. This needs to be avoided and there should be the right balance between different stakeholders. Export promotion schemes: There are multiple and overlapping export promotion schemes with many focus markets and focus products with items and markets getting added each year in the foreign trade policy. One thing that is visible even from the short select list of trade policy measures is the multiplicity of schemes and concessions that are also periodically extended. There is need to
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Issues for IIM PI Process http://www.essaysforIIM.com rationalize the export promotion schemes to a bare minimum which can also reduce transaction costs and trade litigations.
SEZs: A clear signal needs to be given for Indian SEZs as fresh investments are slowing down in recent years and the greenfield SEZs have not really taken off full swing. While the new manufacturing zones
(NMZ) are being planned, a lot of investment has already been made in SEZs waiting to be tapped to the full potential. There are also areas where SEZs are worse off than domestic tariff area (DTA) units as in the case of nonapplicability of FTA concessions when SEZs sell in DTAs.
Trade facilitation: Greater trade facilitation by removing the delays and high costs on account of procedural and documentation factors, besides infrastructure bottlenecks is another major challenge.
As per the World Bank and International Finance Corporation (IFC) publication Doing Business 2014,
India ranks 134 in ease of doing business with Singapore at first place and China at 96. In trading across borders India ranks 132, Singapore 1, and China 74. India needs 9 export documents compared to 3 in Singapore and 8 in China. Time to export is 16 days in India and 6 in Singapore. The number of import documents needed is 20 for India and 4 for Singapore. Cost of exports per container is US$
1170 in India, US$ 460 in Singapore, and US$ 620 in China and cost of imports per container is US$
1250 in India, US$ 440 in Singapore, and US$ 615 in China. There are also inter‐ministerial delays. The present move towards integration of related ministries is a step in the right direction, though a lot more needs to be done. Policy announcement and issue of notification should happen simultaneously.
Intertwining of domestic and external‐sector policy: While a stable agri export policy is needed, any domestic shortage or excess affects exports. Similarly external shortages/ excesses affect the domestic sector. So a smooth intertwining of domestic and external‐sector policies particularly for agriculture is needed. Advanced economic and market intelligence to avoid major mismatches is also necessary. These issues, if addressed, could lead to exponential gains for India's exports.

MAKE IN INDIA OPPORTUNITY
1. India has failed to ride the manufacturing wave that helped so many countries in Asia emerge out of mass poverty. PM Narendra
Modi’s exhortation to companies to “make in India” is one indication that he wants to replicate the Asian manufacturing success stories in India. One popular depiction is of
China as the factory of the world while India is viewed as the global back office. The reasons for this are complex. Yet, the harsh fact is that India has failed to build enough factories to provide jobs for the millions who are leaving farms.

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Issues for IIM PI Process http://www.essaysforIIM.com 2. There is an opportunity to get back in the game. Economic history tells us that industrialization follows an inverted U‐pattern.
Very poor countries dependent on farming do not have much manufacturing. The share of factory output begins to grow as countries develop. Manufacturing later cedes space to modern services in affluent societies. The share of manufacturing in economic output begins to accelerate when the average income of a country in terms of purchasing power parity is around $5,000. It peaks when the average income is $10,000. According to World
Bank data for 2013, India has an average income of $5,410 that is close to the level when manufacturing takes off while China has an average income level of $11,904 when manufacturing is expected to peak as a proportion of any economy. 3. Future success will depend on strategic clarity. A 2012 study by McKinsey Global
Institute shows that global manufacturing is not monolithic. There are five variants: global innovations used for local products such as cars, regional processing industries such as food, manufacturing activities such as petroleum refining that use energy or commodities intensively, global technology innovations such as electronics and labour‐intensive production for exports such as textiles. A country as large as India may have to straddle several of these categories if it is to build a diversified industrial base that will give the country strategic depth in terms of geopolitics.

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Issues for IIM PI Process http://www.essaysforIIM.com 4. The nature of the global supply chain matters.
Many Asian countries have progressed by linking to the massive supply chains that connect the global economy. If we see the economics of the iPod to see how value is shared in the complex manufacturing process, the lower value work is done in Asia while the more innovative stuff is done in the US. The Narendra Modi government will have to figure out where India can be positioned in similar supply chains.

5. Excessive regulation still hobbles manufacturing and India is one of the most unfriendly places to do business: policy uncertainty, poor infrastructure, rigid labour laws and the “Inspector Raj” are just some of the common complaints. Powerful companies with the requisite political contacts can sail through these rough waters but the small entrepreneur is often at his wits’ end. There is already speculation that the Modi government will try to make
India a less tough place to do business.
Here is a look at what starting a new business entails in India.

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Make for India or Make in India – The debate begins! With RBI governor Raghuram Rajan providing the strongest critique to the government’s Make in India strategy the fire to the debate has been kindled. It is a nuanced statement made by the RBI governor and his import can be understood clearly as below:‐
a) He has said that given the huge demand potential for India, make for India, albeit in India, may be a better strategy.
b) Cautioned against an export‐led strategy but clarified that through his ‘Make for India’ he is not advocating ‘export pessimism’.
a. A strategy for export‐led growth involves subsidizing exporters with cheap inputs as well as an undervalued exchange rate might not work simply because of current demand conditions i. Slow global economic recovery, especially in the industrial countries is expected atleast for next 5 years. ii. Other emerging markets certainly could absorb more, and a regional focus for exports will pay off. iii. Another question is if the world as a whole would be able to accommodate another export‐led China
b. An incentive driven approach leads to build‐up inefficiencies in the system and is not self‐ sustaining as removal of incentives would make them uncompetitive once again.
c. Moreover, not only are their costs to provide incentives in the form of subsidies, given the information age the buyers are aware of incentives and hence negotiate contracts taking into account the incentives. Hence, a part of the incentives flow to foreign nationals. c) Cautioned against Import‐substitution strategy as it may not work in the current global economic scenario as it as an era of Global Value Chains and we cannot be seen by the world as trying to curb imports.
a. An import substitution strategy creates barriers leads to reduced domestic competition, creating inefficient producers leading to increased costs to consumers.
b. Instead we need to be more open and create an environment that makes our firms able to compete with the rest of the world, and encourages foreign producers to come and take advantage of our environment to create jobs in India
d) Cautioned against picking a particular sector such as manufacturing for encouragement simply because it has worked well for China.
a. The main focus of the government should be on creation of a generic environment with a very high ‘Ease of Doing Business’. Which sector to invest in and focus should be left to the entrepreneurs. We should focus on provide the public goods that are the requirement of each sector and provide them at a faster renewed pace. For eg: MSMEs will benefit more if we provide multiple product quality certification agencies, marketing support by building platforms to sell and a finance platform to sell receivables.
e) This means we have to work on creating the strongest sustainable unified market we can, which requires a reduction in the transaction costs of buying and selling throughout the country, improvements in the physical transportation network, more efficient and competitive
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Issues for IIM PI Process http://www.essaysforIIM.com intermediaries in the supply chain from producer to the consumer. A well‐designed GST (goods and services tax) Bill, by reducing state border taxes, will have the important consequence of creating a truly national market for goods and services, which will be critical for our growth in years to come

VULNERABILITY COMPARISON OF INDIAN ECONOMY
Should India still be counted as a member of the Fragile
Five? India, Brazil, Indonesia, Turkey and South Africa saw their currencies come under fire in those volatile weeks because of their lethal combination of high current account deficits and low real interest rates. India is less fragile now than it was a year ago, despite some soft spots. Here are five charts that show how India has reduced its vulnerability to external crises.
1. Current account deficit has narrowed
India has improved its current account deficit (CAD) the most among the Fragile Five. RBI’s quantitative restrictions of gold imports helped. The trade deficit narrowed as exports gained, while below‐potential growth kept imports under check. Exports continue to grow strongly and analysts are predicting that the current account deficit will remain at these levels.
2. Foreign exchange reserves go up
In the past one year, India has stocked up on its foreign exchange reserves at a pace second only to Indonesia’s among the Fragile Five. The improvement in the trade balance plus capital inflows owing to a pick‐up in investor confidence has allowed the central bank to add $36 billion to forex reserves in the past year. 3. Short‐term external debt is decreasing
The increase in reserves and a fall in short‐term debt have helped cut back the rupee’s vulnerability. India has improved the most when it comes to short‐term debt as a proportion of forex reserves. short‐term debt as a

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Issues for IIM PI Process http://www.essaysforIIM.com percentage of reserves has come down to 57.4% compared with 59% a year ago. 4. Fiscal pressures are easing
The government’s commitment to bring down the budget deficit is genuine, not least because of the threat of a sovereign downgrade. A slightly improved fiscal deficit for the last financial year means that the twin deficit number (current account and fiscal deficit) has come down by 3.6 percentage points for
India, the most among the Fragile Five.

5 Retail inflation is down
India no longer has the highest inflation among the
Fragile Five. In fact, it has done better than the others in the battle against rising prices even though price rise is still too high for comfort. High domestic inflation tends to make exports uncompetitive, pushing up the trade deficit and putting the currency under pressure. The combined trend since July 2013 for the current account deficit, fiscal deficit and inflation suggests that economic imbalances in India are now less acute.

PM JAN DHAN YOJANA
In his maiden Independence Day speech from the ramparts of the Red Fort, PM Narendra Modi announced a new financial scheme named ‘Pradhan Mantri Jan Dhan Yojana’ to help the poor open bank accounts which will come bundled with a debit card and life insurance cover.
PM Modi observed that there are crores of families that have mobile phones, but no bank account.
He stressed that access to banking services is crucial to protect the poor from falling prey to moneylenders and increasing cases of suicides by farmers who fall in this trap.

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Issues for IIM PI Process http://www.essaysforIIM.com The new scheme has a very different approach from the financial inclusion approach so far. The scheme seeks to provide a bank account to every poor in the country, and the account holder will be provided a debit card and a life insurance cover of Rs 1 lakh.
The government has set a target of 7.5 crore new accounts by 2018 via regular brick‐and‐mortar branches, deviating from UPA’s initiative of banking services in cities with certain minimum population. The Union Cabinet has already approved the two‐phase financial inclusion scheme under which bank accounts will be opened for 15 crore poor persons with an overdraft facility of Rs. 5,000 and accident insurance of Rs.1 lakh.
Key features of ‘Pradhan Mantri Jan Dhan Yojana’:
Rs.5,000 overdraft facility for Aadhar‐linked accounts
Ru Pay Debit Card with inbuilt Rs.1 lakh accident insurance
Minimum monthly remuneration of Rs.5,000 to business correspondents who will provide the last link between the account holders and the bank.

COOPERATIVE FEDERALISM
Cooperative federalism is a concept of federalism in which national, state, and local governments interact cooperatively and collectively to solve common problems, rather than making policies separately but more or less equally (such as the dual federalism of the 19th century United States) or clashing over a policy in a system dominated by the national government.
This is the first time in three decades that a single party has won enough seats to not have to rely on smaller regional parties for survival. The regional parties play a crucial role in India’s fragmented political landscape by representing people from the country’s diverse provinces. However, their regional focus has sometimes militated against larger national goals paralyzing several domestic and foreign policy decisions.
India’s federal structure operates on a complicated power‐sharing model. Technically, the federal government (known as the “Centre”) enjoys broad decision making powers. But, provincial governments’ cooperation is crucial to operationalize key policy decisions. The Centre may announce new airports, allow foreign companies to invest in mines and power plants but the land required to build these has to be acquired by the states. In India, land has not only commercial but also emotional value, making decisions over its use an easy way to stir up opposition. Protests—spontaneous or engineered—are politically expensive for regional parties who use their local popularity as their calling card. It is easy for them to choose the path of least resistance and place myopic political considerations above long‐term developmental goals. It takes strong political skills and smart policymaking to eliminate slips between intention and execution.
It is in this context that Mr. Modi’s talk of “cooperative federalism” holds promise. States, especially those ruled by parties in opposition, often accuse the Centre of step‐motherly treatment. Perhaps wary of this,
Mr. Modi used his maiden parliamentary address to praise state governments. In a country where
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Issues for IIM PI Process http://www.essaysforIIM.com symbolism heavily influences perceptions, such acts can yield rich dividends. Having been a state leader himself—he was Chief Minister of Gujarat for over a decade—Mr. Modi knows the game too well. He stormed to power on the promise of replicating his “Gujarat Model” of development nationally and knows the costs of non‐delivery are high. He has acknowledged that the “Gujarat Model” isn’t a homogenous
“one‐size‐fits‐all” model, but rather, a bespoke approach to development that requires him to work closely with leaders from different states.
Admirably, he avoided speaking from an assumed position of superiority. Welcoming alternate developmental models, he suggested that states compete with each other to come up with models that best suit their needs. It seems he is looking to play in government the role a venture capitalist would play in business—that of an enabler who sets up people for success. He was known for his CEO‐style approach to governance in Gujarat and has indicated his inclination to continue doing so in New Delhi. In another classic management soft touch, he questioned why the annual Chief Ministers’ conference should have the Prime Minister seated on the stage and the Chief Ministers below when it can be a round table discussion of equals. When the power distance between states and the federal government reduces, policy actions can be better coordinated and the states become equally invested in decisions and outcomes. The states have much to gain by responding positively to Mr. Modi’s overtures. With investor sentiment buoyant and the global economy on the rebound, there will be plenty of opportunities to add local jobs, build enduring infrastructure, and create productive assets. These will improve the stocks of the Chief
Ministers in their home states and force laggards on the path to reforms. One state’s loss will be another’s gain, and any lost opportunity will be hard to defend for the states in the face of Mr. Modi’s open commitment to collaborate with state leaders cutting across party lines. Early indications suggest that Mr.
Modi’s strategy may be working already—twenty‐one Chief Ministers have met Mr. Modi in just over a month since his inauguration. Whether Mr. Modi can transform himself from a strongman to a statesman will depend on his ability to convert promise to performance. It will be a remarkable achievement if Mr.
Modi’s cooperative federalism reshapes Centre‐State relations.

ZERO DEFECT, ZERO EFFECT
At a time when India's "right to grow" pitch caused concern among environmentalists sceptical about New
Delhi's commitment to cut greenhouse gas emissions, Prime Minister Narendra Modi's "zero defect and zero effect" remark came as a clear message that the country would not compromise on its goal of environmental protection.
Asking small and big industrialists and youth not to compromise on quality of products and environment,
Modi said, "Don't compromise on two points ‐ first zero defect and second zero effect".
Let's think about making our product which has 'zero defect' so that it does not come back (get rejected) from the world market and 'zero effect' so that the manufacturing does not have an adverse effect on our environment", said the Prime Minister while delivering his maiden Independence Day speech.

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Issues for IIM PI Process http://www.essaysforIIM.com While exhorting industry to make India the manufacturing hub of the world, PM said that he is confident that we would achieve our goals if we carry our dream of manufacturing sector with zero defect and zero effect. His categorical remark gives a clear message that the country will move on its low‐carbon and sustainable growth trajectory while adopting clean technology and renewable energy in a big way.
It also assumes significance ahead of the New York climate summit which is being organized by the United
Nations (UN) on September 23 to give a political momentum to the climate change negotiations before coming out with a global climate deal in Paris next year.
Reacting to Modi's remark, UN Intergovernmental Panel on Climate Change (IPCC) chief, R K Pachauri said,
"It has been quite clear right from the beginning that the Prime Minister is very much concerned about climate change. The remark shows his commitment to achieve the twin goals of development and environmental protection. Even his remark and overemphasis on cleanliness has direct bearing on environment". Asked how the country would go for this amid varied challenges on different fronts, Pachauri told that
India would do this by making it a "people's movement". He said, "Government alone cannot do this. It should be a people's movement. We have to tell the people that both development and environment protection can go together if we adopt the right approach".
Giving an example of air pollution and its effect on human health, the IPCC chairman said, "People would surely understand it if we tell them about the co‐benefits of various measures to protect environment".

DIGITAL INDIA
Digital India is an initiative of Government of India to integrate the government departments and the people of India and to ensure effective governance.
It also aims at ensuring the government services made available to citizens electronically by reducing paperwork. The initiative also includes plan to connect rural areas under high‐speed internet networks. Digital
India has three core components. These include creation of digital infrastructure, delivering services digitally and digital literacy.
It will be an inter‐ministerial initiative where all ministries and departments shall offer their own services to the public Healthcare, Education, Judicial services etc. The Public‐private‐partnership model shall be adopted selectively.
However, the initiative also lacks many crucial components including lack of legal framework, absence of privacy and data protection laws, civil liberties abuse possibilities, lack of parliamentary oversight for e‐surveillance in India, lack of intelligence related reforms in India, insecure Indian cyberspace, etc. These issues have to be managed first before introducing DI initiative in India. Digital India project is worth exploring and implementation despite its shortcomings that can be rectified before its implementation. © EssaysforIIM.com 2014‐15

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TWO FACTOR IDENTIFICATION ISSUE
The RBI has shut the overseas payment gateway for credit card transactions within India, saying that the rules need to be followed with respect to e‐commerce credit card transactions “essentially taking place between two residents in India”.
This means that firms such as Uber will have to follow the two‐step authentication procedure that it was able to evade by virtue of having an overseas payment gateway.
2 Factor authentication means – when a consumer buys something online using credit or debit card there needs to be an additional means of authentication, such as “Verified by Visa”, “3D Secure” or generation One Time Password(OTP)
Serves as an effective prevention mechanism. In fact, EU has mandated multi‐factor authentication starting Feb 2015
Initially, RBI had made it mandatory for banks to put in place additional authentication / validation based on information not visible on the cards for all on‐line card not present (CNP) transactions
While some companies implemented it, other’s still did not do it various reasons including that they were using foreign payment gateways which does not come under the purview of RBI.
This year, extended the rule to credit/debit cards and other payment gateways
Additionally, they will need to tie‐up with an Indian bank payment gateway, without which Indian consumers cannot make purchases.
This creates a barrier for multinational e‐commerce companies from debiting charges directly from the customer’s credit/debit cards.
The apex bank asked banks to make sure that payments should be in rupees in cases when the credit card is not presented physically. The move from RBI will have an immediate impact on the much contended taxi business, especially Uber, which has swiftly attracted users in India. The San Francisco based company has so far been able to charge credit cards of users without authentication. The users of Uber are automatically charged at the end of their ride based on card details furnished at the time of enrollment.
They are able to do so because authentication is not needed when someone buys from websites based overseas. This loophole has now been closed by the central bank.
The RBI has clarified that “such camouflaging and flouting of extant instructions on card security, which has been made possible by merchant transactions (for underlying sale of goods / services within India) being acquired by banks located overseas resulting in an outflow of foreign exchange in the settlement of transactions, is not acceptable as this is in violation of directives issued under the Payment &
Settlement Systems Act 2007 besides the requirements under the Foreign Exchange Management Act,
1999”.
In order to prevent fraudulent activities the central bank had made it mandatory for banks to put in place additional authentication based on information not visible on the cards for all online transactions.

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MINSK AGREEMENT
On September 5 2014, Representatives of Ukraine, the Russian Federation, the Donetsk People’s Republic
(DPR), and the Lugansk People’s Republic (LPR) inked the Minsk Agreement (2014) to stop the war in the
Donbass region of Ukraine. The agreement was inked after widespread talks in Minsk, Belarus, under the patronage of the Organization for Security and Co‐operation in Europe(OSCE).
The settlement, which followed numerous earlier efforts to stop fighting in the Donbass, put into action an instantaneous ceasefire. Earlier at the NATO Wales Summit 2014, NATO leaders and European Union leaders expressed profound attentiveness and also enunciated about dialogue for a ceasefire. NATO leaders and Ukraine considers that rebels are equipped by the Russia.
It was drawn‐up by the Trilateral Contact Group on Ukraine, which comprised of representatives from
Ukraine, Russia, and the OSCE. The protocol of the Minsk Agreement consists of 12 points:
Confirm an instant bilateral ceasefire.
Confirm the supervising and confirmation by the OSCE of the ceasefire.
A decentralization of power, via adoption of the law of Ukraine“about local government provisional arrangements in some areas of Donetsk and Luhansk Oblasts” (law on the special status). Confirm a long‐lasting observation of the Ukrainian‐Russian border and confirmation by the OSCE with the establishment of security zones in the border regions of Ukraine and the Russian
Federation.
To instantly let go all hostages and unlawfully imprisoned persons.
A law on checking the trial and sentence of persons in link with the events that have taken place in some areas of Donetsk and Luhansk Oblasts.
Resume the comprehensive national dialogue.
To take courses to better the humanitarian condition in Donbass.
Confirm speedy local elections in agreement with the law of Ukraine “about local government provisional arrangements in some areas of Donetsk and Luhansk Oblasts”
Pull out the unlawful armed groups, military equipment, as well as fighters and armed forces from
Ukraine.
To implement the program of economic recovery and reconstruction of Donbass region.
To deliver personal security for the members in the discussions.

WILFUL DEFAULT
“The wilful defaulter tag is a powerful weapon in the hands of creditors for resolving distressed assets. It shuts out access to credit within the Indian financial system for a borrower,” RBI Governor stated without naming Vijay Mallya, who was recently declared by Union Bank of India (UBI) to declare as a willful defaulter. Definition of “wilful default” as per RBI:‐
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Issues for IIM PI Process http://www.essaysforIIM.com A “wilful default” would be supposed to have happened if any of the subsequent events is observed:‐
Deliberate non‐payment of the dues regardless of sufficient cash flow and good networth: The unit has defaulted in meeting its payment/ repayment commitments to the lender even when it has the capacity to honor the stated obligations.
Siphoning off of funds to the disadvantage of the defaulting unit: The unit has defaulted in meeting its payment/ repayment commitments to the lender and has not utilized the finance from the lender for the definite reasons for which finance was availed of but has diverted the funds for other reasons.
Assets financed either not been purchased or been sold and proceeds have been mis‐utilized,
Misrepresentation/ falsification of records or Fraudulent transactions by the borrower: The unit has defaulted in meeting its payment/ repayment obligations to the lender and has siphoned off the funds so that the funds have not been utilized for the specific purpose for which finance was availed of, nor are the funds available with the unit in the form of other assets.
Disposal/ removal of securities without bank’s knowledge: The unit has defaulted in meeting its payment/ repayment obligations to the lender and has also disposed off or removed the movable fixed assets or immovable property given by him or it for the purpose of securing a term loan without the knowledge of the bank/lender.
The modified guidelines nevertheless will not be of much benefit to banks in recovering from present borrowers like Kingfisher Airlines as they apply only prospectively and not to cases where guarantees were taken prior to this circular. Around 5% of the loans in the Indian Banking system are in default whereas another 5% are under stress and have been offered some flexibility in repayment under a restructuring programme. Clarifying on its earlier norms the RBI had said the defaulting ‘unit’ appearing therein would include individuals, juristic persons and all other forms of business enterprises, whether incorporated or not. ‘MAKE IN INDIA’
In order to make India a manufacturing hub, PM Narendra Modi launched the Make In India Campaign
The promotion intended to appeal foreign companies to set up their manufacturing units in India and to obtain larger foreign investment.
Aim is to get the manufacturing sector to grow over 10% on a viable basis over the long run and to transform the economy from a Service‐driven growth model to Labour‐intensive manufacturing‐ driven growth. Thus, it will assist in creating jobs for over 10 million people, who join the workforce every year.
Via ‘Make In India’ campaign, the Union Government wishes to clear the disheartening image of complex rules and bureaucratic red tape of Indian administration. It will assist the global investors to promote their investment choices. This will assist in apprehending the objective of a liberalized economy. As per the World Bank’s ease of doing business index, India ranks at very low at 134 (out of 189) nations in 2014.
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Issues for IIM PI Process http://www.essaysforIIM.com The ‘Make in India’ campaign will act as a guiding for foreign investors on all aspects of regulatory and policy issues and support them in attaining regulatory sanctions.
The Government has already allowed 100% FDI under automatic route in construction, operation and maintenance in rail infrastructure projects.
The ‘Make In India’ places stress on 25 sectors with emphasis on job creation and skill development.
These include: automobiles, chemicals, IT, pharmaceuticals, textiles, ports, aviation, leather, tourism and hospitality, wellness, railways, auto components, design manufacturing, renewable energy, mining, bio‐technology, pharmaceuticals and electronics, etc.

Features of the ‘Make In India’ campaign
Govt to look into all regulatory processes to ease the load on investors.
A dedicated cell to answer enquiries from the business bodies via a freshly created web portal.
FAQs on the portal to assist investors find instant answers to their general queries
Back‐end support team to answer specific enquiries within 72 hours
DIPP and FICCI have together set up an 8‐member expert group to address enquiries and apprehensions of investors. They will explain Indian policies to the investors and propose reforms to the Central and states governments.
All Central government services are being integrated with an e‐Biz single window online portal.
States recommended initiating the self‐certification
The Union Ministry of Home Affairs has been asked to provide all security clearances to investment proposals within 3 months.
An advisory has been sent to all departments/ state governments to streamline and straighten out the regulatory environment.

PM MODI’S ADDRESS TO UN GA
Some of the points he made in his speech are as follows:‐
The PM asserted that India’s future was tied with that of its neighbors. Citing instances of his government’s attempts to reach out to different neighbors, he also made it clear that no stable relationship could be built under the shadow of terrorism
Condemning terrorism and rising extremism in various parts of the world, he insisted that all nations of the world would have to function in unison to deal with such a menace. He also called for genuine dialogue and engagement between countries
In a rebuke to Mr. Nawaz Sharif’s reference to Kashmir in his speech, the PM said that it was pointless to raise bilateral issues in international forums like the UN
Stated that it was up to Pakistan to establish an atmosphere that was conducive to resuming talks
Rejecting unilateralism, said that countries would have to work together to resolve the issues
Drawing on India’s ancient history and wisdom, he stated that India viewed the world as one. Even though India is a developing nation it is ready to share its modest resources with the world, he stated.
He also questioned the necessity of various grouping of nations like G8 etc when a multilateral body like the UN existed.
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Issues for IIM PI Process http://www.essaysforIIM.com He also called for reforms to the UNSC
He highlighted issues faced by nations and it people due to globalization and climate change
He said that democratic principles and unity were on an upsurge in various parts of the world, highlighting Afghanistan and Nepal as examples. He also mentioned that the world was experiencing increasing levels of prosperity and stability, especially in Latin America
The PM drew on India’s soft power across the globe by making references to yoga and calling for celebration of International Yoga Day

‘CHALEIN SAATH SAATH’
The ‘Chalein Saath Saath: Forward Together We Go’ vision statement speaks of strengthening the strategic partnership between India and USA. This statement was released during PM Modi’s visit to Washington
DC to meet President Obama. The statement expressed the following points:‐
The strategic partnership of the two nations rests on the shared mission to provide equal opportunity to its people through democracy and freedom
The two countries are bound together by kinship and commerce, scholarship and science. The ties between the people of both countries and their cooperation have resulted in developments in science and the arts. This enables the leaders of both countries to have a long term perspective as regards the partnership One major goal of the partnership is prosperity and peace. This endeavor shall be fulfilled through intense consultations, joint exercises, and shared technology. Security cooperation between the two will be targeted at the region and the world at large too. The countries also aim to work together towards combating terrorist threats, keeping its county and its peoples safe and responding to humanitarian disasters. The countries also dedicate themselves to stopping the spread of WMDs, reducing the salience of nuclear weapons, and promoting universal, verifiable and non‐discriminatory nuclear disarmament
Close cooperation between the two at the UN and beyond
Support for India assuming a greater multilateral responsibility, including in a reformed UNSC and for an open and inclusive rules based global order
Working together to mitigate the impact of climate change and adapt to the changing environment.
Cooperation between the government and the science and academic communities to address the consequences of unchecked pollution. Take steps to ensure availability of affordable, reliable, clean and diverse sources of energy for both nations, including by bringing nuclear power technologies of American origin to India
Engaging in joint research and collaboration in a variety of areas from particles of creation to outer space
Striving for open markets that will allow trade and service to flourish. Also work towards ensuring that economic growth results in better livelihoods and welfare for all people in the country.
The two countries will also work jointly to counter infectious diseases, eliminate maternal and child deaths and to eradicate poverty
The countries will also work to provide a secure environment which encourages the fullest empowerment of women
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Issues for IIM PI Process http://www.essaysforIIM.com The countries also agreed to expand and deepen their strategic partnership so that they may harness the inherent potential of the two democracies and its people.
Other than Business Diplomacy, a major aim of the PM’s visit was to re‐engage with USA and rejuvenate the Indo‐US strategic partnership which reached its peak at the signing of the 123 agreement and has since slowly fizzled out. The ‘Chalein Saath Saath: Forward Together We Go’ vision statement discusses the varied areas wherein the two countries might benefit from co‐operation and collaboration. This statement acts as a roadmap to the future Indo‐US partnership, and speaks to how the two countries view each other’s roles in the international arena.

DEEPAK PAREKH COMMITTEE ON INFRASTRUCTURE
The High‐level government committee on infrastructure headed by Deepak Parekh submits the last part of its report in October. The Committee consisted of Uday Kotak, G.M.R Rao, Sanjay Reddy and top officials from LIC, SBI, ICICI and IDFC.
Some of their proposals are as follows:‐
Establish a PPP model for power distribution, starting first with the cities
Modernise public sector distribution companies. The viability gap for such companies should be funded by the Central government
Earmark 15% of power generation of the central PSUs for open access customers so that the market becomes more competitive in an attempt to attract the open access clientele. This is also expected to increase investment in the electricity sector. (Open access customers refers to customers who buy in bulk and can directly choose where to buy their electricity from, according to the Electricity Act, 2003.
Hence, the open access customers at least will not have to rely on the state controlled power distribution companies
Tariffs should be rationalized with a grading system that distinguishes between consumers depending on their paying capacity. Also, high income households, commercial consumer and industries should eventually be moved to market based pricing. The consumers subject to market based pricing may be allowed to choose from different suppliers of electricity. Low income consumers, however, should be subject to low tariffs and their requirements should be met with supplies from depreciated power station Privatise coal mining wherein Coal India or its arms/subsidiaries can retain ownership of mines
Constitute a High level task force headed by a deputy governor of RBI to decide on measures to restore the health of power projects facing financial trouble due to scarcity of fuel
Fixed charges of a reasonable amount should be apportioned to idle power plants

‘JAPAN PLUS’
India has set up a ‘Japan Plus’ management team to follow through on the $35 bn that Japan has promised to invest in India over a span of five years via PPP and overseas development assistance. This is a follow through on the agreements and initiatives agreed to by India and Japan during PM Modi’s visit to Japan.
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Issues for IIM PI Process http://www.essaysforIIM.com Japan is the fourth largest foreign investor in India. It contributes to approximately 8% of India’s total FDI inflows. It is already actively involved in various infrastructure projects in India.
Responsibilities of the Japan Plus team
The team will provide the Indian government assistance with respect to initiating, attracting, facilitating and fast‐tracking of Japanese investments in India. The team will be responsible for all areas of investment promotion, research, outreach and issues post investment. It will also help identify areas for Indo‐Japan collaboration and viable projects for Japanese investment.
Composition
The team has been set up by DIPP (Department Of Industrial Policy and Promotion) and is operational from October 8. It consists of government officials from both countries. The team will have four Indians and two Japanese, and will be coordinated by Kenichiro Toyofuku from Japan’s Ministry of Economy,
Trade and Industry.
India‐Japan Investment Promotion Partnership
An Indo‐Japan Investment Promotion Partnership core group has also been constituted. It will be headed by the Cabinet Secretary and will comprise of the Chairman of Railway Board, Foreign Secretary and secretaries of DIPP, revenue, economic affairs, financial services, urban development, information technology and others. It will coordinate and monitor investments from Japan. Also, it will facilitate investment in various sectors and enable effective transfer of technologies .

WHY CRONY CAPITALISM PERSISTS
One widely held hypothesis is that our country suffers from want of a “few good men” in politics. This view is unfair to the many upstanding people in politics. But even assuming it is true, every so often we see the emergence of a group, usually upper middle class professionals, who want to clean up politics.
But when these “good” people stand for election, they tend to lose their deposits. Does the electorate really not want squeaky clean government?
Apart from the conceit that high morals lie only with the upper middle class, the error in this hypothesis may be in believing that problems stem from individual ethics rather than the system we have. The tolerance for the venal politician is because he is the crutch that helps the poor and underprivileged navigate a system that gives them so little access. This may be why he survives.
Our provision of public goods is unfortunately biased against access by the poor. In a number of states, ration shops do not supply what is due, even if one has a ration card – and too many amongst the poor do not have a ration card or a BPL card; Teachers do not show up at schools to teach; The police do not register crimes, or encroachments, especially if committed by the rich and powerful; Public hospitals are not adequately staffed and ostensibly free medicines are not available at the dispensary; etc

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Issues for IIM PI Process http://www.essaysforIIM.com This is where the crooked but savvy politician fits in. While the poor do not have the money to “purchase” public services that are their right, they have a vote that the politician wants. The politician does a little bit to make life a little more tolerable for his poor constituents – a government job here, an FIR registered there, a land right honoured somewhere else. For this, he gets the gratitude of his voters, and more important, their vote.
Of course, there are many politicians who are honest and genuinely want to improve the lot of their voters. But perhaps the system tolerates corruption because the street smart politician is better at making the wheels of the bureaucracy creak, however slowly, in favour of his constituents. And such a system is self‐sustaining. An idealist who is unwilling to “work” the system can promise to reform it, but the voters know there is little one person can do. Moreover, who will provide the patronage while the idealist is fighting the system? So why not stay with the fixer you know even if it means the reformist loses his deposit? So the circle is complete. The poor and the under‐privileged need the politician to help them get jobs and public services. The crooked politician needs the businessman to provide the funds that allow him to supply patronage to the poor and fight elections. The corrupt businessman needs the crooked politician to get public resources and contracts cheaply. And the politician needs the votes of the poor and the underprivileged. Every constituency is tied to the other in a cycle of dependence, which ensures that the status quo prevails.
Well‐meaning political leaders and governments have tried, and are trying, to break this vicious cycle.
How do we get more politicians to move from “fixing” the system to reforming the system? The obvious answer is to either improve the quality of public services or reduce the public’s dependence on them.
Both approaches are necessary.
But then how does one improve the quality of public services? The typical answer has been to increase the resources devoted to the service, and to change how it is managed. A number of worthwhile efforts are underway to improve the quality of public education and healthcare. But if resources leak or public servants are not motivated, which is likely in the worst governed states, these interventions are not very effective. Some have argued that making a public service a right can change delivery. It is hard to imagine that simply legislating rights and creating a public expectation of delivery will, in fact, ensure delivery. After all, is there not an expectation that a ration card holder will get decent grain from the fair price shop, yet all too frequently grain is not available or is of poor quality.
Information decentralization can help. Knowing how many medicines the local public dispensary received, or how much money the local school is getting for mid‐day meals, can help the public monitor delivery and alert higher‐ups when the benefits are not delivered. But the public delivery system is usually most apathetic where the public is poorly educated, of low social status, and disorganized, so monitoring by the poor is also unlikely to be effective.

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Issues for IIM PI Process http://www.essaysforIIM.com Some argue that this is why the middle class should enjoy public benefits along with the poor, so that the former can protest against poor delivery, which will ensure high quality for all. But making benefits universal is costly, and may still lead to indifferent delivery for the poor. The middle class may live in different areas from the poor. Indeed, even when located in the same area, the poor may not even patronize facilities frequented by the middle class because they feel out of place. And even when all patronize the same facility, providers may be able to discriminate between the voluble middle class and the uncomplaining poor.
So if more resources or better management are inadequate answers, what might work? The answer may partly lie in reducing the public’s dependence on government‐provided jobs or public services. A good private sector job, for example, may give a household the money to get private healthcare, education, and supplies, and reduce their need for public services. Income could increase an individual’s status and increase the respect they are accorded by the teacher, the policeman or the bureaucrat.
But how does a poor man get a good job if he has not benefited from good healthcare and education in the first place? In this modern world where good skills are critical to a good job, the unskilled have little recourse but to take a poorly‐paying job or to look for the patronage that will get them a good job. So do we not arrive at a contradiction: the good delivery of public services is essential to escape the dependence on bad public services?

ISSUES IN THE SHG BLP
India introduced the SHG‐Bank Linkage Programme (SBLP) more than two decades back on a pilot basis.
Today, it is a regular banking programme mainly due to active involvement of NABARD and also due to the role of the Reserve Bank in creating a conducive regulatory environment for this programme to grow.
By end of March 2013, India had about 7.3 million bank‐linked SHGs with a range of financial institutions including commercial banks, Regional Rural Banks, and co‐operative banks, marginally down from 8 million recorded in 2012, exhibiting some signs of fatigue in this programme.
Further, the number of SHGs having outstanding loans with banks has declined from 4.8 million to 4.4 million between 2011 and 2012 and stood at 4.5 million in 2013.
Similarly, the number of SHGs to whom bank loans were disbursed declined from 1.6 million in 2010 to 1.2 million in 2011and has stagnated thereafter.
The major issues confronting the SHGs include inadequate number of quality agencies required for capacity building and hand‐holding, governance and leadership challenges, lack of management information systems, inconsistent reporting, supervision and management capacities, excessive dependence on promoter agencies for essential services, skewed distribution of SHGs across the regions, decline of banking sector’s involvement in the programme with primacy being attached to financial inclusion programmes which have almost excluded SHGs from their focus, increasing incidence of NPAs, etc. © EssaysforIIM.com 2014‐15

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Issues for IIM PI Process http://www.essaysforIIM.com The new challenges for SHGs are how do they move up in the value chain to livelihood activities leading to sustained income generation supported by different backward and forward linkages.
Therefore, the focus needs to shift towards consolidation of SHGs by addressing these deficiencies. In order to overcome the fatigue of the SBLP and as part of its poverty alleviation strategy, NABARD has taken various initiatives like SHG‐2, Joint Liability Groups (JLG) and Producer Organization related initiatives. It aims to cover all eligible poor rural households in the country through SBLP by March 2017 and promote
2 million new SHGs during 2013‐17. There is also a strategic shift from State/district‐based planning for
SBLP to block‐based planning to address the issue of intra‐district imbalances in promotion of SHGs.
There has also been a focus on convergence of SBLP with financial inclusion initiatives of the Reserve Bank and government programmes like the National Rural Livelihood Mission (NRLM) to maximise benefits to the SHG members.
In respect of the latter, it is important to underscore that Government sponsored initiatives should not crowd out agencies already doing good work in the field as there is enough space for multiple stakeholders
& SHGs to function.
Focus on credit at the cost of savings should also not be over emphasized and distortions leading to misuse and abuse of the system through interest subvention also need to be avoided.

INCLUSIVE RURAL FINANCIAL SYSTEM
Providing financial services in rural areas is a challenge as agriculture and other rural economic activities have unique characteristics of dependence on natural resources, long production cycles and vulnerability to multiple risks (all of us remember the old adage “Indian agriculture is a gamble in monsoon”). Further, the sub‐division of land and small ticket size of rural non‐farm activities require the provision of small sized loans in large numbers often raising the operational costs for banks.
Moreover, with the widening of the ambit of non‐agricultural activities, the need for non‐agricultural rural finance too has gone up considerably.
While poorer groups might need basic savings services and micro‐credit to cover production costs and emergency expenses, farmers and farmers’ organisations require larger amounts of credit to finance production, inputs, processing and marketing besides risk mitigation products, for example, insurance for loss of life and assets.
The new rural finance paradigm needs to be based on the premise that ‘rural people are bankable’ and rural clientele is not limited only to the farmers & uneducated but also includes a generation which can use & adopt technology.
It, in turn, advocates a demand‐driven design and efficient provision of multiple financial products and services through an inclusive financial sector comprising sustainable institutions serving a diverse rural clientele.
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Issues for IIM PI Process http://www.essaysforIIM.com Thus, developing an inclusive yet sustainable rural financial system is extremely challenging and involves comprehensive understanding of host of complementary issues, which can be subsumed under a broad
7Ps’ Framework:
Product strategy: For catering to the varied needs of small ticket size transactions, whether a bouquet of diversified products and services can be developed without compromising on the flexibility, continuous availability and convenience of the products? Which types of financial products have the greatest impact on reducing poverty and lifting growth rates in deprived districts and regions?
Processes: What kinds of business processes can help banks to reach underserved segments and provide hassle‐free near doorstep service to the customers without jeopardising financial viability? How do we design an efficient hub & spoke model to overcome the hurdles in the agent led branchless banking?
Partnerships: What are the constraints faced by the underserved and/or excluded segments in accessing financial services from different types of service providers? Are the bank ‐ non‐bank partnerships, such as, Business Correspondents, SHGs, MFIs, etc. working efficiently in easing the accessibility and availability of financial services?
Protection: What measures and mechanisms are needed to protect both the providers and the receivers of rural finance from abuse and misuse of such services? Whether enough risks mitigants are there for the borrowers given the higher vulnerability in the sector? Are lenders protected against ebb & flow of uncertainty in credit culture?
Profitability: Whether the business strategies and delivery models are geared to provide affordable and acceptable services to the rural clientele while ensuring that rural finance service providers function profitably on a sustained basis? How do we tap into the customer willingness to pay through an appropriate pricing model?
Productivity: How do we increase the productivity of financial services provided in the rural areas?
What are the strategies needed to synergize other resources with finance (say, under a “credit plus” approach) to ensure more productive and optimal use of financial services?
People: Are the frontline staff of the financial service providers well‐equipped to meet the needs of driving the process of financial inclusion in terms of knowledge, skill and attitude? Do these people have the capacity, comprehension and commitment to identify potential customers and offer them timely advice and comprehensive services?
Many of these are the age‐old questions which unfortunately remain pertinent even today and pose a significant challenge to the policy‐makers and regulators.

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Issues for IIM PI Process http://www.essaysforIIM.com

NEED FOR REGULATION
In a free market economy, regulations are basically aimed or should be aimed at addressing various reasons for market failure: existence of monopoly power, externalities, information asymmetry etc.
Put another way, regulations are aimed at addressing the divergence between individual and social incentives. There are many parables that illustrate this point; one of them being the so called ‘tragedy of commons’. Suppose residents of a village use a parcel of land – called common in UK – to graze their animals. If one villager grazes an additional animal, it is beneficial for her but detrimental for villagers as a group. If several villagers do this, the common will be depleted and ultimately destroyed.
Societies down the ages have resolved this problem in myriad ways – mostly through standards of normative behaviour rather than regimes of regulations and their enforcement.
In a modern economy that is large, complex and organically interrelated, such problems require elaborate and explicit rules and regulations and their administration and enforcement.
Regulations thus are supposed to modify behaviour of those covered by the regulation and ensure that they behave in a socially desirable way.
But whether the regulations will have to be in the nature of a nudge or a shove depends upon how the regulated entities respond to. When the regulations are simple and the regulated entities comply with the regulations in letter and spirit so that the objective of the regulator is achieved, it is not necessary for regulations to be complex and detailed, which makes both administration and compliance difficult.
In addition, several socially and economically useful activities may also not be undertaken in the face of such elaborate regulatory regimen.

COMPANIES ACT 2013
Some important provisions of the CA 2013 are discussed below:‐

The Board of Directors
Recognising that the Board of Directors is the ultimate source of governance in a company, the new CA
2013 addresses the issues relating to its composition of the and functioning comprehensively in order to enhance its efficacy.
The Act specifies that each company should have at least one ‘resident’ director who has stayed in India for a total period of not less than 182 days in the previous calendar year.
Large companies will also need to have at least one woman director on the Board and listed companies should have at least one third of the Board as independent directors.
Independent directors can hold office for not more than two consecutive terms of five years each.
The number of Board memberships a director can hold in public and private companies is also limit bound.
Board meeting can be called only after a seven day notice and the fiduciary duties of directors are clearly defined in the Act.
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Issues for IIM PI Process http://www.essaysforIIM.com The code of conduct for independent directors has been appropriately articulated.
The Act also makes it mandatory for all listed companies and certain other companies to put in place an
Audit Committee and a Nomination and Remuneration Committee.
The type of directors that can be members of the Committees are specified with thee scale weighing in favour of independent directors.
The responsibility of chairing these Committees can be assigned to persons competent and qualified to discharge the responsibility.
The above provisions will ensure diversity and integrity in the composition of the Board/Committees and facilitate the company in benefiting from available talent pools. These improvements in turn will ensure effective Board oversight, inculcate operational discipline and instill financial discipline, leading to overall improvements in the corporate sector.

Audit function
Paraphrasing Wendell Phillips, we can say that effective audit is the price of good governance. In the area of audit, the CA 2013 provides for various checks and balances to ensure that the audit function in the corporate world maintains impeccable quality.
The appointment of individual auditors and audit firms cannot exceed five consecutive years or two terms of five consecutive years, respectively.
The appointment will be subject to ratification at every Annual General Meeting (AGM) and similarly, their removal prior to a five year term will also be subject to a resolution at the AGM and government approval, where required.
There are stiff penalties and provisions for prosecution by the National Financial Reporting
Authority for fraudulent actions on the part of the audit firms.
The act also prohibits auditors from providing non‐audit services such as book‐keeping, internal audit, actuarial services, investment advisory services, etc. to the company where they are auditor to ensure their independence.
These measures will not only ensure quality in audits but will also bring more transparency and accountability for the auditors as well as the company.
An important provision in the Act, relates to the introduction of ‘Secretarial Audit’ as a new class of audit, in addition to the existing mandated statutory audit, internal audit and cost audit.
The secretarial audit is intended to be a detailed and meaningful exercise conducted by a professional to verify compliance with provisions of various laws applicable to a company.
The objective of the proposed secretarial audit under CA 2013 will be to improve the compliance culture in the corporate sector in letter and spirit, and ensure transparency and timely communication of compliance/non‐compliance status to the management of the company, regulators and external stakeholders.

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Issues for IIM PI Process http://www.essaysforIIM.com This will ultimately protect the interest of customers, employees, directors, stakeholders and avoid any unwarranted action from the law enforcing /other agencies.

Corporate Social Responsibility
“The price of greatness is responsibility”, Winston Churchill often used to say. There is no reason why it should be any different for companies as well. A new initiative that has been put in place under the CA
2013 relates to corporate social responsibility (CSR) of companies.
Under the Act, every company with net worth of Rs 500 crore or more, or turnover of Rs 1,000 crore or more or a net profit of Rs 5 crore or more during any financial year will need to set up a
CSR Committee, which will, inter alia, recommend to the Board an appropriate CSR policy, indicate the CSR activities that the company will undertake and recommend the amount of expenditure to be incurred on the activities.
Boards of CSR companies will need to ensure that at least 2% of the average net profits made during the three immediately preceding financial years are utilised for CSR activities, giving preference to local area and areas around where it operates.
In case of non‐fulfilment of CSR spending, the reasons will need to be indicated in the report of the Board in a ‘comply or explain’ approach. The CSR policy and its contents will also need to be disclosed in the Board report and the company’s website.
Thus far, there had been no specific mandate for CSR for companies, though several companies did voluntarily undertake CSR initiatives. With the new Act, CSR activities will be a responsibility of all specified companies. While there may be issues in implementing CSR initiatives in companies that have not yet ventured in this area and also for companies with large amounts becoming eligible for CSR spends, over time this measure will not only help in the economic and social progress of the under privileged sections of the society but also facilitate gains for companies in terms of their reputation and image.

KYC COMPLIANCE
Is KYC a recent phenomenon?
KYC was always there in banking! The focus, earlier, was more on the asset side and not on the liability side as no banker could risk parting with his funds to an unknown person. The thorough appraisal process to screen the potential borrowers is a good example of KYC process.
Then, issues such as illegal/black money and more recently, terrorism financing became matters of serious concern and then KYC on payments and remittances, and consequently on the liability side (deposit accounts, etc.) started assuming high importance.
Why KYC/AML Norms
Sound KYC policies and procedures are critical for protecting the safety and soundness of banks and the integrity of banking system in the country.

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Issues for IIM PI Process http://www.essaysforIIM.com Due to increasing globalisation of Indian banks, their interaction with other countries' financial systems are expanding, making the task of ensuring safety of our systems more critical.
International obligations and inter‐regulatory consensus built via United Nations Resolutions,
Basle Committee on Banking Supervision and the Financial Action Task Force also require that we put in place an elaborate KYC Framework in India.
Financial Action Task Force (FATF)
The FATF is an intergovernmental body established in 1989 (G‐7 initiative). Its tasks are to set standards and promote effective implementation of legal, regulatory and operational measures for combating money laundering, terrorist financing and other related threats to the integrity of the international financial system. It is a policy‐making body which works to generate the necessary political will to bring about national legislative and regulatory reforms in these areas. It monitors the progress of its members in implementing necessary measures. There are 36 full‐fledged members. India is one of them. Over 18 jurisdictions around the world have committed to the FATF Recommendations. India has also committed to implement the recommendations of FATF. Originally, in 1990, FATF had 40 recommendations focussing on drug money. It revised its recommendations in 1996 and broadened the scope. Then in 2001, it added eight (later nine) special recommendations to combat financing of terrorism which were further revised in 2003. The latest exercise in 2012 had further revised the recommendations and combined the 40+9 to
40.
PMLA – Salient Features
UN General Assembly resolution (1990) calls upon the Member States to adopt national money‐ laundering legislation and programme. Accordingly, in India the Prevention of Money Laundering Act
(PMLA), 2002 was enacted in January 2003. The Act along with the Rules framed there under have come into force with effect from 1st July 2005.
The objectives of the PMLA are to: prevent and control money laundering confiscate and seize the property obtained from the laundered money prescribe fines and penalties for offence
The important feature of the Act is that the burden of proof is on the accused.
Paradigm shift – KYC prior to & post Nov’ 04
After the international focus on KYC, the Reserve Bank brought on a paradigm shift in the approach to KYC by banks in India. It moved away from introduction to document based identification ‐ hence introduction not required. It also shifted the focus from financial loss (from frauds) to the banks to the loss of reputation to the banks (by non‐compliance). The other principles are that the KYC information collected is to be consistent with risk perception and other information to be collected only with consent of the customer and the KYC related information is confidential ‐ not to be divulged for cross‐selling or any other purpose.

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Issues for IIM PI Process http://www.essaysforIIM.com Regulatory prescriptions
Who is a Customer – a KYC context
In the context of KYC framework, the concept of "customer" has now been redefined. A "customer" is no longer just the one who has an Account and/or business relationship with the bank; the ones on whose behalf the account is maintained (i.e. the beneficial owner), the beneficiaries of transactions conducted by professional intermediaries, such as Stock Brokers, Chartered Accountants, Solicitors and any person/entity connected with any financial transaction which can pose risk to bank, say, through a wire transfer/issue of a high value DD, etc are all "customers".
KYC policy of banks – the 4 key elements
The Reserve Bank has prescribed that the KYC policy of banks should have the following key elements:
i.

Customer Acceptance Policy

ii.

Customer Identification Procedures

iii.

Monitoring of Transactions, and

iv.

Risk Management

COMPULSORY VOTING IN INDIA Recently, the Gujarat Local Authorities Laws (Amendment) Act, 2009 received the Governor’s assent. The
Act introduces an ‘obligation to vote’ at the municipal corporation, municipality and Panchayat levels in the state of Gujarat.
Following the amendments, it shall now be the duty of a qualified voter to cast his vote at elections to each of these bodies. This includes the right to exercise the NOTA option. The Act empowers an election officer to serve a voter notice on the grounds that he appears to have failed to vote at the election. The voter is then required to provide sufficient reasons within a period of one month, failing which he is declared as a “defaulter voter” by an order. The defaulter voter has the option of challenging this order before a designated appellate officer, whose decision will be final.
At this stage, it is unclear what the consequences for being a default voter may be, as the penalties for the same are to be prescribed in the Rules. Typically, any disadvantage or penalty to be suffered by an individual for violating a provision of law is prescribed in the parent act itself, and not left to delegated legislation. The Act carves out exemptions for certain individuals from voting if (i) he is rendered physically incapable due to illness etc.; (ii) he is not present in the state of Gujarat on the date of election; or (iii) for any other reasons to be laid down in the Rules.
The previous Governor had withheld her assent on the Bill for several reasons.
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Issues for IIM PI Process http://www.essaysforIIM.com I.
II.
III.

The Governor had stated that compulsory voting violated Article 21 of the Constitution and the principles of individual liberty that permits an individual not to vote.
She had also pointed out that the Bill was silent on the government’s duty to create an enabling environment for the voter to cast his vote.
This included updating of electoral rolls, timely distribution of voter ID cards to all individuals and ensuring easy access to polling stations.

Right to vote in India
Many democratic governments consider participating in national elections a right of citizenship. In India, the right to vote is provided by the Constitution and the Representation of People’s Act, 1951, subject to certain disqualifications.
Article 326 of the Constitution guarantees the right to vote to every citizen above the age of 18.
Further, Section 62 of the Representation of Peoples Act (RoPA), 1951 states that every person who is in the electoral roll of that constituency will be entitled to vote.
Thus, the Constitution and the RoPA make it clear that every individual above the age of 18, whose name is in the electoral rolls, and does not attract any of the disqualifications under the Act, may cast his vote. This is a non discriminatory, voluntary system of voting.
This idea was been earlier rejected at various fora including Parliament and the Dinesh Goswami committee, on the grounds that there were practical difficulties involved in its implementation.
In July 2004, the Compulsory Voting Bill, 2004 was introduced as a Private Member Bill but Bill did not receive the support of the House and was not passed. Arguments mooted against the Bill included that of remoteness of polling booths, difficulties faced by certain classes of people like daily wage labourers, nomadic groups, disabled, pregnant women etc. in casting their vote. The

Compulsory voting in other countries
A number of countries around the world make it mandatory for citizens to vote.
For example, Australia mandates compulsory voting at the national level. The penalty for violation includes an explanation for not voting and a fine. It may be noted that the voter turnout in Australia has usually been above 90%, since 1924.
Several countries in South America including Brazil, Argentina and Bolivia also have a provision for compulsory voting.
Certain other countries like The Netherlands in 1970 and Austria more recently, repealed such legal requirements after they had been in force for decades.
Other democracies like the UK, USA, Germany, Italy and France have a system of voluntary voting. Typically, over the last few elections, Italy has had a voter turnout of over 80%, while the USA has a voter turnout of about 50%.

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What compulsory voting would mean
Those in favour of compulsory voting assert that a high turnout is important for a proper democratic mandate and the functioning of democracy. They also argue that people who know they will have to vote will take politics more seriously and start to take a more active role. Further, citizens who live in a democratic state have a duty to vote, which is an essential part of that democracy.
However, some others have argued that compulsory voting may be in violation of the fundamental rights of liberty and expression that are guaranteed to citizens in a democratic state. In this context, it has been stated that every individual should be able to choose whether or not he or she wants to vote. It is unclear whether the constitutional right to vote may be interpreted to include the right to not vote. If challenged, it will up to the superior courts to examine whether compulsory voting violates the Constitution.

REMOVAL OF GOVERNORS
After the 16th Lok Sabha election, there has been some debate around powers of the central government to remove Governors. News reports have suggested that the central government is seeking resignations of Governors, who were appointed by the previous central government. In this blog, we briefly look at the key constitutional provisions, the law laid down by the Supreme Court, and some recommendations made by different commissions that have examined this issue.
What does the Constitution say?
As per Article 155 and Article 156 of the Constitution, a Governor of a state is an appointee of the
President, and he or she holds office “during the pleasure of the President”. If a Governor continues to enjoy the “pleasure of the President”, he or she can be in office for a term of five years. Because the
President is bound to act on the aid and advice of the Council of Ministers under Article 74 of the
Constitution, in effect it is the central government that appoints and removes the Governors. “Pleasure of the President” merely refers to this will and wish of the central government.
The Supreme Court’s interpretation
In 2010, a constitutional bench of the Supreme Court interpreted these provisions and laid down some binding principles (B.P. Singhal v. Union of India). In this case, the newly elected central government had removed the Governors of Uttar Pradesh, Gujarat, Haryana and Goa in July, 2004 after the 14th Lok Sabha election. When these removals were challenged, the Supreme Court held:
1.
2.

The President, in effect the central government, has the power to remove a Governor at any time without giving him or her any reason, and without granting an opportunity to be heard.
However, this power cannot be exercised in an arbitrary, capricious or unreasonable manner. The power of removing Governors should only be exercised in rare and exceptional circumstances for valid and compelling reasons.

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Issues for IIM PI Process http://www.essaysforIIM.com 3.

4.

The mere reason that a Governor is at variance with the policies and ideologies of the central government, or that the central government has lost confidence in him or her, is not sufficient to remove a Governor. Thus, a change in central government cannot be a ground for removal of
Governors, or to appoint more favourable persons to this post.
A decision to remove a Governor can be challenged in a court of law. In such cases, first the petitioner will have to make a prima facie case of arbitrariness or bad faith on part of the central government. If a prima facie case is established, the court can require the central government to produce the materials on the basis of which the decision was made in order to verify the presence of compelling reasons.

In summary, this means that the central government enjoys the power to remove Governors of the different states, as long as it does not act arbitrarily, without reason, or in bad faith.
Recommendations of Various Commissions
Three important commissions have examined this issue.
1. The Sarkaria Commission (1988) recommended that Governors must not be removed before completion of their five year tenure, except in rare and compelling circumstances. This was meant to provide Governors with a measure of security of tenure, so that they could carry out their duties without fear or favour. If such rare and compelling circumstances did exist, the Commission said that the procedure of removal must allow the Governors an opportunity to explain their conduct, and the central government must give fair consideration to such explanation. It was further recommended that Governors should be informed of the grounds of their removal.
2. The Venkatachaliah Commission (2002) similarly recommended that ordinarily Governors should be allowed to complete their five year term. If they have to be removed before completion of their term, the central government should do so only after consultation with the Chief Minister.
3. The Punchhi Commission (2010) suggested that the phrase “during the pleasure of the President” should be deleted from the Constitution, because a Governor should not be removed at the will of the central government; instead he or she should be removed only by a resolution of the state legislature. The above recommendations however were never made into law by Parliament. Therefore, they are not binding on the central government.

INDIA’S EBOLA READINESS
India is among the top five financial contributors to the United Nations’ ebola response, with a contribution of $12.5 million. Yet, awareness and readiness to deal with the disease isn’t enough. Health experts are concerned at the absence of proper screening machinery, inadequate detection centres and a severe lack of awareness among the public.
Ebola is a disease caused by one of five virus strains, found mostly in African countries. The symptoms include fever, sore throat, muscle pain and headaches. In most cases, it is followed by vomiting, diarrhoea
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Issues for IIM PI Process http://www.essaysforIIM.com and a rash, plus decreased functioning of the liver and kidneys. There is no vaccine. The largest ebola outbreak in history is currently whirling, seemingly out of control, in West Africa.
It is a communicable disease and spreads by direct contact with a patient’s blood or other bodily fluids like urine, saliva or sweat. The highest concentration of virus is thought to be in blood, vomit and diarrhoea. Experts say people can also get the disease by eating infected bushmeat, as ebola can sicken animals, including bats, chimpanzees and antelopes.
According to the World Health Organization (WHO), in 1976, the disease first appeared in two simultaneous outbreaks in Sudan and Democratic Republic of Congo. Until December 2013, a total of 23 outbreaks recorded 2,388 human cases and 1,590 deaths.
The current outbreak began in Guinea in late 2013 and spread to neighbouring countries. It is still unclear how the 2014 outbreak in West Africa started, with four countries — Guinea, Liberia, Sierra Leone and
Nigeria — affected.
In India, the health ministry and WHO are working together to formulate a plan in case of an outbreak.
The ministry has issued warnings at the Indira Gandhi International Airport here and at Mumbai’s
Chhatrapati Shivaji International Airport. Ex‐Health minister Harsh Vardhan told Parliament that there are close to 45,000 Indians in the affected countries. The government is also monitoring some other entry points. Though no patient has been detected in India with the virus, even a single imported case can create much damage in a densely populated country. Officials at WHO have commended the health ministry’s pro‐ active approach. However, senior doctors in various hospitals and health workers across the country have raised doubts on the quality of screening. According to a senior official at Delhi Medical Council, the preparedness is not adequate. For one, screening needs to be tightened at airports.
Besides, even leading private diagnostic centres lack testing facilities for the virus. Only two government laboratories, National Institute for Communicable Diseases here and National Institute of Virology in Pune, are capable of testing patients suspected of ebola.
Officials at the All India Institute of Medical Sciences and Ram Manohar Lohia (RML) Hospital said no advisories had been issued by the health ministry. We have our own protocols. The government should issue separate advisories but we have not received anything so far. They are screening passengers from affected countries at the airport and those that are sent to us are being tested,” said a senior consultant at RML.
Sources said while some of the leading government hospitals had separate arrangements and wards to keep patients if detected with ebola, private hospitals do not have any instructions or preparedness to tackle an outbreak.
Ebola is a communicable disease and spreads by direct contact with an Ebola patient's blood or other bodily fluids like urine, saliva, and sweat. The highest concentration of virus is thought to be in blood,

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Issues for IIM PI Process http://www.essaysforIIM.com vomit and diarrhea. Experts say people can also get the disease by eating infected bushmeat because
Ebola can sicken animals including bats, chimpanzees and antelopes.
According to WHO, in 1976, the disease first appeared in two simultaneous outbreaks in Sudan and
Democratic Republic of Congo. Until December 2013, a total of 23 outbreaks recorded 2,388 human cases and 1,590 deaths.
The current outbreak began in Guinea in late 2013 and spread to neighbouring countries, but it is still unknown how the 2014 outbreak in West Africa started where four countries ‐Guinea, Liberia, Sierra
Leone and Nigeria have been affected.

Steps Taken
The protocol and preparedness measures, including infection control practices to be followed by the states and Union Territories, were communicated to the states/UTs and continuously reviewed
Stricter screening checks have been ordered at all immigration points at airports and seaports. While the low risk passengers are given general advice, medium and high risk passengers are kept under observation for a further period of 30 days and their blood samples tested regularly. A tracking system has been put in place under the Integrated Disease Surveillance Programme.
In States hospitals and isolation wards had been identified for Ebola treatment. The Centre will keep track of adequacy of preparations at these hospitals.
Health ministry instructed trainers from various states and UTs at a three‐day session organized by the health ministry. The training will comprise demonstrations and mock drills.
The testing facilities at National Institute of Virology at Pune relating to Ebola virus and National
Centre for Diseases Control, Delhi, for molecular diagnosis were reviewed.
Other laboratories across Delhi, Dibrugarh, Port Blair, Kolkata, Manipal, Lucknow, Guwahati,
Bengaluru, Chandigarh, Thiruvananthapuram, Bhubaneswar, Chennai, Jaipur and Agra will also be strengthened to handle this work.
The ministry of civil aviation has been asked to make inflight announcements regarding the virus and its symptoms. A health screening card and advisory for passengers has been prepared and information is being collected from the passengers arriving from/transiting through the affected countries.
Some state governments expressed the need for supply of adequate number of Personal Protective
Equipment (PPE) gear. 50,000 PPE gear procured earlier by the central government will be distributed to the states.
A control room has been set up at the ministry of health & family welfare. The numbers are 23063205,
23061469 and 23061302.

RBI’s Charter on Consumer Rights
The Reserve Bank of India has issued the guidelines on charter for consumer rights.
The customer should not be unfairly discriminated against on grounds such as gender, age, religion, caste and physical ability when offering and delivering financial products

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Issues for IIM PI Process http://www.essaysforIIM.com The guidlelines cover right to fair treatment, transparency, suitability, privacy, grievance redress and compensation. The banking regulator has also communicated that the customer should not be subject to unfair business or marketing practices.
In a bid to address the mis‐selling complaints, RBI has also stated that the products offered should be appropriate to the needs of the customer and should be based on an assessment of the customer's financial circumstances and understanding
It has also been communicated to the banks that the customers' personal information should be kept confidential unless the customer gives a go ahead for it to be shared. Customers have the right to protection from all kinds of communications, electronic or otherwise, which infringe upon their privacy, said the charter.
Banks will also be held accountable to facilitate the redress of grievances stemming from its sale of third party products.

INDUSTRIAL DISASTERS
In 1984, the Bhopal gas tragedy shook the nation. The scale of it was numbing—more than 3,500 people died and 500,000 were injured in the immediate aftermath of the leak of methyl isocyanate gas from
Union Carbide India Ltd’s pesticide factory. Generations have been left maimed.
What followed, however, was the realization that if industrial development was unregulated and reckless—without adequate safeguards—the consequences could be far‐reaching. Alongside, the demand grew for accountability of industries that engage in potentially hazardous activities.
Thirty years on, it is pertinent to ask: Is India any better prepared today to deal with a similar tragedy?
The question acquires greater urgency amid a robust move by the government to promote manufacturing by foreign companies in India. Bhopal prompted a massive change in the legislative framework of disaster management and a number of laws were passed in its aftermath.
The judiciary began taking an active role in environmental protection. Nearly exactly a year to the
Bhopal gas tragedy—on 4 and 6 December 1985—the judiciary evolved what came to be called the
Doctrine of Absolute Responsibility in a case of oleum gas leak from a Delhi Cloths Mill factory owned by
Shriram Foods and Fertiliser Industries in Delhi.
To what extent are these laws relevant today? Have they been effectively used? Or is there a need for a more comprehensive law?
According to the website of the National Disaster Management Authority (NDMA), 130 chemical accidents had been reported around the country in the decade to October 2013, causing 259 deaths and
563 serious injuries. Since 1984, there have been several other industrial accidents, including a chlorine gas leak at Jamshedpur (2008), a fire at an Oil and Natural Gas Corporation Ltd (ONGC) platform at
Bombay High (2005), a toluene fire at a Ranbaxy Laboratories Ltd factory in Mohali (2003) and a chlorine gas leak in Vadodara (2002) that affected 250 people.
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Issues for IIM PI Process http://www.essaysforIIM.com In some cases, chemical accidents resulted from natural disasters—ammonia gas leaked at Oswal
Chemicals and Fertilisers Ltd at Paradip, Odisha, in 1999 during a supercyclone, and an earthquake damaged a phosphoric acid sludge containment at Bhuj, Gujarat, in 2001.
Clearly, India can boast of more than enough laws to tackle a chemical disaster. However, the effectiveness of these laws needs to be assessed. One important change that followed Bhopal and the oleum gas leak case came in 1987, when the Factories Act, 1948, was amended to extend the scope of risk from such industries.
What used to be a narrowly defined scope covering only workers and the premises of the factory was extended to the general public in the vicinity of the factory. The changes also provided for appraisal when hazardous industries were being set up or expanded.
On 20 December 1986, in a public interest litigation filed by environmental lawyer M.C. Mehta, a five‐ judge bench of the apex court defined “absolute liability”. “We are of the view that an enterprise which is engaged in a hazardous or inherently dangerous industry which poses a potential threat to the health and safety of the persons working in the factory and residing in the surrounding areas owes an absolute and non‐delegable duty to the community to ensure that no harm results to anyone on account of hazardous or inherently dangerous nature of the activity which it has undertaken,” the judgement said.
It noted that compensation needs to have a “deterrent effect” and must be reflect the “magnitude and capacity of the enterprise”. The larger and more prosperous the enterprise, the greater must be the amount of compensation payable by it, the court said.
When you look at the Factories Act, Chapter IV A got added after Bhopal, there are a few things that are particularly significant. One is the question of siting—that is, how you locate an industry. Where there are large populations and the industry that actually exists, we do not seem to know what to do with it.
Except in Delhi where they outlawed all such industries, courts have found siting to be a complicated exercise. But at least we are aware of (the issue of) siting.
The second is about the disaster management plan. It is a complete disaster. They are supposed to have disaster management plans that local authorities—which include hospitals, fire stations and the like— will know and are supposed to communicate to the local people what they are supposed to do in the event of a disaster. These plans are also supposed to be updated regularly. Many companies have disaster management plans for themselves, but what we learnt from Bhopal was the importance of communication on disaster to the local population. This has still not happened and people live in the vicinity of disaster and have no idea what a disaster is, what is likely to happen and what they are supposed to do in the event that it happens.
The Environment (Protection) Act, 1986, also has provisions for management of hazardous waste, but the rules were last amended in 2010.
In the aftermath of the Bhopal disaster, the environment ministry came up with the Manufacture,
Storage and Import of Hazardous Substances Rules, 1989, which detail and catalogue chemicals deemed
“hazardous” entering the country, the port of entry and the quantity imported.
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Issues for IIM PI Process http://www.essaysforIIM.com In addition, the Hazardous Wastes (Management, Handling and Transboundary Movement) Rules, 2008, provide for means of safe storage and disposal of “hazardous waste” (which is listed in its schedules) with the help of central and state pollution control boards. These rules also fix responsibility on those who have control over a facility dealing with such hazardous substances, and those who import, handle or transport such waste, making them “liable for all damages caused to the environment or third party” as well as payment of “financial penalties”.
In addition, there is the Chemical Accidents (Emergency Planning, Preparedness, and Response) Rules,
1996, which address gas leaks and similar events. The Chemical Accidents Rules seem to have been framed for the exact purpose of monitoring plants or industries like the Union Carbide plant in Bhopal. It sets up a Central Crisis Committee with the secretary of the environment ministry as chairman and twenty other members “to deal with major chemical accidents and to provide expert guidance for handling major chemical accidents”. It has provisions for state‐, district‐ and even local‐level crisis groups. The central crisis group is required to constantly monitor post‐accident situations, conduct analyses of these accidents and suggest preventive steps to avoid recurrence. Apart from being generic and to some extent vague, the rules don’t provide for any accountability or deterrence against the industries actually involved in these processes.
Next in India’s response was the Public Liability Insurance Act in 1991, which was supposed to provide for immediate and interim relief to disaster victims till their claims of compensation were finally decided. A cursory look at the provisions of this law shows that the amount of compensation is abysmally low and that it fails to provide for something basic such as inflation indexation. Owners of industries dealing in hazardous substances are required to take out insurance policies under this Act.
While on the one hand it requires the insurance policy to not be less than the paid‐up share capital of the company, on the other, it imposes a cap of Rs.50 crore on the policy. The provisions of the Act could seem dated in the present‐day scenario. In a system where it takes years for such claims to be decided, the compensation under this law is completely inadequate.
The National Green Tribunal (NGT) was set up by an Act of Parliament in 2010. The Act also provides for the “principle of no fault liability”, which means that the company can be held liable even if it had done everything in its power to prevent the accident. This principle still provides for exceptions like natural disasters. The compensation that is ordered to be paid by the NGT is credited to the Environmental
Relief Fund scheme, 2008, established under Public Liability Insurance Act of 1991.
In 2013, the NGT fined the Gujarat Pollution Control Board and cement company Ambuja Cements Ltd in a case involving leakage of toxic gases that damaged agricultural fields. While the Gujarat Pollution
Control Board was fined Rs.1 lakh, the company was fined Rs.5 lakh. From the facts of the case, it is clear that the compensation was decided between the affected farmers and the company, and that the NGT did not determine the amount.
What Bhopal and the many accidents that have followed it show us is that we only talk, but the affected persons are not given compensation and no liability is fixed on erring companies. Now the Prime
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Issues for IIM PI Process http://www.essaysforIIM.com Minister of India is talking about ‘Make in India’ and the government wants to give fast‐track clearances without looking at their impact on the environment. If we can give fast‐track clearances, why can’t we set up fast‐track courts to deal with claims arising out of such accidents?”
With the experience of Bhopal serving as a sobering of the poor implementation of the nation’s abundant legislation, experts are wary about India’s planned move to embrace nuclear energy.
The Civil Liability for Nuclear Damage Act, 2010, is the most recent law that has provision for compensation of more than Rs.100 crore, which could reach up to Rs.1,500 crore, depending on severity. It also comes with a cap of three million special drawing rights (SDR), an international reserve asset that countries can use to supplement their official reserves. The constitutional validity of this Act has been challenged in the Supreme Court and the case is pending.
The atomic power plants which have completed their lifespan of 30‐40 years have still not been decommissioned since there is no proper mechanism for that. Even the Nuclear Liability Act is inadequate to deal with such disasters.

DEVELOPING HUMAN CAPITAL
India is one of the fastest growing economies in the world, but the low quality of education in our schools threatens our dreams of global excellence. Far too many of our students complete school without the knowledge and skills that they need to find employment, while talent shortages limit corporate growth. Indeed, one of every three school graduates in India, upto the age of 29, is unemployed. Companies clearly have a strong incentive to invest in improving education quality. The Companies Act,
2013, which mandates qualifying companies to earmark 2% of their annual average profits for corporate social responsibility (CSR) activities, presents an important opportunity for corporate action.
Typically, companies focus their philanthropic efforts in education on building infrastructure. As part of the Swachh Bharat Abhiyan, for example, firms have recently committed to building separate girls’ toilets in all government schools.
While this initiative is critical for ensuring higher attendance and retention of girls in schools, we must complement it with interventions that drive quality changes. This is how we will ensure that girls’ attendance in school ultimately enables them to realize their potential.
As business leaders, we instinctively realize that the success of any enterprise is largely determined by its human capital, and not just its infrastructure. This is why we have a natural inclination to contribute to developing a skilled workforce. And, just as our employees drive our company’s outcomes, our education system’s human capital (teachers and school leaders) drives our students’ learning outcomes.
This recognition should inform how we invest.

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Issues for IIM PI Process http://www.essaysforIIM.com Research tells us that 25% of a school’s impact on student achievement is dependent on one person— the school principal. This confirms what we know as business people—leaders play a critical role in building great institutions. Companies can invest in programmes aimed at developing great school leaders, and can also draw on their own knowledge of leadership training to contribute to curriculum.
Another area where firms can apply their skills in human capital development is teacher training. Several organizations are working with government school teachers to equip them with skills that will prepare them for effective classroom delivery.
Without trained teachers and motivated principals, we will not be able to ensure that our children are actually learning. A collective recognition of some of these critical issues will have a multiplier effect and ensure maximum impact. As firms invest in human capital they should look to support innovative programmes with potential for scale, which can also serve as models for policy reform.
Improving the quality of our education will benefit all companies and industries alike by contributing to a better talent pool for our economy.
The quality of our education system cannot exceed the quality of our teachers and school leaders, and the success of our companies cannot exceed the talent of our workforce.

THE GROWTH DIVIDE
India’s growth rate has been strikingly uneven over the last decade, plunging from over 9% in the boom years between 2004 and 2007 to below 5% between 2012 and 2014. That’s a large part of the reason new Prime Minister Narendra Modi sailed into office so easily. If The PM wants to fulfill his promises to revive India, though, he’s going to have to address a different kind of disparity, one rooted in geography.
A new McKinsey study lays out some worrying projections. Between now and 2025, the report says, just eight out of India’s 29 states will account for 52% of India’s incremental growth. Adding in the four best‐ performing city‐states (out of seven in all), the share grows to 57%. Together, these cities and states are home to only a third of India’s billion‐ plus population.
The problem is that no states from India’s vast, heavily populated central and eastern regions feature in the high‐performing category. These states are countries unto themselves: With 200 million residents,
Uttar Pradesh is about the same size as Brazil. Just three states (Uttar Pradesh, Bihar and West Bengal) make up 30% of India’s population today and, if present fertility trends continue, will account for even more in 2025.
This isn’t a new problem. Throughout the 1990s and 2000s, a combination of states in central India
(Bihar, Madhya Pradesh, Rajasthan and Uttar Pradesh) were known by the acronym Bimaru, which means “sick” in Hindi. More recently, new leadership has turned several of them around: Madhya
Pradesh has averaged over 10% growth for the past three years. Still, they will all need to grow much faster than India’s advanced states in order to catch up. This presents a challenge for The PM.

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Issues for IIM PI Process http://www.essaysforIIM.com In theory, in a fiscal and monetary union like India, richer states would in effect subsidize their poorer brethren, through revenue transfers to fund infrastructure, education and health, as well as industrial development. At the same time, migrants would move to where the jobs are—relieving population pressures at home and sending back remittances that would spur the local economy.
In theory, the PM can force states to share their revenues. In practice, even the best‐performing regions still lag far behind income levels in advanced countries, and they will fight to invest their resources closer to home. Several relatively wealthy areas—Maharashtra and its capital Mumbai, in particular— have long histories of chauvinist politics, focused on outsiders “stealing” jobs and draining public services. An influx of new migrants would surely spark a backlash.
Nor can the PM easily spur development using federal funds. The key factor holding back poorer states is a lack of infrastructure—both physical (roads and airports) and social (education and health). State governments control both.
So what can the Prime Minister do? Several of the laggard states are entirely landlocked, which hardly makes them attractive destinations for industry. But, being located in the fertile Gangetic plains, they do have strong agricultural economies.
If government reversed its opposition to foreign investment in multi‐brand retail, new businesses could link farmers in these states to modern supply chains, boosting incomes. The government could also go further in liberalizing India’s service sectors, particularly banking and insurance. That would create good jobs that could be located anywhere.
The PM can also encourage India’s better‐off states, especially those controlled by his own Bharatiya
Janata Party (BJP), to push ahead with labour and land reforms that would unlock growth. The worst‐ performing states all suffer from bad leadership. Local powerbrokers have relied on divisive caste politics and wasteful populist polices to cling to office. Seeing other states race ahead might spur voters to demand better leaders. If their problems are local, their solutions will have to be, too

MASALA BONDS DEMYSTIFIED
International Finance Corp. (IFC), an investment arm of the World Bank, has issued a 10‐year, Rs.1,000‐ crore bond in London to fund infrastructure projects in India. These bonds, which will be listed on the
London Stock Exchange (LSE), are called masala bonds.
WHAT ARE MASALA BONDS?
Masala bonds are Indian rupee denominated bonds issued in offshore capital markets. These will be offered and settled in US dollars to raise Indian rupees from international investors for infrastructure development in India. IFC will convert bond proceeds from dollars into rupees and use the rupees to finance private sector investment in India.
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Issues for IIM PI Process http://www.essaysforIIM.com IFC has named these ‘Masala’ bonds as ‘masala’ is a globally recognized term that evokes the culture and cuisine of India. This is not the first time that a bond has been named after the food or culture of a country. Chinese bonds, for example, are called Dim sum bonds, and Japanese ones as Samurai bonds.
WHAT’S ON OFFER?
This is a 10‐year bond with a yield of 6.3% and a AAA benchmark rating. This is not the first rupee denominated offshore issuance to be settled in dollars. IFC had earlier issued offshore rupee bonds with maturities up to seven years. Though there are other offshore rupee bonds, this issuance will be the first to be listed on a stock exchange. The proceeds will be used for infrastructure investment in India through infrastructure bonds issued by Axis Bank Ltd, which plans to raise Rs.6,000 crore by March 2015 through sale of long‐term infrastructure bonds. IFC will support private investment in the infrastructure sector and sectors that contribute to economic growth and job creation. Hence, future Masala bond issuances may support other kinds of related private sector investments.
WHAT DOES THE ISSUE MEAN?
Issuances in overseas financial centres such as London give countries like India a chance to tap global investors for funding investment needs.
The IFC Masala bonds are a boost for Indian rupee‐denominated issuances as listing on LSE will provide visibility, and set a benchmark for yields in future issuances.
It could also increase demand for similar products later as liquidity of these bonds goes up.
This also shows the confidence of international investors in the Indian economy and its currency.
It is a small step towards internationalization of the Indian currency.
By allowing domestic firms to raise rupee‐denominated debt in international capital markets, it reduces currency risk, that is instead taken on by foreign investors interested in taking exposure to the Indian currency.
Considering the mobilization via masala bonds is intended to support infrastructure development, a segment that generates no foreign currency income—which makes foreign currency‐denominated debt extremely risky due to mismatches that may arise from changes in currency values—seeking foreign capital that is rupee‐linked makes sense.

NET NEUTRALITY
Internet is built around the idea of openness. It allows people to connect and exchange information freely, if the information or service is not illegal. Much of this is because of the idea of net neutrality. If you like the current state of the internet, you should know about net neutrality.
What is net neutrality?
Net neutrality is an idea derived from how telephone lines have worked since the beginning of the
20th century. In case of a telephone line, you can dial any number and connect to it. It does not matter if you are calling from operator A to operator B. It doesn't matter if you are calling a
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Issues for IIM PI Process http://www.essaysforIIM.com restaurant or a drug dealer. The operators neither block the access to a number nor deliberately delay connection to a particular number, unless forced by the law. Most of the countries have rules that ask telecom operators to provide an unfiltered and unrestricted phone service.
When the internet started to take off in 1980s and 1990s, there were no specific rules that asked that internet service providers (ISPs) should follow the same principle. But, mostly because telecom operators were also ISPs, they adhered to the same principle. This principle is known as net neutrality. An ISP does not control the traffic that passes its servers. When a web user connects to a website or web service, he or she gets the same speed. Data rate for Youtube videos and Facebook photos is theoretically same. Users can access any legal website or web service without any interference from an ISP.
Some countries have rules that enforce net neutrality but most don't. Instead, the principle is followed because that is how it has always been. It is more of a norm than a law.
How did net neutrality shape the internet?
Net neutrality has shaped the internet in two fundamental ways.
One, web users are free to connect to whatever website or service they want. ISPs do not bother with what kind of content is flowing from their servers. This has allowed the internet to grow into a truly global network and has allowed people to freely express themselves. For example, you can criticize your ISP on a blog post and the ISP will not restrict access to that post for its other subscribers even though the post may harm its business.
But more importantly, net neutrality has enabled a level playing field on the internet. To start a website, you don't need lot of money or connections. Just host your website and you are good to go.
If your service is good, it will find favour with web users. Unlike the cable TV where you have to forge alliances with cable connection providers to make sure that your channel reaches viewers, on internet you don't have to talk to ISPs to put your website online.
This has led to creation of Google, Facebook, Twitter and countless other services. All of these services had very humble beginnings. They started as a basic websites with modest resources. But they succeeded because net neutrality allowed web users to access these websites in an easy and unhindered way.
What will happen if there is no net neutrality?
If there is no net neutrality, ISPs will have the power (and inclination) to shape internet traffic so that they can derive extra benefit from it. For example, several ISPs believe that they should be allowed to charge companies for services like YouTube and Netflix because these services consume more bandwidth compared to a normal website. Basically, these ISPs want a share in the money that YouTube or Netflix make.
Without net neutrality, the internet as we know it will not exist. Instead of free access, there could be "package plans" for consumers. For example, if you pay Rs 500, you will only be able to access websites based in India. To access international websites, you may have to pay a more. Or maybe

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Issues for IIM PI Process http://www.essaysforIIM.com there can be different connection speed for different type of content, depending on how much you are paying for the service and what "add‐on package" you have bought.
Lack of net neutrality, will also spell doom for innovation on the web. It is possible that ISPs will charge web companies to enable faster access to their websites. Those who don't pay may see that their websites will open slowly. This means bigger companies like Google will be able to pay more to make access to Youtube or Google+ faster for web users but a startup that wants to create a different and better video hosting site may not be able to do that.
Instead of an open and free internet, without net neutrality we are likely to get a web that has silos in it and to enter each silo, you will have to pay some "tax" to ISPs.
What is the state of net neutrality in India?
Legally, the concept of net neutrality doesn't exist in India. Sunil Abraham, director of Centre for internet and Society in Bangalore, says that Trai, which regulates the telecom industry, has tried to come up with some rules regarding net neutrality several times. For example it invited comments on the concept of net neutrality from industry bodies and stakeholders in 2006. But no formal rules have been formed to uphold and enforce net neutrality.
However, despite lack of formal rules, ISPs in India mostly adhere to the principal of net neutrality.
There have been some incidents where Indian ISPs have ignored net neutrality but these are few and far between.
Will the concept of net neutrality survive?
Net neutrality is sort of gentlemen's agreement. It has survived so far because few people realized the potential of internet when it took off around 30 years ago. But now when the internet is an integral part of the society and incredibly important, ISPs across the world are trying to get the power to shape and control the traffic. But there are ways to keep net neutrality alive.
Consumers should demand that ISPs continue their hands‐off approach from the internet traffic. If consumers see a violation of net neutrality, they ought to take a proactive approach and register their displeasure with the ISP. They should also reward ISPs that uphold the net neutrality.

TRADE FACILITATION AGREEMENT
What is TFA and controversy surrounding it?
Trade facilitation agreement (TFA) is a trade protocol aiming to give a spur and do away with the stumbling blocks in doing international trade between various countries.
The deadline to sign the agreement is July 31 and the deal has to come into force fully by 2015.
It is being believed, especially by the proponents of the agreement that deal could add $1 trillion to global GDP and also can generate 21 million jobs by slashing red tape and streamlining customs.

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Issues for IIM PI Process http://www.essaysforIIM.com The developing country especially India and South Africa wants that before pushing for this TFA thing why WTO don't discuss and allay our concern on food subsidy which is a lifeline for lakhs of
BPL people in these countries. What was agreed upon in Bali summit?
Last year in Indonesia, during Ninth Ministerial Conference, largely three issues were taken into account. They were Package for Least Development Countries (LCDs), Trade facilitation and agriculture.
In the meeting, the 160‐member WTO had reaffirmed their commitment for duty free and quota free market access for LCDs.
Reactions on the issue:
Michael Froman, US trade representative said, "India clearly and forcefully expressed its concern that work proceeds on all fronts, including food stockpiling, and received assurances that all G20 members are committed to the full implementation of all Bali agreements on the agreed timetables". "India is quite influential, so let's hope that they're going to back down in some way," Peter
Gallagher, an expert on free trade told
When asked about the issue, an Indian official told Business Standard, "The way things are moving, there is no way we can agree to the trade facilitation agreement being pushed by the developed nations at WTO within the prescribed deadline. Food security has always been India's main concern and this time we are not going to concede".
According to the Indian Express report, Commerce secretary Rajeev Kher through a statement said that it will be really difficult for India to sign the TFA till WTO members are ready to discuss a permanent solution of food subsidies and stockpiling of food grains.
India's concerns
India is maintaining its bullheaded approach because of two issues, food subsidies and stockpiling of food grains.
India at present is running a massive food procurement programmes by providing minimum supporting price to the farmers and giving subsidised food to lakhs of BPL families through its public distribution system (PDS).
The new WTO agreement limits the value of food subsidies at 10 percent of the total food grain production. India is flexing muscle on the issue because subsidies have been calculated by WTO taking 1986 as base year into account which will largely affect food procurement programme through MSP.
India is raising its concerns by saying that while US is providing 120 billion as agriculture subsidy then why India can't give even one tenth (USD 12 billion) to their farmers.
India which is home to about 25 percent of the world's hungry, has a viewpoint that it is a
Government's responsibility and duty to ensure availability of proper food to its people.
Moreover, India's food programme is largely domestic so it doesn't distort global food trade. The
Indian sources say that once the TFA will be implemented it will be difficult to bargain on the food subsidy thing and that is why India has this brazen attitude.
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Issues for IIM PI Process http://www.essaysforIIM.com What was the outcome
The deal between India and the U.S. on the contentious issue of public stockholdings of foodgrains for security should put the global trade negotiations back on track.
The bilateral compromise provides the much‐needed window to save the multilateral TFA, a significant step in the history of the World Trade Organization (WTO).
The deal with the U.S. now provides for an indefinite peace clause until a permanent solution is found to the farm subsidy issue. The deal is a reflection of the Modi government’s assertion of national interest while being flexible on modalities.
The “Peace Clause” also, therefore, grants India an indefinite immunity from all future disputes even if India exceeds the 10 per cent prescribed limit for granting farm subsidies to its poor and marginal farmers. According to WTO rules, developing countries can offer subsidies on crops based on 10 per cent of their total production. As a result, the December GC meet assumes importance in laying down a road map to arrive at a permanent solution to the food stockholding issue that will require amending its Agreement on Agriculture.
India has notified its farm subsidies to the WTO at $56 billion over the seven years from 2004‐05 till
2010‐2011, as a proof that it had not breached the prescribed limit of 10 per cent on such help.
With this deal in place, the TFA could become a reality. Of course, the bilateral pact will have to be ratified by the WTO but with the U.S. showing the way, other members would find it acceptable. It underscores once again the dominance of the U.S. in a multilateral global forum even while it is a recognition of India’s place in the global economic environment.

PEACE CLAUSE CONUNDRUM
Every time anxiety surrounds on one or the other issue at WTO Ministerial Conference; this time the anxiety surrounded the proposed Peace Clause in relation to the domestic support commitments of member countries on agriculture.
The main source of the problem is Agreement on Agriculture (AoA)
WTO members undertook to reduce domestic subsidies by 20% from the aggregate measure levels prevailing in 1986‐88 and for Agrarian countries like India; the obligation was that the aggregate measure levels of support would not exceed the 10% limit in future.
The thinking at that time was that, in view of the high levels of support in the major industrialised countries, normal rates of inflation should be allowed to erode the aggregate measure of support, so as to obtain an effective reduction higher than the committed level of 20%. However, the Agreement provides relief to members suffering from excessive rates of inflation.
In the Geneva talks G33 group of developing countries found it necessary to seek an across‐the‐board permanent solution, since they are on the verge of breaching the 10% limit.
G33’s demand for such a solution merits attention in the context of the radically changed world food scenario. In 1986‐88, food supplies were chasing demand across the world: in 2013, demand is chasing supplies and the rules need to be updated to take this reality into account.

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Issues for IIM PI Process http://www.essaysforIIM.com The major industrialised countries have solved their problem by moving out of market price support and into decoupled income support, but problems might arise for the developing countries that still rely on market price support.
The text circulated for the Bali meeting proposed to establish a work programme to pursue the issue of compliance with obligations on domestic support with respect to traditional staple food crops.
Since finding a solution to the problem will take time, a Peace Clause has been proposed in the interim, seeking to give immunity to WTO members from disputes with regard to commitments on domestic support. The G33 had taken the line that the Peace Clause should remain valid until a final solution to the problem had been found, but the text forwarded to members states that the clause would be valid for four years. Later in the Bali summit, the solution was found to be the former.
The text also envisages that WTO members seeking immunity from disputes will notify the relevant measures and furnish certain other additional information. There can really be no objection to members seeking such information in return for immunity against disputes.
Some trade policy analysts have doubted the need for a Peace Clause from India’s perspective; the argument is that for countries like India, Article 18.4 provides a good basis for tackling the problem caused by the fixed external reference price.
There is no compulsion to seek recourse to the Peace Clause and any member wishing to avoid the need to furnish additional information or to stay clear from the perceived additional substantive obligation may elect to do so.
In Bali negotiations, India had a strong ground on which it can argue for a favourable decision on a formula approach rather than a case‐by‐case approach on the issue of inflation and there are broader and systemic considerations that make it imperative for India to be a part of the solution rather than a problem at Bali.

SECTION 3(D) OF PATENTS ACT
Patent system is a contract between the inventor and authority whereby the inventor gets exclusive rights for a period of 20 years in return for disclosing full details of the invention. The main purpose of patent system is to encourage innovation and eventually results in technological development.
The present Patents Act, 1970 came into force in the year 1972, amending and incorporating the existing laws relating to Patents and Designs act 1911 in India.
The Patent (amendment) Act 2005 came into force from 1st January 2005, which brought changes in the previous patent system of India wherein product patent was extended to all subjects of technology consisting of food, drugs, chemicals and micro organisms.
Moreover, Section 3(d) introduced in to the said amendment act 2005 and introduces pharmaceutical product patents in India for the first time.
The Patent (amendment) Act 2005 defines what invention is and makes it clear that any existing knowledge or thing cannot be patented. The provision defines that a 'novelty' standard ‐ which, along
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Issues for IIM PI Process http://www.essaysforIIM.com with 'non‐obviousness' or 'inventive step' and industrial applicability, are the three prerequisites for
'patentability'.
"Discovery" essentially refers to finding out something which already existed in nature but was unknown or unrecognised. Therefore, discoveries are excluded from patent protection under section 3 of the Indian
Patent Act 1970.
Section 3(d) stipulates that –
The mere discovery of a new form of a known substance which does not result in the enhancement of the known efficacy of that substance or the mere discovery of any new property or new use for a known substance or of the mere use of a known process, machine or apparatus unless such known process results in a new product or employs at least one new reactant, is not patentable.2
Mere discovery of a new form of known substance
A mere discovery of a new property of known substance is not considered patentable. For instance, the paracetamol has antipyretic property. Further discovery of new property of paracetamol as analgesic can not be patented. Similarly, ethyl alcohol is used as solvent but further discovery of its new property as anti knocking, thereby making it usable as fuel, can not be considered patentable.
Mere discovery of any new use of known substance
For instance, new use of Aspirin for treatment of the cardio‐vascular disease, which was earlier used for analgesic purpose, is not patentable. However, a new and alternative process for preparing Aspirin is patentable. Similarly, the new use of methyl alcohol as antifreeze in automobiles is not patentable. The use of methanol as a solvent is known in the prior art. A new use has been claimed in this claim as antifreeze which is not allowable.
The main objective of this section is to prevent several pharmaceutical companies from obtaining patents on old medicines which are just a mere increment or trivial improvement of the known substances and also a refusal to the patent on discovery of new form or new use of old drugs.
The most recent case, Novartis AG v Union of India decided by Supreme Court of India in 2013 where the case began in the year 1997 with patent application filed by the petitioner before Chennai patent office related to drug name GLIVEC which was slightly a different version of their 1993 patent for ANTI
LEUKAEMIA drug. In this case the Assistant Controller of Patent and design, Chennai Patent Office rejected the application under section 3(d) of the Indian patent act 1970. Consequently the petitioner challenged the constitutionality of section 3(d) before High Court at Madras.
The applicant in the present appeal contented on two issues:
Section 3(d) is unconstitutional as it violates the provision of the TRIPS agreement.
The Indian patent act doesn't define the term 'efficacy' and provides unguided power on the
Controller. Hence it is arbitrary, illogical and vague.
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Issues for IIM PI Process http://www.essaysforIIM.com In response to the above contention the court held that:
The WTO's Dispute Settlement provides the exclusive remedy and a comprehensive dispute mechanism for violation of TRIPS Agreement. The High Court looked into the conflict between the international law and municipal law and decided that municipal law prevails in such conflict.
Moreover, in India, international treaties are not directly enforceable.
The court also rejected the second contention that the provision is providing unguided power to the patent controller being arbitrary on the basis of the term 'efficacy' was undefined and therefore the court observed that "Efficacy means the ability to produce a desired or intended result. Hence, the test of efficacy in the context of section 3(d) would be different, depending upon the result the product under consideration is desired or intended to produce. In other words, the test of efficacy would depend upon the function, utility or the purpose of the product under consideration. Therefore, in the case of a medicine that claims to cure a disease, the test of efficacy can only be 'therapeutic efficacy.'
Therefore it is found that the Novartis' patent application for the beta‐crystalline form of Imatinib
Mesylate (polymorph B) did not pass the test of section 3(d) as it did not have any enhanced therapeutic efficacy. The Supreme Court thereby upheld the observation of the High Court and Indian Patent office and rejected the patent application filed by the petitioner

SYSTEMICALLY IMPORTANT BANKS
The Reserve Bank of India has said that up to six banks will be designated as Domestic systemically important, or D‐SIBs, for the domestic financial market and will need to have higher capital than their peers to prevent the financial system from collapsing if there is a crisis.
The central bank said it would now go about identifying these banks which are too big to fail and would release a list of names in August 2015.
The D‐SIBs will also be required to maintain additional equity capital ranging from 0.2% to 0.8% of risk‐weighted assets, based on how systemically important they are.
State Bank of India, Punjab National Bank, Citibank, Standard Chartered Bank, ICICI Bank and HDFC
Bank may be among the six, according to consultants and analysts. Banks falling in this category will have to set aside more capital per loan than their peers.
The categorization is part of the Basel III norms on risk supervision, which were put in place after the global credit crisis of 2008. The crisis showed that a handful of large, highly interconnected banks, once in stress, could lead to a system‐wide collapse and may need to be bailed out with public money.
The framework issued for Indian banks is a slightly modified version of the existing norms by Basel
Committee on Banking Supervision.
Size, interconnectedness, lack of readily available substitutes or financial institution infrastructure and complexity will determine the systemic importance of banks as determined by Basel global standards.
But, in India, size would be assigned higher weight than other factors, said RBI.

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Issues for IIM PI Process http://www.essaysforIIM.com Based on which category the bank falls, it has to set aside 0.2% to 0.8% of the loan as capital buffer.
In other words if the bank was setting aside Rs 1 earlier, it would now have to set aside between Rs
1.20 and Rs 1.80.
Banks having a size beyond 2% of GDP will be selected in the sample. However banks whose size is less than
2% of GDP may also face tighter norms.
Banking regulators across the world are tightening capital norms for banks and other key financial institutions as the lack of capital was seen as a root cause of the 2008 credit crisis that threatened to bring down the global financial system. Although bankers were able to beat back tough capital norms in some instances, overall the regulators have managed to tighten a bit.
Some analysts say that the new regulations, whenever they are implemented, may not prove to be such a drag on banks' profitability or make their life difficult since most of them have capital which is well above prescribed levels.

NEW POVERTY LINE
Those spending over Rs 32 a day in rural areas and Rs 47 in towns and cities should not be considered poor, an expert panel headed by former RBI governor C Rangarajan said in a report submitted to the
BJP government last week.
The recommendation, which comes just ahead of the budget session of Parliament, is expected to generate fresh debate over the poverty measure as the committee's report has only raised the bar marginally. Based on the Suresh Tendulkar panel's recommendations in 2011‐12, the poverty line had been fixed at Rs 27 in rural areas and Rs 33 in urban areas, levels at which getting two meals may be difficult.
The Rangarajan committee was tasked with revisiting the Tendulkar formula for estimation of poverty and identification of the poor after a massive public outcry erupted over the abnormally low poverty lines fixed by UPA government.
The panel's recommendation, however, results in an increase in the below poverty line population, which is estimated at 363 million in 2011‐12, compared to the 270 million estimate based on the
Tendulkar formula — an increase of almost 35%.

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Issues for IIM PI Process http://www.essaysforIIM.com This means 29.5% of the India population lives below the poverty line as defined by the Rangarajan committee, as against 21.9% according to Tendulkar. For 2009‐10, Rangarajan has estimated that the share of BPL group in total population was 38.2%, translating into a decline in poverty ratio by 8.7 percentage points over a two‐year period.
The real change is in urban areas where the BPL number is projected to have nearly doubled to 102.5 million based on Rangarajan's estimates, compared to 53 million based on the previous committee's recommendations. So, based on the new measure, in 2011‐12, 26.4% of the people living in urban areas were BPL, compared to 35.1% in 2009‐10.
In case of rural areas, the rise is of the order of 20% to 260.5 million, compared to around 217 million based on the Tendulkar formula. Rangarajan's estimates would put the BPL share of total population in rural areas at 30.9%, compared to 39.6% in 2009‐10.
Documents accessed by TOI show that the Rangarajan panel has suggested to the government that those spending more than Rs 972 a month in rural areas and Rs 1,407 a month in urban areas in
2011‐12 do not fall under the definition of poverty.
If calculated on a daily basis, this translates into a per capita expenditure of Rs 32 per day in rural areas and Rs 47 per day in urban areas in 2011‐12.
As per the Tendulkar methodology for 2011‐12, the poverty line was Rs 816 in rural areas and Rs
1,000 in urban areas, which if calculated on a daily basis come out at Rs 27 per day in rural areas and
Rs 33 in urban areas.
A top government source pointed out that the panel has recommended that poverty ratio should be delinked from entitlements given by the government under social security schemes.
The panel, which examined the existing methodology for estimating poverty based on the suggestions made by Tendulkar, reviewed the divergence between National Sample Survey estimates on consumption expenditure and those put up by the Central Statistical Organization
(CSO).

NSEL SCAM
Thousands of wealthy investors, companies and PSUs like MMTC and PEC invested in a complex, high‐ return financial product that many brokers were pushing in the last few years. Now, their money is stuck.
What was the deal like?
An investor would lend money for 25‐36 days against commodities like castorseed, wool and sugar stocked in warehouses. Deals happened on the National Spot Exchange (or NSEL) — a platform to match investors and borrowers' orders. The returns were as high as 15%‐16%.
What is NSEL?
It's a spot commodity exchange few had heard of before it defaulted on payments on July 31. Unlike other exchanges, there is no specific law to govern it. Those who ran the exchange used this loophole. But why did borrowers raise money through NSEL? The investors could have lent them directly... No investor would
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Issues for IIM PI Process http://www.essaysforIIM.com directly lend money to a commodity trader in Ludhiana or Kanpur. No bank would touch these borrowers.
But investors don't worry about defaults when there is an exchange in between.
What's the chaos all about?
For higher returns, many wealthy investors, companies and even PSUs put money in a strange product hawked by wealth managers. Now they fear the money is stuck.
What was the deal like?
An investor would lend money for 25‐30 days against receipts of commodities stocked in a warehouse. All transactions happened on the National Spot Exchange, a platform to match investors (or lenders) and borrowers. The returns were as high as 14‐15%.
How could it go on for so long?
It began with two contracts ‐ 'T plus 2' and 'T plus 25' ‐ that were simultaneously signed by borrowers and the investors. Under T plus 2 — which meant money changed hands two days after a trade — investor gave money and collected a letter from their brokers. The letter said certain commodity was stocked in a warehouse. This was based on warehouse receipt that borrowers submitted to NSEL.
After 25 days, a borrower was supposed to pay back money and take back the receipt. But the cycle did not end there. Borrowers paid interest to investors after 25 days and the two parties would roll over positions by entering into two new contracts. This went on for months.
So, it was like a co raising fixed deposits?
Yes and no. Since the transactions happened on a spot exchange, borrowers and lenders entered into a pair of contracts for every deal. First, there was a three‐day contract that said within two days of signing it, the investor will lend the money and the borrower will hand over a warehouse receipt. Simultaneously, they entered into a 26‐day contract, which said 25 days after cutting the deal, the borrower will pay back a pre‐agreed amount and get back the receipt. The difference between the money lent and paid back captured the interest return. But, after the music stopped, many felt the exchange was no different from a finance company.
Why this elaborate arrangement?
The respectability and legitimacy of an institution like a licensed stock exchange made all the difference.
No HNI investor would have lent crores to unknown commodity trader or unheard of companies with few lakhs of capital. But since the exchange was guaranteeing the trades, they had no problem.
How was the money deployed?
The money borrowed was rarely paid back after 26 days. On the contract's expiry, the borrower just paid the interest to the lender and the two parties would roll over the positions by entering into a new but

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Issues for IIM PI Process http://www.essaysforIIM.com similar contracts. This would go on for months. This was similar to the now banned badla finance, once the lifeline of stock markets.
How did it fall apart?
In end July, the government directed NSEL not to issue any new contract. A new contract does not mean a new product ‐ even rolling over existing contracts call for entering into new contracts. This brought all trades to a halt. FMC had warned the exchange a year ago, but the latter felt it would find a way out.
Why can't borrowers repay the money?
Some may have parked the money in illiquid assets like properties. There are also fears that commodity stocks in warehouses may be much lower than what the receipts claim. Unlike chit fund investors, the borrowers in NSEL contracts are wealthy investors who may go after the brokers and the exchange. There are 13,000 investors (or lenders) and 25 borrowers.
Why did the music stop?
In July, the government directed NSEL not to issue any new contract. As a result, the positions could not be rolled over. A year ago the commodity market regulator had warned the exchange that these contracts were illegal. But NSEL thought it would find a way out. Eventually, the government panicked and shut down the exchange. But why default? Couldn't the commodity stocks be sold to pay back the investors?
There were no commodity stocks. This is the crux of the scam. Warehouse receipts were forged, godowns were empty, and borrowers diverted money to properties. One of them had even sent funds to his son in
Dubai.
Any hope for investors?
Angry investors, NSEL promoters and the Mumbai police are trying to attach properties of borrowers. It could take a long time and not all the money may be recovered.

PLUGGING OF LOOPHOLES IN DTAA
To further ring‐fence its jurisdiction from any attempts of round‐tripping and money laundering activities, Mauritius has agreed to include a ‘limitation of benefits (LOB)’ clause in its revised tax treaty with India.
While specific details of this clause in the India‐Mauritius tax treaty are being ironed out, LoB clauses are typically aimed at preventing ‘treaty shopping’ or inappropriate use of tax pacts by third‐country investors. The LOB clause limits treaty benefits to those who meet certain conditions including those related to business, residency and investment commitments of the entity seeking benefit of a Double Taxation
Avoidance Agreement (DTAA).
While a DTAA is already in place between two countries, it is being revised amid concerns that the
Indian Ocean nation was being used for round—tripping of funds to and from India,
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Issues for IIM PI Process http://www.essaysforIIM.com although Mauritius has always maintained that there have been no concrete evidence of any such misuse. The two countries had signed this DTAA in 1982 when late Indira Gandhi was India’s Prime Minister and was part of various steps initiated by the two countries at that time for strengthening the flow of investments to and from Mauritius.
While Mauritius has traditionally been one of the biggest source of FDI into India, the flow has slowed in recent years. On the other hand, flow of global investments through Mauritius has shifted in favour of Africa.
India’s share in total number of investments made by global companies through Mauritius has almost halved in the past two years to about 15 per cent, while Africa now accounts for over 50 per cent.
Mauritius, which has a large population of Indian origin people, has also been projecting itself as a
‘gateway to Africa’ for quite sometime now.

TALKS FOR INDIA‐EU FTA SUSPENDED
The long‐negotiated ambitious Free Trade Agreement (FTA) between India and its largest trading partner European Union (EU) will remain in the doldrums till a new government takes over in New
Delhi next year.
Top EU officials now virtually acknowledge that further progress on "the few remaining contentious issues" in the proposed FTA, which has missed several deadlines in the past, is highly unlikely with
India heading for general elections next year.
EU, which itself will undergo a leadership change in May and is busy negotiating similar pacts with the
US and Japan, is willing to wait and watch.
Both India and the 28‐nation bloc agree the FTA, or the Broad‐based Trade and Investment Agreement
(BTIA) as it is formally called, will give a major fillip to the two‐way trade (currently around 78 billion euros) as well as bolster the bilateral strategic partnership.
But despite being in the works since 2007 to remove bilateral trade barriers, the BTIA is finding it tough to surmount the few remaining hurdles in its last lap with both sides unwilling to budge from their respective positions.
India wants EU to provide greater market access in the services and pharmaceutical sectors, data security status for its IT sector and liberalized visa norms for its professionals. EU, in turn, is pressing
India hard for "reforms'' in the banking & insurance, wines & spirits, intellectual property regime, automobile and public procurement sectors.
The BTIA, if and when inked, will be a landmark one as the EU will for the first time seal such an agreement with an emerging economy like India. India, too, will for the first time enter into such a comprehensive agreement with an economy outside Asia.

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TELANGANA AND WATER DISPUTES
The creation of Telangana State is set to add to the list of potentially volatile inter‐state river water disputes. Already, the sharing of Krishna waters in particular is a bone of contention between existing states
— Maharashtra, Karnataka and Andhra Pradesh. Throwing a newly created Telangana into this will make it even more complex.
If the experience of the Cauvery dispute is any guide, a centralised mechanism, instead of a decentralised river basin authority, may only add to the difficulty of finding an acceptable solution.
The century‐old Cauvery dispute has taught us that while the conflict may be played out over the sharing of water, deciding the principles for such sharing can take us into a territory that goes well beyond hydrology.
The delta regions had developed irrigation centuries earlier than the other parts of the Krishna basin.
When the upper riparian regions developed the ability to tap this water through large dams, it prompted a basic question on the sharing of river waters: was it right to pursue an equitable distribution across all parts of the basin, or should the upper riparian regions first protect the access to water that the delta regions had had for centuries?
Any negotiations between a Telangana state and Seemandhra has the potential to tap divisions that go back centuries. Telangana was a part of the Nizam’s Dominions, while delta regions formed a part of the Madras Presidency. Add the long battle for the creation of Telangana to new disputes over
Hyderabad, and it may be much too optimistic to assume the environment of give‐and‐take needed for an amicable solution on water sharing.
It may be more rewarding to shift the focus from a centralised authority to one that is much more sensitive to the concerns of those who are affected. Farmers in the basin are impacted not just by the sharing of waters between states, but also the distribution within states.
The official response to river water disputes that the creation of Telangana will bring will tell us whether we are ready as a nation to tap the opportunities of democratic decentralised river basin authorities ‐‐‐ or whether we must resign ourselves to more years of potentially violent interstate water conflicts.

WARSAW CLIMATE CHANGE NEGOTIATIONS
The Warsaw negotiations delivered little on climate change issues but there are impending tasks ahead to hammer out a deal by 2015.
The Warsaw Climate Change Conference 2013 was held in the month of November.
Key decisions adopted at this conference include decisions on further advancing the Durban
Platform, the Green Climate Fund and Long‐Term Finance, the Warsaw Framework for REDD Plus, the Warsaw International Mechanism for Loss and Damage and other decisions.
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Issues for IIM PI Process http://www.essaysforIIM.com There were three expectations from developed countries:‐
Commitment on annual $100‐billion kitty starting 2020,
Setting up of a separate channel of fund flows for vulnerable countries that suffer loss and damage from inevitable climate change
To build trust that they would up their existing pledges to reduce emissions between now and 2020.
The developed countries were keen that the basic framework for the 2015 agreement put together at Warsaw ensures that the existing distribution of burden between developing and developed economies would not remain so in the new regime.
The Brazilian move backed by the G77, including the LDC, the AOSIS and the Africa Group, to account for historical emissions in the negotiations, was blocked by the developed countries. The outright rejection of the Brazilian proposal made it evident that key parameter of
“historical emissions” would find little or no space in this new index rendering any conceptual idea of equity reference framework iniquitous in application.
The game drew down to the level that the developed countries refused to use the phrase
“commitments” for their actions unless developing countries did so too.
In this battle where the rich world does not want to be the leader on climate change any more, and has forced the emerging economies to defend their economic and atmospheric space, the AOSIS, the Africa group and the LDCs face the most difficult time ahead.
Economic dependence of developing countries veers them to a position of geopolitical weakness in the new world order.
Asking developed countries to do more under the present circumstances is the equivalent of asking the emerging economies to pay for their future possible “crimes” while asking everyone to forget the actual crimes committed till date

INDIA AND CLIMATE TALKS IMPERATIVES
19th COP/COP 19 (Conference of Parties) of UNFCCC started in Warsaw on 11th November
Key issue at Warsaw, along with other significant subjects on the agenda, centres around moving forward the negotiations on the Durban Platform for Enhanced Action (DPA) initiated at COP 17 two years ago.
DPA was a game‐changer in negotiations as it is based on clear commitments to emissions reduction from all nations.
Subsequent negotiations have resulted in demanding timeline for achieving its aims, including a draft text to be produced by the COP in 2014, and a final agreement on the issue to be reached by COP 21 in 2015.
At the UNFCCC, the European Union has been the most active in pushing forward the agenda of the
Durban Platform, along with South Africa, and major island nations of the world where they want an effective treaty regarding emission reduction from all nations.

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Issues for IIM PI Process http://www.essaysforIIM.com The United States has pursued a two‐track policy with respect to the DPA. On the one hand, the U.S. insists that it would undertake only such emissions reductions as it deems feasible, a strategy that is referred to as the “bottom up” approach in the global climate discourse. On the other hand, it has not hesitated to support the DPA supporting group,especially when such commitments are to be imposed on China and India.
India needs an early climate agreement on the issue for two reasons. One, there is increasing evidence that global warming has led to change in rainfall pattern and other climatic events which in turn have led to large scale destruction. Second is the enhanced climate variability that accompanies global warming will have serious impacts on Indian farmers who even today suffer the consequences of weather and climate shocks, before the effects of global warming have risen to more alarming levels.
An early climate agreement with the potential to restrict global average temperature rise to at least
2 degrees Centigrade, if not lower, is certainly a necessity because as per the IPCC report increase in
2 degree centigrade of temperature may lead to catastrophic effect on Indian Agriculture which is backbone of Indian Economy.
On the other hand, India needs adequate atmospheric “space” in terms of allowed carbon emissions to pursue its development. India will still need fossil fuels for a considerable time until reliable and affordable green technologies are developed.
The centre stage of the discussion is Global Carbon Budget referring to the cumulative carbon dioxide emissions into the atmosphere, from the beginning of the industrial era till the end of the 21st century, that are permissible, if the global temperature rise is to be kept below 2 degrees C. As we already know developed countries have already substantially exceeded their fair share of this global budget,if the rise in temperature is to be kept below 2 degree C. Now equitable share of the carbon emission space comes to the centre stage.As a consequence, a large number of developing countries, including
China but especially India, will have to make do with less than their fair share of the global carbon space as their national carbon budgets for the future, if indeed global warming has to be kept in check.
For developing countries to gain, “Top‐down” agreement to impose constraints on the developed nations’ consumption of carbon “space” in the atmosphere is an obvious necessity.
India’s view currently is that developing countries will have no binding commitments whatsoever even into the future, a view that will increasingly isolate India from even others in the ranks of the G‐77.
India scores a win in Warsaw on emission cuts affecting farmers
In the Warsaw talks India ensured that the talks remain focused on adapting agricultural practices to climate change and not on costly emission reduction measures that would impact farmers directly.
Surprisingly enough, the US also supported India along with G77+China.
The European Union has for several years been keen on ensuring that climate negotiations focus on reducing emissions in the agricultural sector.
India, China and a large number of African countries have countered this by pointing out that emission reduction efforts in the agricultural sector would affect farmers — who constitute a large percentage of the population, and are often the poorest, in the developing world.
Developing countries argued that instead of emission cut in agriculture sector,emission cuts should be focused on fossil‐fuel based activities
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Issues for IIM PI Process http://www.essaysforIIM.com One of the lead negotiators for India said “It’s the emphatic realisation and thrust on adaptation in agriculture, given the diversity of needs and concern of poor countries, that was realised by one and all.” It should be noted that Paddy fields and livestock are some of the biggest causes of emissions ‐ reduction in emissions inthe sector has major implications for India and China.

CHINA AND SEA AIR ZONE
China urged the US to respect its establishment of the East China Sea Air Defence Identification
Zone objectively and fairly.
China responded to US’s concerns over the issue, when US Vice President Joe‐Biden raised the issue on his recent trip to China
Chinese reiterated its principled position on the air‐defence zone and stressed that China's move is in line with international law and practice.
ADIZ has created a new wave of issues with Japan and South Korea, where the ADIZs set by both Japan and Korea overlapped at the disputed islands in the South China Sea.
A summary of China's relations with its neighbors

China has territorial dispute with all nations it shares border with and 8 other nations.
India: China illegally occupies 38,000 sq km (Aksai Chin) of land in Jammu & Kashmir. It also holds
5,180 km of Indian Territory in Pakistan occupied Kashmir under Sino‐Pak agreement of 1963. At
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Issues for IIM PI Process http://www.essaysforIIM.com the heart of Sino‐Indian boundary dispute is the issue of Arunachal Pradesh (90,000 sq km), which
China describes as "Southern Tibet". Beijing is demanding that at least the Tawang Tract of
Arunachal Pradesh, if not the whole of the state, be transferred to China.
Japan: Parts of the East China Sea, particularly the Senkaku Islands. Also, on occasion, the Ryukyu
Islands, on the grounds that the completely independent Kingdom of Ryukyu was once a vassal state of China. The Kingdom of Ryukyu terminated tributary relations with China in 1874.
Taiwan: China claims all of Taiwan, but particular disputes are: Maccles field Bank, Paracel Islands,
Scarborough Shoal, parts of the South China Sea and the Spratly Islands. The Paracel Islands, also called Xisha Islands in Vietnamese, is a group of islands in the South China Sea whose sovereignty is disputed among China, Taiwan and Vietnam disputes with Burma
Kyrgyzstan: China claims the majority of Kyrgyzstan on the grounds that it was unfairly forced to cede the territory (which it had formerly conquered) to Russia in the 19th century
Mongolia: China claims all of Mongolia on historical precedent (Yuan Dynasty, 1271‐1368). In fact, Mongolia, under Genghis Khan, occupied China.
Vietnam: China claims large parts of Vietnam on historical precedent (Ming Dynasty, 1368‐1644).
Also, Macclesfield Bank, Paracel Islands, parts of the South China Sea and the Spratly Islands.
Nepal: China claims parts of Nepal dating back to the Sino‐Nepalese War in 1788‐1792.
China claims part of Tibet, therefore a part of China
South Korea: Parts of the East China Sea. China has also on occasion claimed all of South Korea on historical grounds (Yuan Dynasty, 1271‐1368)

IMPROVEMENT IN CAD
India's current account gap has narrowed sharply to USD 5.2 billion, or 1.2% of GDP, in the July‐Sep quarter of 2013‐14 on the back of turnaround in exports and decline in gold imports.
CAD, the difference between outflow and inflow of foreign exchange on the current account, was USD
21 billion, or 5 per cent of the GDP, in the second quarter of last fiscal.
Contraction in the trade deficit coupled with a rise in net invisibles receipts resulted in a reduction of the CAD to USD 26.9 billion (3.1 per cent of GDP) in H1 of 2013‐14 from USD 37.9 billion (4.5 per cent of GDP) in H1 of 2012‐13.
Both the government and RBI are expecting the CAD to be below USD 56 billion in the current fiscal compared to the record high of USD 88.2 billion, or 4.8 per cent of the GDP last fiscal.
The government has taken several steps, including hike in gold import duty to 10 per cent and restrictions on import of gold bars and medallions, to restrict CAD. It has also taken measures to boost exports, taking advantage of depreciating rupee. © EssaysforIIM.com 2014‐15

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RUSH FOR GOLD 1. Demand for gold has been rising worldwide: The global financial crisis, turned debt crisis, has seen a steep rise in commodity prices, especially gold. This, now in hindsight, rather unsurprising fact, has mostly been driven by the meteorically increasing demand for safe havens to park the world's savings. Global gold prices, as denominated in US$, have doubled since 2008, and increased three times as denominated in Indian rupees.
2. India has traditionally been a major absorber of world gold: The last three years have seen a substantial rise in gold imports (the value of gold imports increased nine times between January 2008 and October
2012), contributing significantly to the current account deficit along with oil.
3. Gold imports are positively correlated with inflation: High inflation reduces the return on other financial instruments. This is reflected in the negative correlation between rising imports and falling real rates. Even though real rates have started rising, they are barely in the positive territory.

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4. Reduce Gold Purchases to curb CAD : Given soaring energy and transportation needs, since there seems to be little we can do to temper oil imports, gold is the component that needs to be contained to bring the CAD back to a comfort zone.
5. The demand for gold as an investment tool has been increasing over time : Gold has been a combination of investment tool and status symbol in India. With limited access to financial instruments, especially in the rural areas, gold and silver are popular savings instruments. The recent economic uncertainty has seen people across the board buy gold. Almost all of India's demand for raw gold is met through imports
6. The longer term way to address the rising demand for gold : The overarching motive underlying the gold rush is high inflation and the lack of financial instruments available to the average citizen, especially in the rural areas. The rising demand for gold is only a "symptom" of more fundamental problems in the economy. Curbing inflation, expanding financial inclusion, offering new products such as inflation indexed bonds, and improving saver access to financial products are all of paramount importance.

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WHO GETS LPG SUBSIDIES?
Subsidies should be well targeted at the poor. The reach of subsidies on LPG is highly unequal amongst the poor and rich in rural and urban areas. While there is a significant inequality in the proportion of subsidies received by the poorest and richest households in rural areas, the distribution is more equitable across urban households. However, in both cases, the proportion of subsidies that go to the poor is low.

To calculate the distribution of subsidies across households, we use the 64th Round of NSS data and categorize all rural (and urban) households into quintiles based on their per capita household expenditure.
Furthermore, we use the reported household expenditure on LPG to calculate the share of each quintile in the total expenditure on LPG. The share in expenditure on LPG for any quintile therefore reflects the proportion of subsidies received by that quintile.
From the above graph, we see a highly unequal distribution of subsidies across rural households. The proportion of subsidies that go to the poorest quintile is only 0.07 per cent as compared to 52.6 per cent for the richest quintile. In urban areas, though the proportion of subsidies that go to the poor is still low
(around 8.2 per cent), there is a more equitable distribution across the remaining quintiles (19 per cent,
24 per cent, 25 per cent and 23 per cent respectively).
The Modified Direct Benefit Transfer of LPG (DBTL), which recently came to be known as PAHAL, will not only help consumers get subsidy directly into their bank accounts without Aadhaar, but will also enable them to opt out of receiving subsidy if they choose to.

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Issues for IIM PI Process http://www.essaysforIIM.com The modified scheme provides consumers with an option to voluntarily opt out of the DBTL scheme by submitting a declaration to the effect if they do not wish to avail subsidy. The recently introduced provision assumes significance after union finance minister Arun Jaitley revealed that the government is considering doing away with LPG subsidy for the well‐off.
As per the provision, LPG customers can fill 'Form 5' under the scheme, affirming that he/she wants to be supplied all the domestic LPG cylinders against their LPG connection at market price, submitting the same to their distributor.

NEW DBTL SCHEME
Meanwhile, the modified DBTL sheme will be implemented soon. Officials are counting on the second option under the 'modified' scheme, where consumers can link their bank accounts to the LPG ID
(distinctive 17 digit ID, which can be found at www.mylpg.in ) to receive subsidy directly into their bank accounts. The linking process is in progress and oil marketing companies (OMCs) have urged consumers to get their
Aadhaar linked with the dealer and the bank. If consumers do not have the Aadhaar number, they could link their bank accounts to their LPG ID at the earliest because cylinders will be available at market rate from April 1 next year. An OMC official said that those who do not complete this linking process will not receive subsidy amount into their accounts.
A company official told TOI that linking Aadhaar to bank account and LPG consumer account is necessary.
Though every LPG consumer does not have an Aadhaar card as yet, the Modified Direct Benefit Transfer of LPG (DBTL) scheme has been launched to make sure LPG subsidy is not denied to any consumer.
"Those who do not have an Aadhaar number, can either give their bank account details (bank account holder name/account number /IFSC code) to the distributor to be stored in the LPG database or give their unique 17‐digit LPG consumer ID to their bank," said the official adding that such a consumer then becomes CTC (Cash Transfer Compliant) and is ready to receive the subsidy in his bank account.
Officials said that those who had earlier joined the DBTL scheme and have already linked their Aadhaar card number to their bank account and the LPG consumer number, need not do anything as the subsidy will be transferred into their accounts based on the earlier linking.
OMCs have already begun informing consumers about the process through SMSs, banners and leaflets and hope to get as much as 90% consumer seeding through banks and Aadhar done till the scheme is launched in January.

BUILDING UP FX RESERVES
The distinction between convertible and non‐convertible currencies is important for emerging economies, as most transactions with the rest of the world are in convertible currencies like US dollar, euro, pound sterling, yen, Swiss Franc etc. The need for increasing the availability of convertible currency for self‐ insurance has also been behind the race to build‐up foreign exchange reserves (FER) in emerging
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Issues for IIM PI Process http://www.essaysforIIM.com economies after the Asian Crisis of 1997. Such FER accumulation, however, is constrained by the fact that it is possible only in times of currency appreciation.
Following the BoP crisis of 1990‐91 that was essentially due to depletion of foreign exchange reserves, there was a conscious effort by the RBI to build up FER. This was done through buying foreign currency in the market during periods of surge in capital flows. As a result, FER levels increased from US$ 5.8 billion in 1990‐91 to US$ 314.6 billion at end May 2008.
The RBI is however following a hands‐off policy in foreign exchange market after the 2008 global crisis, with intervention limited to curbing excess rupee volatility. As a result, during 2009‐10 and 2010‐11, when rupee was appreciating due to increase in capital flows, there was virtually no intervention to build up
FER. The sharp decline in rupee in 2011‐12 however led the RBI to inject foreign exchange to the extent of US$ 20.1 billion to stem the rupee slide. The pressure on currency has continued in the financial year
2012‐13 because of the ongoing euro‐zone crisis. The import cover of FER, as a result, has declined from
14.4 months of imports in 2007‐08 to 7.1 months in 2011‐12.
There are costs to intervention.
1. The main cost is the release of corresponding rupee liquidity, when RBI intervenes in the market to buy foreign exchange. This may stoke inflation, which may not appeal in the current inflationary situation. 2. Past experience however shows that measures like Market Stabilization Scheme (MSS) have been effective in draining excess liquidity from the system.
3. Countries like China and Turkey use cash reserve ratio (CRR) for the same purpose.
The cost of a particular policy, however, has to be weighed against the benefits, which are manifold.
1. First, intervention to buy FER during surge in capital leads to build‐up of reserves, which provides self‐ insurance against external vulnerability.
2. Second, the higher reserve levels restore investor confidence and may lead to an increase in foreign direct and portfolio investment flows that spurs growth and helps bridge the current account deficit.
3. Third, in a scenario of high trade and CAD, as in India, allowing the currency to appreciate through non‐intervention during times of surge in capital, could have further negative fallout for the BoP by making exports less competitive and imports cheaper.
4. Lastly, buying foreign exchange provides more ammunition for intervention when the currency is declining, which could potentially lower currency volatility.

ISSUES WITH LIABILITY RULES
Canada has expressed concerns that unless the provisions regarding a plant operators’ liabilities in case of nuclear damages are relaxed, foreign companies will not come in a big way (to India).
It feels that the way the liability has been framed in the Civil Nuclear Liability Act deviates from the global standards and if it is not modified, it is hard to see any foreign supplier coming in a big way to
India.
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Issues for IIM PI Process http://www.essaysforIIM.com As per the Act, an operator of a nuclear plant (so far only NPCIL) will be liable for damages worth up to Rs. 1,500 crore. So, most of the suppliers, domestic as well as international, are concerned over whether they will have to bear over Rs. 1,500 crore towards in the event of nuclear disaster.
Canada feels that there is a lack of clarity and clear demarcation of liabilities. The supplier is liable and so are the sub‐contractors in similar situations.
New Delhi and Toronto had signed a civil nuclear cooperation agreement in 2010 that allowed them to initiate negotiations for uranium supply.
Below is a quick snapshot of India’s Nuclear Liability Law

INDIA’S TWIN ENVIRONMENTAL CHALLENGES
India’s environmental movement was first born in the 1970s, when the industrialised world was seeing the impact of growth on its environment.
In that decade the first major global conference on the environment, the Stockholm meet, was held to find ways to deal with this growing scourge.
India’s key pieces of environmental legislation were enacted in this period— the water pollution
Act of 1974 and the air pollution Act of 1981.
In the remote Himalayas, the women had prevented the timber merchants from cutting their forest (Chipko Movement)
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Issues for IIM PI Process http://www.essaysforIIM.com We live in a time when environmental issues have taken centre stage in the country. Yet matters are going from bad to worse. All type of Environmental pollution in our cities has increased manifolds and the garbage in cities is growing by the day, even as governments scramble to find ways of reducing plastic and hiding the rest in landfills in far‐off places.
We must recognise that across the world, the environmental movement is based on the idea that people do not want anything bad in their vicinity: Not In My Backyard or NIMBY.
But there is also a downside to NIMBY: if it is not in my backyard, then in whose backyard should it be? This is not an issue that is asked or answered
The Western environmental movement began after societies there had acquired wealth. The movement was a response to the mounting garbage, toxic air and polluted water resulting from the growth of their economies. They had the money to invest in cleaning and they did.
In India, we want to emulate the disastrous ways of the already rich nations, with much lesser resources and much more inequity and poverty. The fact is we cannot find answers in the same half‐solutions they invested in.
This is the biggest challenge of India’s environmental movement. We can do things differently to reinvent growth without pollution. But only if we have the courage to think differently.

INDIGENIZATION OF MILITARY HARDWARE
It is clear that the military's insistence on foreign purchases has led to expectations and expenses that are unaffordable.
Example: Consider just the Indian Air Force (IAF): it is understrength at the moment, with only 36 out of 39.5 fighter squadrons ready. Further depletions to the number of squadrons are likely when various ageing MiG‐21s and MiG‐27s are removed from service in the next few years. But the IAF, in order to make up the deficit, has a shopping list that might total $100 billion (approximately Rs 6 lakh crore) in the next 10 to 15 years. This is clearly unaffordable. The army is in a similar position.
The Prime Minister has urged the defence ministry and the armed forces, as also the DRDO to build on this experience and urgently review the different Task Force reports that our government has initiated with a view to achieving a higher index of indigenous capability in military inventory production. Indigenisation is the only way out. We are in a situation where the rupee is weakening, which means that imports have become more expensive; and therefore the government has woken up to the crisis in Indian manufacturing and is pushing various incentives for investment in the sector, particularly in high‐tech enterprises.
Over the past year, the defence ministry released a sanitised version of its long‐term integrated perspective plan in order to give private companies a sense of the military's requirement. But more work needs to be done to increase the participation of the private sector.

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CHINA’S NEW ECONOMIC MODEL
For three decades, Chinese economy grew about 10 percent annually; China seemed to be gliding through the global economic storm.
Many economists — Chinese and foreign — however think that China’s economic model is unworkable. The precedent of Japan, a highflier laid low, suggests that rapid growth can’t be taken for granted. As with Japan in its boom years, China is too wedded to investment and exports.
China’s economic model emphasizes investment and export‐led growth over consumption.
The idea is simple: Build an industrial base by adopting technologies and production techniques pioneered elsewhere; complement this with a modern infrastructure of roads, rails, ports and airports.
All this spending creates jobs and raises wages for millions of poor Chinese who move from rural areas to cities. Exports further bolster jobs.
The formula seemed to be succeeding. In 2007, China’s current account surplus was an astonishing 10 percent of its GDP. Average inflation‐adjusted incomes rose from $250 in 1978 to $9,000 in 2012.
But now there are major problems in the road to continued growth.
The easiest technologies have been adopted. Increasingly, the economy needs to generate growth through innovation. Next, major export markets — the United States and Europe — have weakened. Demand is sluggish, and resistance to allegedly unfair Chinese trade practices has stiffened. In 2012, China’s current account surplus was only 2 percent of
GDP (although it is still appreciable that China maintains a surplus, while other major economies are running deficits, India included). Much private and public investment has been debt‐financed and seems wasteful. The infrastructure (roads, bridges) may be overbuilt. The same is true of industry. China’s high investment levels have led to overcapacity in multiple industries, including steelmaking, shipbuilding and solar panel manufacturing.
So dominant is investment spending in China that consumption — household spending for food, clothes, cars and all personal goods — amounted to only 36 percent of GDP in 2012. By contrast, consumption’s share in the U.S. economy was 69 percent.
At some point, some borrowers — state‐owned companies, local governments, property developers
— won’t repay, banks would sharply curtail lending, or both. Investment spending would plunge. On paper, the solution is obvious: Switch to a consumption‐led economy. In practice, it’s not so easy.
Rapid economic growth underlies the regime’s legitimacy at home and its power abroad. But rapid growth is imperiled. China’s leaders acknowledge the problem. Their latest effort to fix it occurred at the recent “third plenum” of the 18th Communist Party conference, which, among other things, relaxed the one‐child‐per‐couple restriction and provided farmers more freedom to dispose of their land.
In theory, through the new wave of reforms (to be implemented by 2020) China will soon deregulate interest rates, float the exchange rate, end energy subsidies and curb state‐owned enterprises. No one expects this; many policy proposals are vague.
Here’s the dilemma: The old model may not be sustainable, but getting to a new model may be painful.
Higher interest rates could bankrupt some firms dependent on cheap credit. A revalued renminbi could
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Issues for IIM PI Process http://www.essaysforIIM.com close some export companies. Stronger consumption might not instantly fill the void. Naturally, those benefiting from the status quo will fight to preserve it.
Additional Information: China’s One Child Policy (to be amended as suggested in the new set of proposed reforms) 1. China's population‐control policy was introduced in 1979 and restricts couples in urban areas to only one child
2. In rural areas, families are allowed to have two children if the first is a girl.
3. Other exceptions include ethnic minorities and couples who both lack siblings themselves
4. The policy has meant that about one‐third of China's 1.3 billion citizens cannot have a second child without incurring a fine
5. Campaigners say it has led to forced abortions, female infanticide, and the under‐reporting of female births 6. It is also implicated as a cause of China's gender imbalance

INDIA‐IRAN TALKS
Experts believe that the relations of India with Iran have been held up due to the U.S. sanctions. The talks have created a new atmosphere for the Peace Pipeline via Pakistan.
Both Iran and India are concerned about the U.S.‐Pakistan initiative to hold peace talks with the
Afghan Taliban without preconditions. “If the U.S.‐Iran ties improve, Tehran will be inclined to play an increasingly constructive role in Afghanistan,” noted Srinath Raghavan, Senior Fellow at the Centre for Policy Research.
Officials say modernisation and expansion of the Chahbahar port will be vital for providing India and the international community access to Afghanistan and Central Asia. It will also ensure Indian presence just 80 km away from the Chinese built Gwadar port in Pakistan.
India has allotted $100 million for the port’s development and is sorting out a trilateral agreement with Iran and Afghanistan for a customs and transit arrangement.
In the first trilateral, India, Iran and Afghanistan agreed on preferential treatment and tariff reductions for Indian goods at Chahbahar. There is now talk of a rail line from Bamyan in Afghanistan that will follow this road route down to Chah‐bahar.
Government sources expected Iran's major Indian clients for oil to enter into hectic negotiations for stepping up supplies after having been forced to reduce consumption due to the effects of the U.S. sanctions on insurance and sending back payments.
India will also be looking at resuming talks on a lucrative gas field Farzad‐B on which just two rounds have been held over the past four years.
Analysts and government officials feel that years of regular, high‐level contacts with the top Iranian leadership should yield dividends in intra‐Asian security, trade and energy linkages.

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LEGISLATIVE PROCESS TO MAKE AN ACT
First Reading
The legislative process starts with the introduction of a Bill in either House of Parliament—Lok
Sabha or Rajya Sabha. A Bill can be introduced either by a Minister or by a private member. In the former case it is known as a Government Bill and in the latter case it is known as a Private
Member’s Bill. With the permission of the speaker the bill is introduced and this stage is known as the First Reading of the Bill.
Publication in Gazette
After a Bill has been introduced; it is published in the Official Gazette.
Reference of Bill to Standing Committee
After a Bill has been introduced, Presiding Officer of the concerned House can refer the Bill to the concerned Standing Committee for examination and make report thereon.After the Bill has thus been considered, the Committee submits its report to the House. The report of the Committee, being of persuasive value shall be treated as considered advice given by the Committees.
Second Reading
The Second Reading consists of consideration of the Bill which is in two stages.
1. First Stage: The first stage consists of general discussion on the Bill as a whole when the principle underlying the Bill is discussed.
2. Second Stage: The second stage of the Second Reading consists of clause‐by‐clause consideration of the Bill as introduced or as reported by Select/Joint Committee. Discussion takes place on each clause of the Bill and amendments to clauses can be moved at this stage.
Third Reading
Thereafter, the member‐in‐charge can move that the Bill be passed. This stage is known as the
Third Reading of the Bill. At this stage the debate is confined to arguments either in support or rejection of the Bill without referring to the details thereof further than that are absolutely necessary. Bill in the other House
After the Bill is passed by one House, it is sent to the other House for concurrence with a message to that effect, and there also it goes through the stages described above except the introduction stage. Consideration of the Bill at a Joint Sitting

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Issues for IIM PI Process http://www.essaysforIIM.com If a Bill passed by one House is rejected by the other House, or, the Houses have finally disagreed as to the amendments to be made in the Bill, or more than six months elapse from the date of the receipt of the Bill by the other House without the Bill being passed by it, the President may call a joint sitting of the two Houses to resolve the deadlock. If, at the joint sitting of the
Houses, the Bill is passed by a majority of the total number of members of both the Houses present and voting, with the amendments, if any, accepted by them, the Bill is deemed to have been passed by both the Houses. There cannot be a joint sitting of both Houses on a Constitution
Amendment Bill.
Assent of the President
When a Bill is passed by both Houses, the Secretariat of the House which is last in possession of the Bill obtains the assent of the President. Once the president gives his/her assent, the bill becomes an act

CRIMINALITY IN THE POLITICAL SYSTEM
Criminality in Indian politics was debated in length by many institutions, think tanks and eminent person in India, but among all it is ECI (Election Commission of India) which first put before government as a part of Electoral Reforms.
Supreme Court has decreed three orders which relate to Electoral Reforms in India.
The first relates to the distribution of “freebies”, wherein the ECI has been asked to frame guidelines in consultation with political parties. The second is directing the installation of the None‐of‐The‐Above
(NOTA) button in the Electronic Voting Machines, which has already been implemented in the current round of Assembly elections.
The most important among three is third case of Lily Thomas vs Union of India, wherein the Supreme
Court has declared unconstitutional Section 8 (4) of the Representation of the People Act, 1951.
SC declared that all convicted MPs and MLAs have three‐month period in which to appeal against their conviction, but they cease to be member of respective houses immediately after conviction.
What has changed now is that earlier their membership wasn’t ceased since they appealed in Higher
Courts and hence retained their membership.
SC also said every parliamentarian or legislator who stands convicted for an offence that leads to a sentence of imprisonment for two years and more, will also be debarred from contesting an election for six years after his or her prison term ends.
Earlier Parliamentarians were to be disqualified only if they were convicted for rape, for promoting enmity and hatred between and among different classes or groups, conviction relating to bribery, and conviction under the Prevention of Corruption Act, the Foreign Exchange Regulation Act (FERA).But now disqualification is not limited to these cases only.
As we know first victim of SC decree in this matter was Congress MP Rasheed Masood and then RJD
MP Lalu Prasad Yadav.
The role of NGOs such as NEW and ADR should be appreciated in this issue.

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Issues for IIM PI Process http://www.essaysforIIM.com SC orders in 2002 and 2003 made it compulsory for all candidates to file information regarding any and all criminal cases pending against them, wealth they possessed by all means and indeed their educational qualifications.
Data filed by NGOs before SC clearly showed all major political parties had fielded candidates to contest elections with criminal background ranging from molestation to murder. But dramatic demise of ordinance put forth by UPA government to counter SC measure has helped in strengthening our democracy. It is evident from all manoeuvring activities by politicians to protect themselves from SC order by trying to enact an ordinance is no secret that many politicians have their own criminal elements to protect and whom they need to use in elections to round up voters.
If the Ordinance had been passed, it would have officially endorsed that criminality in parliamentary ranks was perfectly acceptable. It would also have rendered our elected representatives even more distant from our people.
“Winnability ” factor is more emphasized rather than clean image in Indian politics. It’s evident from what reports say about ongoing elections. All major politicians have fielded persons with criminal background because of winnability factor.
In the long term interest of future of India, all political parties must field clean candidates who have no criminal background. Because, criminals may win election but in the longer term they will, once again, strike a blow to our fundamental principles of constitution.

FOREIGN DONATIONS TO POLITICAL PARTIES

Source: ADR and National Election Watch
Allahabad bench of UP HC converted a petition on foreign funding of Political Parties in to PIL. While converting a petition in to PIL court said that matter does not only relate to the petitioner but has a wider public realm and is hence a PIL. The order came on a petition filed by social activist and member of AamAadmi Party (AAP) Nutan Thakur.
Terming the decision of the Union home ministry to probe into the complaints of anomalies in foreign contribution to AAP as one‐sided, the petition demanded probe into the foreign donations received by Congress, BJP and other political parties.

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Issues for IIM PI Process http://www.essaysforIIM.com The petitioner said, Election Commission had also asked the central government to probe the matter.
But since no action has been taken, she decided to approach the high court to seek a probe into foreign funding of all political parties, including Congress and BJP.
Earlier The Association for Democratic Reforms (ADR), a Delhi‐based NGO, had filed a PIL in Delhi High
Court alleging that the Congress and BJP have violated the Representation of People’s Act (RPA) 1951 and Foreign Contribution (Regulation) Act (FCRA) 1976, by taking donations from government companies and foreign sources, prohibited under both the legislations.
It should be noted that earlier in 2012 Election Commission had written to the government suggesting amendments to the election law to make it mandatory for political parties to declare monetary contributions received from foreign companies and government bodies.
Funding to political parties is subjected to public scrutiny in countries such as Bhutan, Nepal, Germany,
France, Italy, Brazil, Bulgaria, the US and Japan

“NO” TOTAL AUTONOMY FOR CBI Centre has rejected the CBI’s demand for total autonomy for CBI in Supreme Court.
Centre said the non‐statutory changes in the administrative arrangement sought by the CBI would have a deleterious effect on the criminal justice system.
CBI has argued that the changes would ensure functional efficacy and insulate investigation from outside interference, but Centre said these objectives could be achieved without disturbing the present statutory scheme of government, with necessary checks and balances established at several levels. CBI had said its Director should report directly to the Minister concerned as the agency faced hurdles at every stage of its administrative functioning.
Centre expressed concern that if the CBI Director reports directly to the Minister, the superintendence of the Minister would stand compromised and an independent layer of scrutiny would no longer be available. This would go against not only the legislative intent of the Delhi Special Police Establishment
Act but also the democratic constitutional principle that the police or investigating agencies function under the administrative supervision of the executive.
Centre also argued that it was not desirable to set a precedent which would create heartburns in similarly placed organisations.
On CBIs contention that three police officers — the Secretary, RAW; the Secretary, Intelligence
Services, and the Secretary, Security — were vested with the powers of a government Secretary,
Centre said the functional requirements of these agencies could not be compared with those the CBI.
The CBI Director also wanted powers to appoint special counsel/retainer for the agency but Centre argued that would mean dilution of the principle of separation between the prosecuting and investigating agencies. This would seriously jeopardise the scheme of checks and balances envisaged in governance and have a deleterious effect on the criminal justice system.
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Issues for IIM PI Process http://www.essaysforIIM.com About CBI
During the period of World War II, a Special Police Establishment (SPE) was constituted in 1941 in the
Department of War of the British India to enquire into allegations of bribery and corruption in the war related procurements. Later on it was formalized as an agency of the Government of India to investigate into allegations of corruption in various wings of the Government of India by enacting the Delhi Special
Police Establishment (DSPE) Act, 1946. In 1963, the Central Bureau of Investigation (CBI) was established by the Government of India with a view to investigate serious crimes related to Defence of
India, corruption in high places, serious fraud, cheating and embezzlement and social crime, particularly of hoarding, black‐marketing and profiteering in essential commodities, having all‐India and inter‐state ramifications. CBI derives its legal powers to investigate crime from the DSPE Act, 1946.
What is the difference between the nature of the cases investigated by the National Investigation Agency
(NIA) and the CBI?
The NIA has been constituted after the Mumbai terror attack in November 2008 mainly for investigation of incidents of terrorist attacks, funding of terrorism and other terror related crime, whereas CBI investigates crime of corruption, economic offences and serious and organized crime other than terrorism.
Important: The superintendence of CBI related to investigation of offences under the Prevention of Corruption Act, 1988 lies with the Central Vigilance Commission (CVC) and in other matters with the Department of Personnel & Training (DOPT) in the Ministry of Personnel, Pension &
Grievances of the Government of India

PATENT BATTLES
In August 2012, a jury found Samsung guilty of infringing six Apple patents and awarded one of the largest payouts of its kind on record.
The verdict and $1bn (£626m) awarded in damages were seen as a massive victory for Apple.
Apple had argued that the South Korean company had copied its designs for the bodies of the original iPhone and iPad as well as user‐interface elements such as the bounce‐back response when a person scrolls beyond the end of list and tap‐to‐zoom.
Samsung argued it was already working on rounded rectangular handsets and a single button months before the iPhone was revealed. It sought $519m in damages from Apple.
In March 2013, a judge re‐examined the $1bn awarded to Apple and reduced the amount saying the damages would need to be assessed at a new trial.The judge said that $550m of the award had been worked out in the proper manner but she ordered that the remaining $450m be reassessed.
Apple has asked for a sales ban to be imposed on the Samsung products that had been found to infringe the patents. But the judge ruled that Apple could adequately be compensated financially.
The trial is re‐opened to assess the final compensation which Samsung should pay Apple.
This is just one of many patent cases the two companies are fighting in courtrooms across the world.
These are not the only two companies fighting over patent rights on smartphone features. Have a look at the legal mesh that ties the smartphone manufacturers (and their suppliers) together!
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NATIONAL GREEN TRIBUNAL (NGT)
The National Green Tribunal has been established on 18.10.2010 under the National Green Tribunal Act
2010 for effective and expeditious disposal of cases relating to environmental protection and conservation of forests and other natural resources including enforcement of any legal right relating to environment and giving relief and compensation for damages to persons and property and for matters connected therewith or incidental thereto. It is a specialized body equipped with the necessary expertise to handle environmental disputes involving multi‐disciplinary issues. The Tribunal shall not be bound by the procedure laid down under the Code of Civil Procedure, 1908, but shall be guided by principles of natural justice. The Tribunal is mandated to make and endeavour for disposal of applications or appeals finally within 6 months of filing of the same. New Delhi is the Principal Place of Sitting of the Tribunal and Bhopal,
Pune, Kolkata and Chennai shall be the other four place of sitting of the Tribunal.
The Tribunal has the original jurisdiction over all civil cases where a substantial question relating to environment, including enforcement of any legal right relating to environment is involved.
Government is empowered to add any Act of Parliament having regard to objectives of environmental protection and conservation of natural resources.
In order to ensure access to justice, pollution control boards and local authorities have also been empowered under the NGT Act to file an application or appeal before the Tribunal on behalf of the affected person. Appeal against any order of the Tribunal shall lie to the Supreme Court.

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Issues for IIM PI Process http://www.essaysforIIM.com A judge of the Supreme Court of India or Chief Justice of High Court is eligible to be Chairperson or judicial member of the Tribunal. Even existing or retired judge of High Court is qualified to be appointed as a Judicial Member. A person is qualified to be an expert member if he has Master of
Science with a Doctorate degree or Master of Engineering or Master of Technology and has an experience of fifteen years in the relevant field including five years practical experiences in the field of environment and forests in a reputed National level institutions. Anyone who has administrative experience of fifteen years including experience of five years in dealing with environment matters in the Central Government or a State Government or in National or State level institution is also eligible to be an expert member. At present, the Tribunal consists of Chairperson and 3 Expert Members and
2 Judicial Members. The Expert Members are experts in physical and life sciences, engineering and law including persons having practical knowledge and administrative experience in the field of environmental policy and regulation. The Ministry is in the process of filling up of the remaining vacancies of Members in the Tribunal since NGT Act, 2010 provides for a minimum of 10 Expert
Members and equal number of Judicial Members. ** It should be noted that Tribunal had asked for more powers to them in Aug 2013 but MoEF has clarified that it doesn’t intend to confer more powers and NGT has no suo‐motu power as per NGT Act 2010.

OPINION POLLS
Election Commission’s letter to political parties seeking opinion on pre‐poll opinion polls has led to tug of war between various political parties.
While Congress and Bahujan Samaj Party favors ban on opinion polls, the main opposition party BJP is against banning the opinion polls. The Communist Party of India (Marxist) said opinion polls could be conducted but their results should be put on hold, while the CPI favored a ban once the model code of conduct come into effect.
The NCP, a key ally of Congress, does not favor a ban but wants a body like the Press Council of India to ensure that they are “not sponsored” like paid news.
Attorney General Goolam E Vahanvati has supported the banning of the pre‐poll surveys, while the
Law Ministry has left the decision to the Election Commission.
BJP said “When the trend of opinion polls is adverse to the political parties, they rubbish them. They start demanding a ban”. The loser demands a ban and the potential winner wants them to continue.
Leader of the Opposition in the Rajya Sabha Arun Jaitley contended “No restriction which falls outside the purview of Article 19(2) can be imposed on the right to free speech either by the government or by the Election Commission.”
Pollsters say, if opinion polls and forecasts are reported and interpreted in a more scientific way, politicians will find that pollsters get it right more often than not.
Pollsters say both the media and the political class suffer from a poor understanding of statistics, and do not pay attention to disclaimers including the margin of error
It should be noted that earlier in 2004 EC sought opinion of political parties on banning exit polls, subsequently upon receiving the backing of all parties favoring exit poll bans. GOI banned exit polls in 2009 by amending the Representation of the People Act 1950.
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Issues for IIM PI Process http://www.essaysforIIM.com The Representation of the People (Amendment) Act 1999 explicitly says “No person shall conduct any exit poll and publish or publicize by "means of the print or electronic media or disseminate in any other manner, whatsoever, the result of any exit poll during such period, as may be notified by the Election commission in this regard.”
At present Election Commission bans publication of both opinion polls and exit polls for 48 hours before the casting of votes is over. What is an Opinion Poll?
As the name suggests it’s a survey of public opinion on the elections. Survey is conducted much before the elections. Generally the survey involves set of questions to select public, where the response from the public are extrapolated. Different opinion poll conducting agencies follow different methodologies for conducting an Opinion Poll. But in India many do not reveal the methodology adopted by them for the
Opinion Polls there by making a way to suspect the polls whether they are actually conducted or funded by some vested interests.
What is an Exit Poll?
Exit poll is a survey of voters conducted just after the voter exits the polling stations ‐ it’s a survey conducted by some organisations on the day of the polls. In other words, exit poll means an opinion survey respecting how electors have voted at an election or respecting how all the electors have performed with regard to the identification of a political party or candidate in election.
What is the difference between Opinion Polls and Exit Polls?
By seeing the above definitions of both, we can say that the major difference is; Opinion poll is conducted before the actual polls and exit poll is conducted just after a voter casts his/her vote on the polling day.

DECLINING SEX RATIO
The
Central
Statistics
Office
(CSO)
has been bringing out the publication “Women and Men in India” on a regular basis since 1995.Recently CSO released its
15th report of the series.
Key Findings of the Report
According to the 15th issue of Women and Men in India, sex ratio in India was recorded at 94/100 men. The statistics ministry has culled the data from a report by United Nations Statistics Division.
The overall sex ratio performance of India in 2012 even lags behind its neighbours ‐Bangladesh (98) and Pakistan (97) and among BRICS nations all except China (93) scored better than India. While sex ratio in Brazil and Russian Federation was recorded at 103 and 116, South Africa scored 102 per 100 men respectively.
Globally amongst 30 most populated nations, the Russian Federation leads with highest sex ratio followed by Japan (105), France (105), Italy (104) and Germany (104) per 100 men in 2012
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Issues for IIM PI Process http://www.essaysforIIM.com The mean age at effective marriage for females stood at 21.2 years in 2011. Among the major
States, the highest mean age at effective marriage was 22.6 years for Kerala and the lowest was 20.3 years for West Bengal
Total Fertility Rate (TFR) was 2.4 and the General Fertility Rate (GFR) was 81.2 in 2011.
Highest overall IMR of 59 was observed in Madhya Pradesh and the lowest of 12 in Kerala in 2011.
During 2012‐13, the pattern of acceptance of different family planning methods in India was as follows: vasectomy ‐ 0.4%, tubectomy ‐ 14.8%, IUD insertion ‐ 17.9%,equivalent conventional contraceptive users ‐ 46.2% and equivalent oral pills users ‐ 20.7%.
The main reasons of females never attending school are ‘expensive cost of education’, ‘not interested in studies’, ‘education is not considered necessary’ and ‘required for household work’. The gross enrolment ratio (GER) for females at the primary level stood at 116.7compared with
115.4 for males in 2010‐11
In 2013, women occupied only 12 out of 78 Ministerial positions in the Central Council of Ministers.
There were 2 women judges out of 26 judges in the Supreme Court and there were only 52 women judges out of 614 judges in different High Courts
‘Cruelty by husband and relatives’ continues to occupy the highest share (43.6%) among the crimes committed against women in 2012 followed by ‘assault on women with intent to outrage her modesty’ (18.6%)
Explanation of Key Development Indicators
General Fertility Rate (GFR): General fertility rate is defined as number of live births per thousand women in the age group (15‐49 years) in a given year.
Total Fertility Rate (TFR): Total fertility rate is defined as the average number of children that would be born to a woman if she experiences the current fertility pattern throughout her reproductive span
(15‐49 years).
Infant Mortality Rate(IMR): Infant mortality rate refers to the measurement of mortality in the first year of life and is computed by(relating) the number of deaths under one year of age divided by 1000 live births.
Maternal Mortality Ratio (MMR): Maternal Mortality Ratio is the number of maternal deaths per
100000 live births. Number of maternal deaths to women (15‐49 years)
MMR = ‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐ ‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐ * 100000 Number of live births to women (15‐49 years)
Expectation of Life at Birth: The expectation of life at birth is the average number of years expected to be lived at the time of birth if current mortality trends were to continue.
Gross Enrolment Ratio (GER): Total enrolment in primary education, regardless of age, expressed as a percentage of the eligible official primary school‐age population in a given school‐year.
Labour Force: Labour force is defined as the total persons working (or employed) and seeking or available for work (or unemployed)

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Issues for IIM PI Process http://www.essaysforIIM.com Work Force: Persons engaged in any gainful activity are considered ‘workers’ (or employed).They are the persons assigned any one or more of the nine activity categories under the first broad activity category i.e. “Working or employed”.

TOWARDS ACHIEVING MDGs
At the Millennium Summit in September 2000, the largest gathering of world leaders in history adopted the UN Millennium Declaration, committing their nations to a new global partnership to reduce extreme poverty and setting out a series of time‐bound targets, with a deadline of 2015 that have become known as the Millennium Development Goals.
The Millennium Development Goals (MDGs) are the world's time‐bound and quantified targets for addressing extreme poverty in its many dimensions‐income poverty, hunger, disease, lack of adequate shelter, and exclusion‐while promoting gender equality, education, and environmental sustainability.
They are also basic human rights‐the rights of each person on the planet to health, education, shelter, and security. MDG1:ERADICATE EXTREME POVERTY AND HUNGER
Target: Halve, between 1990 and 2015, the proportion of people whose income is less than one dollar a day and Halve, between 1990 and 2015, the proportion of people who suffer from hunger. India’s Progress: As per the poverty estimates of 2011‐12, the Poverty Head Count Ratio (PHCR) is 21.9% thus India has already achieved the target against the target of 23.9%. With the historical rate of decline
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Issues for IIM PI Process http://www.essaysforIIM.com in Poverty HCR, the country is likely to achieve Poverty HCR level of 20.74% by 2015.All‐
India trend of the proportion of underweight (severe and moderate) children below 3 years of age shows India is going slow in eliminating the effect of malnourishment. At the historical rate of decline, it is expected to come down to about 33% only by 2015 vis –a vis the target value of 26%.
MDG 2: ACHIEVE UNIVERSAL PRIMARY EDUCATION
Target: Ensure that by 2015 children everywhere, boys and girls alike will be able to complete a full course of primary education.
India’s Progress: A trend based on DISE (District Information System on education) data shows that the country is now well set to achieve cent percent primary education for children in the primary schooling age of 6‐10 years ahead of 2015. DISE 2010‐11 reports Net Enrolment Ratio (NER) at Primary level as 99.89. According to the trend exhibited during 1991‐2001, India is likely to attain 100% Youth literacy (Literacy rate of 15‐24 year olds) by 2015.
MDG 3: PROMOTE GENDER EQUALITY AND EMPOWER WOMEN
Target: Eliminate gender disparity in primary and secondary education, preferably by 2005, and in all levels of education no later than 2015.
India’s Progress: The gender parity in Primary education reached the target value of 1 in 2008‐09 itself.The female ‐male literacy rate in the age group 15‐24 years tends to reach 1 by 2015,implying attainment of gender parity by 2015.

MDG 4: REDUCE CHILD MORTALITY
Target: Reduce by two‐thirds, between 1990 and 2015, the Under‐five Mortality Rate
India’s Progress: Given to reduce U5MR to 38 per thousand live births by 2015, India tends to reach
46 by 2015 as per the historical trend, missing the target by 8 percentage points. However, considering the sharper decline in the recent years, the target is likely to be met.As per the historical trend IMR is
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Issues for IIM PI Process http://www.essaysforIIM.com likely to miss the 2015 target, however, the faster decline in recent years indicates to narrowing the gap between the target and the likely achievement in 2015.

MDG 5: IMPROVE MATERNAL HEALTH
Target: Reduce by three quarters, between 1990 and 2015, the Maternal Mortality Ratio
India’s Progress: At the historical pace of decrease, India tends to reach MMR of 169 per 100,000 live births by 2015, against the target of 150.However; the bright line in the trend is the sharper decline and with all government initiatives, India is likely to reach near the target. MDG 6: COMBAT HIV/AIDS, MALARIA AND OTHER DISEASES Target: Have halted by 2015 and begun to reverse the spread of HIV/AIDSand have halted by 2015 and begun to reverse the incidence of malaria and other major diseases.
India’s Progress: The estimated adult HIV prevalence in India was 0.32 percent (0.26% – 0.41%) in 2008 and 0.31 percent (0.25% – 0.39%) in2009. Among pregnant women of 15‐24 years, the prevalence of HIV has declined from 0.86% in 2004 to 0.48% in 2008.

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So India may attain the goal in reducing the HIV prevalence rate.The total Malaria cases have consistently declined from 2.08 million to 1.6 million during 2001 to 2010.TB mortality in the country has reduced from over 42/lakh population in1990 to 26/lakh population in 2010 as per the WHO global report 2011.
MDG 7: ENSURE ENVIRONMENTAL SUSTAINABILITY
Target: Integrate the Principles of Sustainable Development into Country Policies and Programmes and
Reverse the loss of Environmental Resources, Halve, by 2015, the Proportion of People without
Sustainable Access to Safe Drinking Water and Basic Sanitationandby 2020, tohave achieved a significant improvement in the lives of at least 100 million slum dwellers.
India’s Progress: There is an increase in forest cover by about 1128 sq. Km between 2007 and
2011.The network of protected areas in India presently covers about 5.02 percent of the country’s total land area. The target of halving the proportion of households without access to safe drinking water sources from its 1990 level of about 34% to the order of 17%, to be reached by 2015,has already been attained by 2007‐08, much before the target timeline. Given the 1990 level for households without any sanitation facility at 76%, India is required to reduce the proportion of households having no access to improved sanitation to 38% by 2015.The NSS 2008‐09 reports that, 49.2% households are not having sanitation facility. It is expected that at the historical rate of decline, India may achieve to reduce the proportion of households without any sanitation to about 43% by 2015 missing the target by about 5 percentage points
MDG 8: DEVELOP A GLOBAL PARTNERSHIP FOR DEVELOPMENT
Target: In co‐operation with the Private Sector, make available the benefits of new technologies, especially Information and Communication

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Issues for IIM PI Process http://www.essaysforIIM.com India’s Progress: Overall Teledensity (Number of Telephones per 100 populations) shows a slight dip recently, after the substantial progress made in the past. The overall Teledensity (number of telephones per hundred persons) in India has reached 73.58 by 30th June 2013.At the end of Jun‐13, 98.1% of the total inhabited villages in India have been connected. India will reach the target considering the growth in the sector coupled with government initiatives.

RBI TO BE GUIDED BY ‘FIVE PILLARS’
Though Raghuram Rajan’s "five pillars" would set the RBI's agenda for the next few quarters.
The five points are:
1.
2.
3.
4.
5.

to clarify and strengthen the monetary policy framework; to shore up the banking structure through the entry of new banks and more branches; to broaden and deepen financial markets; to expand the net of the formal banking sector; and lastly, to improve the system's capacity to deal with corporate distress.

The Urjit Patel, Nachiket Mor and Bimal Jalan committees will provide a roadmap for strengthening the monetary policy framework, encouraging financial inclusion and facilitating the entry of new banks, respectively.

QUANTITATIVE EASING What is Quantitative Easing?
Usually, central banks try to raise the amount of lending and activity in the economy indirectly, by cutting interest rates.

Lower interest rates encourage people to spend, not save. But when interest rates can go no lower, or to say, even the lowest of interest rates are not enough to provide incentive for free markets for enhancing the economic activity (due to recession, sagging morale or even reduced risk appetite), a central bank's only option is to pump money into the economy directly. Fundamentally, this is quantitative easing (QE).

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Issues for IIM PI Process http://www.essaysforIIM.com The US Federal Reserve held ~$800 billion of Treasury notes on its balance sheet before the 2008 recession. QE1: In late November 2008, the Federal Reserve started buying $600 billion in mortgage‐backed securities. It reached a peak of $2.1 trillion of bank debt, mortgage‐backed securities, and
Treasury notes in June 2010. The Fed's revised goal became to keep holdings at $2.054 trillion. To maintain that level, the Fed bought $30 billion in two‐ to ten‐year Treasury notes every month.
QE2: In November 2010, the Fed announced a 2nd round of QE, buying $600 billion of Treasury securities by the end of the second quarter of 2011.
QE3: A 3rd round of QE3 was announced on 13 September 2012. In an 11–1 vote, the Federal
Reserve decided to launch a new $40 billion per month, open‐ended bond purchasing program of agency mortgage‐backed securities. Because of its open‐ended nature, QE3 has earned the popular nickname of "QE‐Infinity”. On 12 December 2012, the FOMC announced an increase in the amount of open‐ended purchases from $40 billion to $85 billion per month.
Subsequent Tapering: On 19 June 2013, Ben Bernanke said that the Fed would scale back its bond purchases from $85 billion to $65 billion a month during the upcoming September 2013 policy meeting. He also suggested that the bond buying program could wrap up by mid‐2014. He also suggested that if inflation follows a 2% target rate and unemployment decreases to 6.5%, the Fed would likely start raising rates. The stock markets dropped approximately 4.3% over the three trading days following Bernanke's announcement. On 18 September 2013, the Fed decided to hold off on scaling back its bond‐buying program. In a related development, the news of tapering sent INR reeling against USD with the fears of pullback of FIIs from Indian markets and other structural fears. The graphs below shows that between 1st June and 29th Aug, INR dropped by 26% against USD, enough to shock the confidence of the entire investor community.
QE Mechanism
The way the central bank does this is by buying assets ‐ usually government bonds ‐ using money it has simply created out of thin air. The institutions selling those bonds (either commercial banks or other financial businesses such as insurance companies) will then have "new" money in their accounts, which then boosts the money supply. Is this printing money?
These days the Central Banks do not have to literally print money ‐ it is all done electronically. However, economists still argue that QE is the same principle as printing money as it is a deliberate expansion of the central bank's balance sheet and the monetary base. However, according to the Maastricht Treaty, EU member states are not allowed to finance their public deficits by printing money. That is one reason why the Central Banks buy government bonds from financial institutions, and not directly from the government. The Central Banks believe that this form of QE is different because it is "printing money" as part of monetary policy ‐ to prevent deflation. It is not printing money to help the government finance its

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Issues for IIM PI Process http://www.essaysforIIM.com deficit. Also, unlike what Zimbabwe intended to do, this is a temporary policy: the Bank expects to sell the government bonds back into the market when the economy recovers.
Step by step of QE:
1. First, with the permission of the
Treasury, the Central bank of a country
(like RBI) creates lots of money. It does this by just crediting its own bank account

2. The Central Bank wants to use that cash to increase spending and boost the economy so it spends it, mainly on buying government bonds from financial firms such as banks, insurance companies and pension funds.

3. The Bank buying bonds makes them more expensive, so they are a less attractive investment.
That
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Issues for IIM PI Process http://www.essaysforIIM.com 4. If banks, pension funds and insurance companies are more enthusiastic about lending to companies and individuals, the interest rates they charge should fall, so more money is spent and the economy is boosted. 5.
Theoretically,
when the economy has recovered, the
Central Bank sells the bonds it has bought and destroys the cash it receives. That means in the long term there has been no extra cash created.

Does it work?
Since the goal of this policy is to increase the money supply rather than to decrease the interest rate, which cannot be decreased further, this is often considered a last resort to stimulate the economy.
According to the IMF, the QE policies undertaken by the central banks of the major developed countries since the beginning of the 2008 financial crisis have contributed to the reduction in systemic risks and also contributed to the improvements in market confidence and the bottoming out of the recession in the G7 economies in the second half of 2009
Quantitative easing may cause higher inflation than desired if the amount of easing required is overestimated and too much money is created by the purchase of liquid assets. On the other hand, QE can fail to spur demand if banks remain reluctant to lend money to businesses and households. Even then,
QE can still ease the process of deleveraging as it lowers yields.
Increasing the money supply tends to depreciate a country's exchange rates versus other currencies which: Benefits exporters and debtors
Harms creditors and importers
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Issues for IIM PI Process http://www.essaysforIIM.com Result in US: Rates fell slightly after the launch of the bond‐buying program in Sep’12.
The national average rate for a 30‐year mortgage was 3.55% when QE3 was launched last September, having fallen 0.54% in the prior year, and dipped to 3.35% by May
Sales of existing homes were 17% higher in July 2013 than a year earlier. Housing starts for single‐ family homes are up 17% since last August
QE2 added 0.13% to the annual rate of economic growth, then 2.8%, when it was launched in late
2010.
Prospects of ending monetary stimulus has helped push up mortgage rates by about 1.2% since May.
Difference with “Printing Money”
The historical tradition of unchecked printing of money leads directly to hyperinflation. QE involves
Central Bank’s discretionary expansion of bank reserve balances, which do not immediately cause inflation at all
However, large reserve balances create risk, because they will eventually pour out into the economy, causing inflation just like in the traditional case of the central government printing money on paper. To put it simply, printing money in the traditional sense would cause inflation almost immediately, in proportion to the amount of money printed. Quantitative easing, by contrast, appears to create no inflation at all, at first; but the inflation eventually pours out, all at once, if the banks can no longer afford to grow their reserve balances further.

INDIAN ECONOMY – IMPORTANT INDICATORS
NATIONAL INCOME
Domestic saving rate has declined to 30.1% in 2012/13
CAD ‐1.7% of GDP; merchandise trade deficit at ‐4.2% of GDP; capital flows: 3.7% of GDP
Fiscal deficit for the Centre was 4.5% of GDP in 2013/14; Consolidated: 8.2 per cent of GDP
Employment elasticity falling from 0.43(99‐04) to projected 0.25 in 2011‐16
Current: Policy ratios: repo: 8%, reverse repo: 7%, MSF: 9%; Reserve ratios: CRR‐4%; SLR‐22%, USD‐
INR: 61.90
WPI: Primary goods carry a weight of 20.12%, 'fuel and power' 14.91% and manufactured products
64.97%.; WPI average for the year was 6% while CPI‐IW was 9.7%
INDUSTRY
National Manufacturing Policy Goals:‐ Increase manufacturing growth to 12‐14%; Share of manufac to 25% of gdp by 2022; create 100m jobs by 2022
MSME: MSME segment constitutes about 26 million units, contribution of 8 % in GDP, a share of 45
% of total industrial output, over 8000 products manufactured, 40 % of export, employment of 60 million people having a potential of creating 1.3 million jobs every year further ensuring balanced regional and inclusive growth
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Issues for IIM PI Process http://www.essaysforIIM.com AGRICULTURE
GDP share: 30% in 90‐91 to 13.9% in 2013‐14;
GDP agri – 3.9% in 2005‐11; High Coefficient of Variation => Volatile – 6 times than GDP overall
BRICS experience that 1% growth in agri is 2‐3 times more effective in reducing poverty than non‐ agricultural growth;
~ 52% of workforce is still employed by farm sector (NSS 66th Round); average size of operational holdings has diminished progressively from 2.28 ha in 1970‐71 to 1.55 ha in 1990‐91 to 1.23 ha in 2005‐06 ( Agri census 2005‐06); Marginal holdings ( less than 1 ha) – 65%
GCF agri: Reversal in trend from 9th plan ‐ increase in GCF to 13.9% in 10th – 18.7% in 1st 3 yrs of
11th.
TRADE
Total trade incl services 50% of GDP in 2010‐11 (25% in 97‐98)
Goods trade:

Exports

Imports

Value

45b $ (2001) to 320b $ (2013)

50b $ (2001) to 450b $ ( 2013)

CAGR

19.5% in decade

25% in decade ( 2000s)

Share in global X/M

0.7% ‐> 1.5% [2000‐2010]

0.8% ‐> 2.2% [2000‐2010]

In the top 100 imports of the world, India has only 15 items with a share of 2 % and above. [Shows low export diversification]
Share of Asia and ASEAN in total trade increased from 33.3 % in 2000‐1 to 57.3 % in 1st half of 2011‐
12,
Europe and America fell from 42.5 % to 30.8 %
India’s trade deficit as a per cent of GDP at 9.9 percent in 2012, is one of the highest.
In the 2 yrs 2009‐10 to 2011‐12, net gold imports increased by 28b $ or 1.5% of GDP ‐> HAD IT been constant CAD wud be a manageable 2.7% instead of the daunting 4.2%
LINKAGE:
o Trade openness (goods and services trade) increased substantially with the trade‐GDP ratio doubling since 1999‐2000. [ 17.2% (90‐91) to 29.2% (01‐02) to 53.7 ( 08‐09) ] o ratio of total external transactions (gross current account flows plus gross capital account flows) to GDP – an indicator of both trade and financial integration – was 112% in 2008‐09 up from 44% in 1998 ‐99.

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NATIONAL MANUFACTURING POLICY seeks to achieve inclusive growth of the Indian economy by implementing cohesive policy measures for creating state‐of‐the art manufacturing facilities aimed at making India the next “manufacturing destination”. Through various policy instruments like
a)
b)
c)
d)
e)
f)

creation of National Investment and Manufacturing Zones (NIMZs), rationalization / simplification of business regulations, provision of exit mechanisms for sick units, creation of financial and institutional mechanisms for technology development, implementing industrial training and skill up gradation measures, providing incentives for Small and medium enterprises (‘SMEs’)

NMP seeks to achieve the following broad objectives:
a)
b)
c)
d)
e)
f)
g)

Increase the share of manufacturing in GDP to 25% by 2022;
Create 100 million additional jobs by 2022;
Creation of appropriate skill sets among the rural migrant and urban poor to make growth inclusive;
Increase domestic value addition and technological depth in manufacturing;
Enhance global competitiveness of Indian manufacturing through appropriate policy support; and
Ensure sustainability of growth, particularly with regard to the environment
NMP has also outlined certain focus industries ‐primarily comprise –
a) employment intensive industries;
b) capital goods industry;
c) industries with strategic significance (like aerospace; shipping; IT hardware and electronics; telecommunication equipment; defence equipment; and solar energy);
d) industries where India enjoys a competitive advantage;
e) SMEs and
f) Public sector enterprises (‘PSU’).

Need:‐
1. There are attendant socio economic manifestations in terms of over dependence of a large section of the population on agriculture for its livelihood, disguised unemployment and urban unemployment.
India has a favourable demographic profile with over 60% of population in the working age group of
15‐59 years. For a country with the largest young population in the world, this creates a challenge of significant magnitude. Over the next decade, India has to create gainful employment opportunities for a large section of its population, with varying degrees of skills and qualifications. This will entail creation of 220 million jobs by 2025 in order to reap the demographic dividend. The manufacturing sector would have to be the bulwark of this employment creation initiative. Every job created in manufacturing has a multiplier effect of creating two to three additional jobs in related activities.
Therefore, a thrust on manufacturing is integral to the inclusive growth agenda of the government.
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Issues for IIM PI Process http://www.essaysforIIM.com 2. Besides the employment imperative, the development of the manufacturing sector is critical from the point of view of ensuring that the growth model of India is sustainable by providing value addition to our natural and agricultural resources, addressing our strategic needs, and developing new technologies for the welfare of our citizens.
3. Finally, the growth of the manufacturing sector has to be made sustainable, particularly ensuring environmental sustainability through green technologies, energy efficiency, and optimal utilization of natural resources and restoration of damaged / degraded eco‐systems.
In order to achieve these goals:‐
1. Foreign investments and technologies will be welcomed while leveraging the country's expanding market for manufactured goods to induce the building of more manufacturing capabilities and technologies within the country;
2. Competitiveness of enterprises in the country will be the guiding principle in the design and implementation of policies and programmes;
3. Compliance burden on industry arising out of procedural and regulatory formalities will be reduced through rationalization of business regulations.
4. Innovation will be encouraged for augmenting productivity, quality, and growth of enterprises; and
5. Effective consultative mechanism with all stake holders will be instituted to ensure mid‐course corrections. FTAs AND INDIA
Countries looking for opportunities to expand their export markets through free trade agreements.
Proliferated in last 2 decades; notified under WTO has reached 505
An FTA facilitates enforcement of legally binding commitments made by its member nations, either to sequentially reduce or completely eliminate various types of trade barriers facing each other, but keep those facing non‐member nations intact.
Provides market access; degree of coverage of barriers and traded sectors varies.
Mostly, signatories to an FTA belong to a specific geographical region Eg: EU, NAFTA, ASEAN => called
RTAs;
RTAs are generally conceived as the first stage of deeper economic and even political integration between member states, which could graduate into customs union and monetary union, which give wider access and mobility to stakeholders within such unions with better prospects of raising their living standards.
Motives and Merits of FTAs
Multilateral trade liberalisation under the WTO is first best option because non‐discriminatory market access is granted to all. PTAs stand the risk of diverting imports from more efficient producers outside a region to those enjoying preferences within a region

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Issues for IIM PI Process http://www.essaysforIIM.com in conflict with the basic principle of non‐discrimination. But the WTO system allows exceptions to this rule, permitting preferential agreements for the special needs and benefits of developing countries` number of alternative explanations exist to explain this duality.
Relative ease of negotiations with smaller membership compared to multilateral system, the motive of advancing trade policy reforms in stages, quicker way to increasing market size, a means to signal openness to foreign investors; lock‐in their trade policy reforms and to weaken the chances of reversal of trade liberalisation policies at the national level
Furthermore, a number of political motives are attributed to the growth of FTAs. FTAs are often used as tool to reinforce diplomatic relationship between countries. Such agreements are entered into with the intention of pooling common resources, to ward‐off external threat by showing regional solidarity, to increase collective bargaining power at the multilateral level, etc. For instance, many Latin
American countries are observed to have entered into PTAs among themselves in order to improve their competitive position vis‐à‐vis the US. One of Argentina’s key purposes to sign the South
American Common Market Agreement (Mercosur) was to secure preferential access to the Brazilian wheat market at a time when Argentinian wheat exports were being threatened by Canadian and US export subsidies.
However, the slow rate of progress in multilateral trade negotiations and examples of success stories of FTAs elsewhere influenced India’s reconsideration of prospects offered by preferential trade agreements KELKAR COMMITTEE ON FISCAL CONSOLIDATION
The committee examined various measures which are needed to be undertaken by Government for fiscal consolidation in the medium term. These measures include:
i.
ii. iii. iv.

Raising the Tax‐to‐GDP ratio;
Policy measures for pruning expenditure on subsidies and other items of expenditure;
Rightsizing the size of Plan support; and
Steps for increasing disinvestment proceeds.

Why Fiscal consolidation?
The Indian economy is presently poised on the edge of a fiscal precipice, making corrective measures aimed at speedy fiscal consolidation an imperative necessity if serious adverse consequences stemming from this situation are to be averted in an efficient and timely manner.
FD could touch 6.1% IN 2012‐13 ( BE‐ 5.1%), if immediate mid‐year corrective actions are not taken.
Runaway fiscal deficits, leading to unsustainable levels of public debt, can cause diverse forms of macroeconomic imbalances varying with the means through which the deficit is financed.

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Issues for IIM PI Process http://www.essaysforIIM.com High fiscal deficits tend to heighten inflation, reduce room for monetary policy stimulus, increase the risk of external sector imbalances and dampen private investment, growth and employment.
CAD could deteriorate; sovereign credit downgrade and flight of foreign capital. This will invariably further weaken the rupee and negatively impact the capital markets and the banking sector.
Leaves little head room for counter‐cyclical policy measures in the event of another global crisis.
Growing FD leaves limited monetary space for lowering interest rates to stimulate private investment
In a country where millions of young, both skilled and unskilled, enter the labour force each year, a growth slowdown is inefficient, inequitable, and potentially politically destabilizing.
Fiscal Consolidation in India
FRBMA was enacted in 2003. The fiscal improvement from FY 2002‐03 to 2007‐08 saw a rise in foreign reserves providing unprecedented import cover and global confidence. This fiscal discipline fed into other economic variables in a positive manner.
The aggregate disbursements of the central and state governments showed an increase in capital outlays from 11.87 percent in 2002‐03 to 18.59 percent 2007‐08 (as percentage of aggregate disbursements). The lowering of the government’s fiscal deficit (GFD) was accompanied by a benign inflationary environment, lower real interest rates and significant increase in private sector investment twin deficits hypothesis; need for financing CAD thru external capital inflows, govt external debt or drawdown of FX reserves‐ financing of this magnitude is creating huge risks for macroeconomic and external stability;
Funding deficit thru domestic sources is inflationary
Given this background, the recent increase in government deficits, the investment decline, the rigidity of inflation, the pronounced IIP decline and the widening of the CAD are all pointers to a deepening fiscal crisis
The situation is all the more dangerous now, much more so than in the past, because we have a surge in young people looking for jobs. If the elasticity of employment to GDP growth is 0.4 then growth of about 7 per cent per annum would give us 2.8 per cent employment growth. With a labour force growth of 2.5 per cent, this would provide adequate employment oppurtunities. However, if growth slips to say six percent or below, and employment growth slows below 2.4 per cent, unemployment would rise.
Subsidies
On the expenditure side, subsidies pose the greatest fiscal risk. Although petrol has been deregulated and price correction is taking place on a regular basis now, the under recoveries of OMCs on diesel,
LPG and kerosene, with no price revisions in the past 26 months, wide variation in international prices and weakening of the rupee, have reached unsustainable levels. Out of the budget estimate of Rupees
43,500 crore, the Government has already released Rupees 38,500 crore towards under recovery of
OMCs of 2011‐12.

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Issues for IIM PI Process http://www.essaysforIIM.com On fertilizer subsidy, there is an alarming distortion in usage pattern mainly caused due to asymmetry in the pricing formula for Urea and P&K fertilizers. P&K‐ decontrolled pxs, subsidy capped; prices of urea which are administratively set, have been revised only once since 2002. This has caused severe under pricing and correspondingly excessive usage of urea. adverse impact on soil quality and agricultural productivity over the medium and long term. additional requirement of fertiliser subsidy of Rupees 10,000 crore over and above the budgeted amount.
On food subsidy the Government has announced additional allocation of food grains during the course of 2012‐13. Expenditure on the food subsidy will stand at Rupees 85,000 crore against the budgetary estimates of Rupees 75,000 crore ( not accounting for National Food Security Bill).
The food subsidy has increased substantially in recent years on account of widening gap between the central issue price of wheat and rice and the economic cost of delivering these foodgrains. Huge stocks and associated carrying costs with it have further increased the outgo on this count.
To address the issue Government has to initiate measures to:
a) Reduce stocks held in the Central Pool;
b) Reduce the gap between the issue price and economic cost;
If no steps are taken, the subsidy expenditure would go up from 1.9% to 2.6% of the reassessed GDP.

INTERNATIONAL TRADE
India’s Merchandise Trade
Share in world exports and imports increasing, though gradually, from 0.7 per cent and 0.8 per cent respectively in 2000 to 1.7 per cent and 2.5 per cent respectively in 2013. China’s share increased from 1.8 per cent to 11.8 per cent during the same period.
India’s ranking in the top merchandise exporters and importers in the world has also improved o from 31st in 2000 to 19th in 2013 in exports and o from 26th to 12th for imports in the same years, as per WTO
Marked improvement in India’s total merchandise trade to GDP ratio from 21.8 per cent in 2000‐01 to 44.1 per cent in 2013‐14.
India’s Major Manufactured Exports top 4 items are engineering goods(22%) , gems and jewellery(16%), chemicals and related products(11.5%), and textiles(9%). 5th ‐ electronic goods. gradual shift in manufactures exports from labour‐intensive sectors like textiles, leather and manufactures, handicrafts, and carpets to capital‐ and skill intensive sectors.
Noticeable compositional changes have taken place in India’s export basket between 2000‐01 and
2013‐14 with the share of petroleum, crude, and products increasing by nearly 5 times to 20.1 % Need for India’s Export Basket Diversification
In the top 100 imports of the world, India has only five items with a share of 5 per cent and above
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Issues for IIM PI Process http://www.essaysforIIM.com Even in this, except for diamonds (21.0 per cent) and articles of jewellery (11.2 per cent), with double‐ digit shares, the other three items have only around 6‐7 per cent share.
In the top 100 imports of the world, India has only 15 items with a share of 2 % and above.
Need to focus on manufactured items and where world import growth is more than double that of
India.
Among top 100 items there are many where India has already developed competence but share is very small
India’s Services Exports grew at a CAGR of 23.4 per cent during 2000‐1 to 2010‐11 ‐ US$ 132.9 billion in 2010‐11.
In commercial services trade, India was the sixth largest exporter with 3.4 per cent share of world exports and seventh largest importer with 3.0 per cent share of world imports in 2012.
Software exports account for nearly 45% of total services exports
Surplus in services exports, on average, financed around 38% of merchandise trade deficit during
2006‐13 period
Strategy to double exports
Draft strategy paper for more than doubling the country’s exports to $500 billion is centred on four key elements which include
(1) at first level, there is product strategy where clearly we need to build on the intrinsic strengths of our industry such as engineering and chemicals.
(2) Second pillar would be strategy of market diversification as in the coming years the developed world is unlikely to see high growth and strong demand. There is a clear rebalancing of the global order under way and markets in Asia, Africa and Latin America will certainly have far greater potential.
(3) Third pillar of the strategy would be the support for technology and R & D and
(4) it is proposed to give a focused thrust in building a brand India which would need strengthening of quality enforcement regime through the Bureau of Indian Standards (BIS).

TRADE IN VALUE ADDED
One development in India’s export sector is the growing foreign value addition and declining domestic value addition.
The process of fragmentation of the production process across countries and continents is increasingly becoming an important feature of economic globalization, especially for developing economies like India.
Notably, more and more intermediate parts and components are produced in subsequent stages or processes across different countries and then exported to other countries for further production.
The import content of India’s exports increased steadily from 11 per cent to 22 per cent during 1995 to 2011. The rise in import content (or foreign value added) was relatively greater for merchandise exports, from 11 per cent to 26 per cent during the same period
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Issues for IIM PI Process http://www.essaysforIIM.com The share of foreign value added in India’s exports at 24 per cent in 2008, however, was lower than the 33 per cent for China, 38 per cent for Malaysia and Thailand, 42 per cent for the Philippines, 43 per cent for Korea, 46 per cent for Vietnam, and 48 per cent for Taiwan.
Thus, in terms of degree of integration in global value chains, India lags behind most of the important
East Asian emerging economies though countries like South Africa, Indonesia, and Brazil are behind
India.

INDIA‐EU FTA ISSUES
India‐EU free trade agreement, officially known as the Bilateral Trade and Investment Agreement
(BTIA), seeks to reduce tariffs on goods and liberalise services and investments provisions.
Two‐way trade stood at USD 91.3 billion in 2010‐11. A Ficci report said that trade between the two sides is likely to more than double to exceed USD 207 billion by 2015, if the trade pact is formalised.
While the EU wants to gain more access into the Indian markets, India is looking at EU as one of the most important destinations for its IT professionals, architects, engineers, teachers and chefs.
Services: Under the FTA in the Services sector, India wants the EU to ensure free mobility of professionals without restrictions such as experience whereas the EU wants greater commitment by
India to allow foreign investment in services such as retail, legal and postal.
Goods: progress made; consensus has been achieved in some tricky areas such as wine and pharmaceuticals, negotiators are now busy reaching an agreement in agricultural products and automobiles. EU wants trade tariff barriers especially on cars lowered; not in 1 go but need a time period set
It is widely believed that the FTA is proposing to remove tariffs (import duty) on 92 per cent of products to zero within seven years form the date of commencement of the Agreement. Since the EU remains India’s largest trade partner, the sudden loss of tariff is expected to result in a loss of revenue and impact the ability of the Indian government to spend on social sectors.
Further, while India’s average applied tariffs remain around 10 per cent in manufactured products, the EU’s average tariff is 3 per cent. Hence the reduction of tariffs would give the EU an easy access to Indian markets, but the reverse flow would be highly unlikely. Moreover, the EU’s high standards on many products may act as non‐tariff barriers (NTBs) for Indian manufactures, and therefore the removal of tariff will not necessarily translate into ready market access in Europe. The EU is demanding a reduction of tariffs to 30 per cent from the current rate of 60 per cent (50 per cent reduction) for big cars and a complete elimination of tariffs for auto parts. It may be noted that tariffs play an important role in the establishment of car manufacturing facilities in India.
The EU is also demanding substantial tariff cuts on wines and spirits and agricultural products such as poultry, dairy and oils including olive oil. Further reduction is also demanded on processed foods, which include chocolates, biscuits, confectionary, cereal preparations, processed fruits and vegetables. Tariff reduction on agricultural products would result in the import of the EU’s subsidised agricultural products and will have serious consequences on food security in the country. It is worth noting that
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Issues for IIM PI Process http://www.essaysforIIM.com the FTA is not going to bring any discipline on the EU’s agricultural subsidies. The UN Special
Rapporteur on the Right to Food in a recent press statement has said “this FTA represents a clear risk to India’s obligation to respect, protect and fulfill the right to food if sensitive agricultural sectors were opened to subsidised EU exports and European investment in retail and land. In addition, the EU wants export measures removed completely in order to get access to India’s food and raw material”.
Apart from the above‐mentioned issues, the EU is also demanding the opening up of government procurement with regard to the public sector undertakings. Leaked documents show that India is moving towards setting the parameters of the market access package on government procurement.
Similarly, the EU is demanding the highest level of protection for its investments and it also wants to renegotiate the bilateral investment treaties that India has already signed with the EU member countries. Investment protection treaties have come under attack from many scholars due to their potential to reduce policy space of countries to regulate industries, and to protect public health and environment. The EU is also demanding opening up of service sector, especially the multi brand retail services. Another important concern is with regard to the protection and enforcement of IPRs. The EU demands for data exclusivity (DE) protection for medicines (proprietary protection for clinical trial data) and patent term extension would delay the generic introduction of new medicines. Under the DE regime, a generic company cannot obtain the marketing approval based on the clinical trial data submitted by the originator company for 10‐11 years from the date of marketing approval. This would compromise access to medicines in India as well as in many other developing countries. In India, annually 45 million people are pushed to impoverishment due to catastrophic payment on medicines. Similar, DE demands on agro‐chemicals would create monopoly in pesticides and increase prices.
Despite the serious implications of the FTA, there hasn’t been sufficient transparency on the content and the process of negotiations.

POVERTY IN INDIA Even when poverty has declined there has been a marked disparity in its reduction in rural and urban areas as well as across different regions in the country
Significant reduction in Andhra, Gujarat, Haryana, Karnataka, Kerala, Maharashtra, Punjab and WB
Most poor states of Bihar, MP, Orissa and UP have shown little progress in poverty reduction
Over 54 pc of India’s poor lived in these states in 2004‐05
These states have more poor than 26 sub‐Saharan African countries according to the 2010 HDR
North‐western states (P, H, HP, J&K) comprise only 2.2 pc of India’s poor. Rural urban disparity is minimal More than half of India’s urban poor live in the states of Maharashtra, MP, UP and TN
There is no evidence for convergence in the incidence of poverty across the states of India
Coefficient of variation (CV) of poverty reveals widening inter‐state inequalities in poverty reduction.
Between 1993‐94 and 2004‐2005 CV increased from 36 to 54.
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Issues for IIM PI Process http://www.essaysforIIM.com Non‐income dimensions of poverty o NFHS‐3 and District level Household Survey on Reproductive Health
46 pc children under 3 and 49 pc children under 6 malnourished
79 pc children anaemic
59 pc deliveries did not take place in institutional agencies
32 pc have no electricity, 55 no toilet o Multidimensional Poverty Index
Economic Growth and Poverty o Necessary for poverty reduction, but not sufficient o This is because
Poverty is not only income poverty. There are various other unfreedoms. The Multi‐ dimensional Poverty Index captures this well
Enabling role of basic education, good health, land reforms, social security
The fruits of economic growth may not be automatically utilised to expand basic social services o Eliminating deprivation is as much a matter of public action as one merely of economic growth. o There has been no significant acceleration in the process of poverty reduction during 1980‐
2005 despite an acceleration in the growth of per capita GDP
Since public action is required, schemes such as NREGS and SGSY are important
Poverty in India vs other developing countries o China
Poverty in China declined from 53 pc in 1981 to 8 pc in 2001. In the same period India reduced poverty by 17 pc
India fares badly even on non‐income dimensions of poverty like malnutrition, infant mortality Concerns about equity and disparity remain in China too. India has fared better than
China in achieving lower inequality
Strategy to deal with the problem o Recognize that poor are heterogeneous. So strategies need to be specifically designed to deal with chronic poor and other poor o Design safety nets o Strengthen livelihood and make them more productive

PITFALLS OF BPL TARGETING
The coverage of various social policies, in many cases, is also sought to be confined to “below poverty line” (BPL) families, a narrowly‐defined category that tends to shrink over time as per‐capita incomes increase, which may even look like a convenient way of ensuring that social welfare programmes are
“self‐liquidating”.
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Issues for IIM PI Process http://www.essaysforIIM.com Cash Transfers not a solution and govt cannot abdicate responsibility of not providing social services.
In Latin America, conditional cash transfers usually act as a complement, not a substitute, for public provision of health, education and other basic services
The pitfalls of “BPL targeting” have become increasingly clear in recent years.
1. First, there is no reliable way of identifying poor households, and the exclusion errors are enormous: at least three national surveys indicate that, around 2004‐5, about half of all poor households in rural
India did not have a “BPL card”.
2. Second, India’s official poverty line is abysmally low, so that even if all the BPL cards were correctly and infallibly allocated to poor households, large numbers of people who are in dire need of social support would remain excluded from the system.
3. Third, BPL targeting is extremely divisive, and undermines the unity and strength of public demand for functional social services, making a collaborative right into a divisive privilege.
In at least three Indian states, universal provision of essential services has become an accepted norm
1. Kerala ‐ long history of comprehensive social policies, particularly in the field of elementary education
– the principle of universal education at public expense was an explicit objective of state policy in
Travancore as early as 1817.
2. Tamil Nadu ‐ first state to introduce free and universal midday meals in primary schools. The state’s pioneering efforts in the field of early child care have gone a long way towards the provision of functional Anganwadis, accessible to all, in every habitation. Tamil Nadu also has an extensive network of lively and effective health care centres, where people from all social backgrounds can get reasonably good health care, free of cost. NREGA is also doing well in TN; Tamil Nadu has a universal
Public Distribution System (PDS), which supplies not only foodgrains but also oil, pulses, and other essential commodities
3. HP ‐ “schooling revolution” was based almost entirely on a policy of universal provision of government schools, and even today, elementary education in Himachal Pradesh is overwhelmingly in the public sector. Like TN, HP has a well‐functioning PDS, providing not only foodgrain but also pulses and oil and covering both “BPL” and “APL” families. Comprehensive policies also in provision of basic amenities such as roads, electricity (98% hh’s), drinking water and public transport

POVERTY LINE MEASUREMENT
Sometime back, the Planning Commission filed an affidavit in the Supreme Court updating the official poverty line to Rs 965 per month in urban areas and Rs 781 in rural areas. This works out to Rs 32 and and
Rs 26 per day, respectively. The perceived inadequacy of these figures has led to widespread discussion and criticism in the media. In light of the controversy, it may be worth looking at where the numbers come from in the first place.
Two Measures of the BPL Population

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Issues for IIM PI Process http://www.essaysforIIM.com The official poverty line is determined by the Planning Commission, on the basis of data provided by the
National Sample Survey Organisation (NSSO). NSSO data is based on a survey of consumer expenditure which takes place every five years. The most recent Planning Commission poverty estimates are for the year 2004‐05.
In addition to Planning Commission efforts to determine the poverty line, the Ministry of Rural
Development has conducted a BPL Census in 1992, 1997, 2002, and 2011 to identify poor households. The
BPL Census is used to target families for assistance through various schemes of the central government.
The 2011 BPL Census is being conducted along with a caste census, and is dubbed the Socio‐Economic &
Caste Census (SECC) 2011.
Planning Commission Methodology
Rural and urban poverty lines were first defined in 1973‐74 in terms of Per Capita Total Expenditure
(PCTE). Consumption is measured in terms of a collection of goods and services known as reference
Poverty Line Baskets (PLB). These PLB were determined separately for urban and rural areas and based on a per‐day calorie intake of 2400 (rural) and 2100 (urban), each containing items such as food, clothing, fuel, rent, conveyance and entertainment, among others. The official poverty line is the national average expenditure per person incurred to obtain the goods in the PLB. Since 1973‐74, prices for goods in the PLB have been periodically adjusted over time and across states to deduce the official poverty line.
Uniform Reference Period (URP) vs Mixed Reference Period (MRP)
Until 1993‐94, consumption information collected by the NSSO was based on the Uniform Reference
Period (URP), which measured consumption across a 30‐day recall period. That is, survey respondents were asked about their consumption in the previous 30 days. From 1999‐2000 onwards, the NSSO switched to a method known as the Mixed Reference Period (MRP). The MRP measures consumption of five low‐frequency items (clothing, footwear, durables, education and institutional health expenditure) over the previous year, and all other items over the previous 30 days. That is to say, for the five items, survey respondents are asked about consumption in the previous one year. For the remaining items, they are asked about consumption in the previous 30 days.
Tendulkar Committee Report
In 2009, the Tendulkar Committee Report suggested several changes to the way poverty is measured. First, it recommended a shift away from basing the PLB in caloric intake and towards target nutritional outcomes instead. Second, it recommended that a uniform PLB be used for both rural and urban areas. In addition, it recommended a change in the way prices are adjusted, and called for an explicit provision in the PLB to account for private expenditure in health and education. For these reasons, the
Tendulkar estimate of poverty for the years 1993‐94 and 2004‐05 is higher than the official estimate, regardless of whether one looks at URP or MRP figures. For example, while the official 1993‐94 All‐India poverty figure is 36% (URP), applying the Tendulkar methodology yields a rate of 45.3%. Similarly, the official 2004‐05 poverty rate is 21.8% (MRP) or 27.5% (URP), while applying the the Tendulkar methodology brings the number to 37.2%.
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POVERTY AS A CHALLENGE
Reducing poverty has been one of the major objectives of India’s developmental strategies.
The per capita consumption expenditure level which meets the average per capita daily requirement of 2,400 calories in rural areas and 2,100 calories in urban areas, along with a minimum of non‐food expenditure, is called poverty line or absolute poverty.
When the number of poor and their proportion is compared, we will have an idea of different levels of poverty of people and their distribution between states and over time.
The number of poor in India and their proportion to total population has declined substantially. For the first time in the 1990s, the absolute number of poor has declined.
Majority of poor are residing in rural areas and engage themselves in casual and unskilled jobs.
Income and expenditure oriented approaches do not take into account many other attributes of the poor people.
Over the years, the government has been following three approaches to reduce poverty in India: growth oriented development, specific poverty alleviation programmes and meeting the minimum needs of the poor.
Government initiatives are yet to transform the ownership of assets, processes of production and meet the basic amenities of the poor.
It is a situation in which a person is unable to get minimum basic necessities of life, i.e. food, clothing and shelter for his or her living. In economic terms they are called poverty ridden and are people living below poverty line (BPL).
MASS POVERTY: When a large section of the people in an economy are deprived of the basic necessities, that economy is said to be in mass poverty.
MEASUREMENT OF POVERTY: Since it is the responsibility of the state to remove poverty, it has to take certain steps.
Developing an appropriate mechanism to identify the poverty – ridden people.
Estimate the total number of poverty‐ridden persons with the help of that mechanism.
In the first approach, expenditure incurred by a family on various items is used.
In the second, the income earned by a family is used.
POVERTY AND OCCUPATION:
The poverty ridden families include the unemployed, the landless, the agricultural and casual labourers, the tribals and the disabled or the physically challenged.
The casual workers, the unemployed daily wage earners, domestic servants, rickshaw pullers, hotel and restaurant workers are belonged to the urban poor.
CAUSES OF POVERTY
Excessive dependency on agriculture leads to low levels of income for the rural masses.They do not have enough land and machinery, they are landless labourers and people without work. Land reforms were not implemented properly in rural areas.
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Issues for IIM PI Process http://www.essaysforIIM.com Social factors like illiteracy, large size of family, law of inheritance and caste system are responsible for poverty.
Poverty alleviation programmes have failed to make considerable progress in removing poverty due to corruption and inefficiency.
REMOVAL OF POVERTY: Government has taken efforts to develop the heavy industries and green revolution which would lead to rapid economic development.
Introduction of Trickle down method: The benefit to a particular section of a society would trickle down to other section across the country.
Land reform methods: such as zamindari system, security of tenant farmers against eviction, fixation of rents, fixation of ceilings on land holdings and distribution of surplus land among small and landless farmers were undertaken by the govt.
Cottage and small scale industries were encouraged which employ more people than machines.
Income distribution measures were introduced to reduce the gap between the rich and the poor.
a) Taxing the rich and the middle classes
b) On the luxury commodities
c) Reducing the prices on essential goods to lower income group.
POVERTY ALLEVIATION PROGRAMMES (PAP): Government has adopted Poverty Alleviation Programme to bring down the poverty level. Most of them aim at providing employment or improvement of the asset‐ base of the poverty‐ridden families.

FINANCIAL INCLUSION
Entire national financial system benefits by greater inclusion
1. when promoted in the wider context of economic inclusion
2. multiplier effect on the economy through enhanced savings & credit to the people at the bottom of the pyramid
3. banks benefit by stable deposit base contributed by retail customers
4. promotes financial stability and discourages informal sectors
5. facilitates transfer of government benefits without leakages
6. Greater participation in the formal financial system makes monetary policy more effective
a) enhances the prospects of non‐inflationary growth
b) facilitates move towards less cash society
What is financial inclusion:‐ Growth and equity; Inequalities exist in socio‐economic conditions, literacy, income level, urbanization, infrastructure
1. Financial inclusion is about ensuring 5A’s:Adequacy, Availability, Accessibility, Awareness,
Affordability
2. Adoption of multi‐pronged strategy
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3.

4.

5.

6.

a. Network of bank branches ,
b. Tapping SHGs, MFIs, etc.
c. Enhancing network through BCs/BFs & TSPs
d. Wide range of banking products.
Policy approach
a. Minimalist – a bouquet of basic banking products & services
b. Expanded ‐ ancillary financial products like insurance, pension, deeper customer engagement, consumer protection and enhanced financial literacy
Need to focus on Policies, Partnership, Processes & Products relating to
a. SHGs:‐ SHG Bank Linkage Programme
b. Micro Finance Institutions
c. Business Correspondents
d. Technology:‐ Experimentation with mobile based remittance services; use point‐of‐sale devices in conjunction with magnetic stripe cards
SHG Bank Linkage Programme
a. ‘Savings‐first, credit later’ model; credit discipline ‘social collateral’ made SHGs bankable
b. For banks dealing with groups of people meant
i. reducing in transaction costs, ii. reducing the credit risks through ‘peer pressure’ and iii. making people save
c. Challenges:‐ inadequate outreach in many regions, delays in opening of SHG accounts and disbursement of loans, impounding of savings by banks as collateral
SHG‐2
a. More focus on voluntary savings
b. Cash credit system of lending over 3 to 5 years cycle to minimize the problem of inadequate finance and non‐availability of repeat loans
c. Enabling creation of Joint Liability Groups (JLGs) within SHGs to scale up economic activities by more entrepreneurial members
d. Improving risk mitigation systems by bringing in third party audit
e. Building second tier institutions
f. Strengthening the monitoring mechanism
g. Addressing training requirements

MORE ON FINANCIAL INCLUSION
Financial inclusion is a policy priority even in the developed countries. While liberalisation there improved financial products and services for the few, it accentuated denial of services for many.

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Issues for IIM PI Process http://www.essaysforIIM.com The same happened in India following the introduction of economic reforms in the early 1990s when there was a retrogression on several indices of financial inclusion reflecting a severe setback to the objectives with which major commercial banks were nationalised in the late 1960s.
This experience has prompted renewed policy attention to the issues of financial inclusion in India in recent years.
These have been examined by the Committee on Financial Inclusion appointed by the ministry of finance, under the chairmanship of C Rangarajan (GOI 2007), and another Committee on Financial
Sector Reforms constituted by the Planning Commission under the chairmanship of Raghuram G Rajan
(Planning Commission 2008).
Financial inclusion should be measured not only by the number of bank accounts held by the weaker sections, as brought out by the above Committees, but also by the amounts borrowed by them, which show a more dismal picture.
For example, the share of direct accounts with a credit limit of less than Rs 25,000 in total direct accounts declined from 97% in 1990 to 67% in 2005, while their share in outstanding direct credit declined from 0.66% to 0.23% in the same period (Planning Commission 2007).
Financial inclusion is no doubt inhibited by the higher transaction costs of dealing with a large number of small accounts rather than a small number of large accounts. But such costs can be reduced through organisational innovations or, where necessary, met through explicit subsidies.
Unduly lower ceiling on interest rates for bank loans could also encourage exclusion, which need not be insisted upon, as the small borrowers are interested in adequate supply of credit rather than such lower rates of interest, the benefit of which, in any case, may not accrue to them but to the middle men. But the basic cause for financial exclusion, often missed is a mindset lacking in social concerns. This has to be faced squarely if appropriate institutional arrangements are to be made for checking the prevailing distortions in bank lending.
The experience with the linkages of banks with microfinance institutions and selfhelp groups (SHGs) clearly demonstrates that the poor are bankable: Even when margins are low, high volumes can make the business profitable.
Innovative institutions and methods for the delivery of credit, including those recommended by the above committees, are called for.
Also, the targets for inclusion should be set in terms of the number of accounts as well as the amount of credit to be extended.

FAST TRACK COURTS – AN OVERVIEW
Recently, Delhi witnessed large scale protests by various groups demanding stricter punishment and speedier trial in cases of sexual assault against women. In light of the protests, the central government
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Issues for IIM PI Process http://www.essaysforIIM.com has constituted a Commission (headed by Justice Verma) to suggest possible amendments in the criminal law to ensure speedier disposal of cases relating to sexual assault. Though the Supreme Court, in 1986, had recognised speedy trial to be a fundamental right, India continues to have a high number of pending cases. In 2012, the net pendency in High Courts and subordinate courts decreased by over 6 lakh cases. However, there is still a substantial backlog of cases across various courts in the country. As per the latest information given by the Ministry of Law and Justice, there are 43.2 lakh cases pending in the High Courts and 2.69 crore cases pending in the district courts.
After the recent gang‐rape of a 23 year old girl, the Delhi High Court directed the state government to establish five Fast Track Courts (FTCs) for the expeditious adjudication of cases relating to sexual assault.
According to a news report, other states such as Maharashtra and Tamil Nadu have also begun the process of establishing FTCs for rape cases. In this blog, we look at the status of pending cases in various courts in the country, the number of vacancies of judges and the status of FTCs in the country.
Vacancies in the High Courts and the Subordinate Courts
One of the reasons for the long delay in the disposal of cases is the high number of vacancies in position for judges in the High Courts and the District Courts of the country. As of December 1, 2012, the working strength of the High Court judges was 613 as against the sanctioned strength of 895 judges. This reflects a 32% vacancy of judges across various High Courts in the country. The highest number of vacancies is in the Allahabad High Court with a working strength of 86 judges against the sanctioned strength of 160 judges (i.e. vacancy of 74 judges). The situation is not much better at the subordinate level. As on
September 30, 2011, the sanctioned strength of judges at the subordinate level was 18,123 judges as against a working strength of 14,287 judges (i.e. 21% vacancy). The highest vacancy is in Gujarat with 794 vacancies of judges, followed by Bihar with 690 vacancies.
Fast Track Courts
The 11th Finance Commission had recommended a scheme for the establishment of 1734 FTCs for the expeditious disposal of cases pending in the lower courts. In this regard, the Commission had allocated
Rs 500 crore. FTCs were to be established by the state governments in consultation with the respective
High Courts. An average of five FTCs were to be established in each district of the country. The judges for these FTCs were appointed on an adhoc basis. The judges were selected by the High Courts of the respective states. There are primarily three sources of recruitment. First, by promoting members from amongst the eligible judicial officers; second, by appointing retired High Court judges and third, from amongst members of the Bar of the respective state.
FTCs were initially established for a period of five years (2000‐2005). However, in 2005, the Supreme
Court directed the central government to continue with the FTC scheme, which was extended until 2010‐
2011. The government discontinued the FTC scheme in March 2011. Though the central government stopped giving financial assistance to the states for establishing FTCs, the state governments could establish FTCs from their own funds. The decision of the central government not to finance the FTCs
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Issues for IIM PI Process http://www.essaysforIIM.com beyond 2011 was challenged in the Supreme Court. In 2012, the Court upheld the decision of the central government. It held that the state governments have the liberty to decide whether they want to continue with the scheme or not. However, if they decide to continue then the FTCs have to be made a permanent feature. As of September 2012, some states such as Arunachal Pradesh, Assam, Maharashtra, Tamil Nadu and
Kerala decided to continue with the FTC scheme. However, some states such as Haryana and Chhattisgarh decided to discontinue it. Other states such as Delhi and Karnataka have decided to continue the FTC scheme only till 2013.

IMPACT OF ECONOMIC CRISIS ON INDIA
The global financial crisis impacted India significantly, notwithstanding the sound banking system, negligible exposure of Indian banks to sub‐prime assets and relatively well‐functioning financial markets. The impact was mainly on account of India’s growing trade and financial integration with the global economy.
The immediate impact of the crisis was felt through large capital outflows and consequent fall in the domestic stock markets on account of sell‐off by Foreign Institutional Investors and steep depreciation of the Rupee against US Dollar.
Adversely affected the Indian exports resulting in widening of CAD
Credit markets also came under pressure as corporates, finding it difficult to raise resources through external sources of funding, turned to domestic bank and non‐bank institutions for funding and also withdrew their investments from the liquid schemes of mutual funds.
The reasons for the muted impact is attributable primarily to
(i)
(ii)
(iii)
(iv)
(v)
(vi)

the macroprudential approach to regulation multiple indicator based monetary policy, calibrated capital account management, management of systemic interconnectedness, robust market infrastructure for OTC transactions and a conservative approach towards financial innovation.

INCREASING VULNERABILITY TO EXTERNAL SHOCKS Until the global crisis, the Indian economy exhibited remarkable resilience to various adverse external developments, despite the increasing openness of the economy since the 1990s. There were several reasons for this resilience.
First, domestic demand played a dominant role in the growth process
2. Second, domestic demand was led by private consumption during the first 4 decades(50‐90)
1.

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Issues for IIM PI Process http://www.essaysforIIM.com Third, a large part of investment demand was supported by domestic savings.
4. Fourth, the services sector, led by domestic demand, contributed to the stability of overall economic growth.
5. Fifth, in the financial sector, the banking sector accounted for a major share of the financial intermediation process which did not have significant exposure to international financial markets.
3.

Global developments became important for the economy due to the significant increase in trade and finance openness (Subbarao, 2009; Reddy, 2007 and 2008).
Share of exports and imports in the aggregate demand has risen sharply during the current decade compared to the 1980s and 1990s; on the other hand, the share of private consumption has fallen during the same period.
As a result of the compositional shift in aggregate demand, the Indian economy has become more vulnerable to external shocks compared to the earlier period. This is clearly visible in the decline in the growth rate of the Indian economy as the recent global crisis gathered momentum with widespread impact across sectors.

INDIA’S BALANCE OF PAYMENTS: SITUATION AND SOLUTIONS
What is BoP?
It is our transaction account with the rest of the world. It can be better appreciated in terms of the national income accounting identity: GDP = C+G+I+X‐M. In other words, domestic output (GDP) is equal to private consumption (C), plus government consumption (G), plus domestic investment (I), plus net exports (X‐M).
If net exports of goods and services (X‐M) are negative, the domestic economy is absorbing more than it can produce. In other words, absorption (C+G+I) by the domestic economy is greater than domestic output (GDP). This is reflected in current account deficit (X‐M) which needs to be financed by external borrowings and/or investments. In normal times external finance may not be a problem. However, it could be challenging if both the global and domestic economic outlook are not very favourable.
Situation
In the recent years, India’s integration with the global economy has increased significantly. This is reflected in our expanding volume of external trade and financial transactions. While this process has several benefits arising from wider access to consumption and investment, there is attendant cost of periodic instability. Over the last two years, the Reserve Bank has been drawing attention to the widening current account deficit (CAD) in our balance of payments (BoP). The risks to our BoP have increased both in the global and domestic context: first, following the global financial crisis trade volumes have slumped and capital flows have become volatile; second, slowing domestic growth coupled with a large fiscal deficit alongside a high CAD poses twin deficit risks.
India’s current account particularly remains vulnerable to developments in the trade account. It is evident from the size of trade deficit growing from 0.5 per cent of GDP during 1951‐55 to 8.7 per cent during 2007‐12. In 2011‐12, the current account deficit had widened to a record 4.2 per cent of GDP.
Over the years, current account derived some resilience from surplus generated by invisibles, particularly software exports and private transfers, but trade deficit continues to dictate the overall
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Issues for IIM PI Process http://www.essaysforIIM.com trend in the current account. Whenever trade account worsens reflecting downswings in the global business cycle or rise in international oil prices, the current account also comes under stress as is evident in the present context. Going forward, since India’s linkage with the world economy, in terms of trade and finance, is likely to grow further, it is important that resilience in its trade account is built up mainly by promoting productivity based export competitiveness and improving domestic fundamentals that are supportive of least costly non‐debt creating flows, particularly foreign direct investment (FDI).
Solutions
First, the current level of CAD is near the sustainable level for India. Reserve Bank’s own research shows that economy can sustain CAD of about 2.5 per cent of GDP under a scenario of slower growth.
A slowing global economy and protracted high levels of unemployment in advanced economies make it difficult to boost services exports in the short run. If the slowdown continues, it could also have an adverse impact on inward remittances. Hence, there is a need to reduce imports and boost merchandise exports to bring the CAD to sustainable levels.
Second, structural policy measures are needed to reduce vulnerability emanating from high oil and gold imports. While oil has been a major component of India’s imports, the sharp increase in demand for gold has put an additional pressure.
During 2008‐09 to 2011‐12, on average, the net gold imports stood at about 2 per cent of GDP, almost double the level recorded during 2004‐05 to 2007‐08. Thus, during the same period, CAD‐GDP ratio, excluding net gold imports, would seem less problematic at 1.1 per cent as compared to a surplus of
0.2 per cent. In addition to the traditional motive of gold demand for jewellery, gold seems to have become a safe investment asset and a hedge against inflation as is observed in other advanced economies. Its dematerialisation like any other financial product can reduce its physical imports.
Furthermore, inflation indexed bonds could also be another option to offer investors the inflation linked returns and detract them from gold investments.
In the case of oil, we need to become more energy efficient to reduce our dependence on oil imports.
Stepping up of production of electricity could reduce oil demand from backup generation systems.
Moreover, the domestic pricing of oil should be aligned further to the international prices to rationalise oil consumption.
Third, current policies towards further diversification of India’s export basket, both destination and products, needs to be stepped up. Indian exporters need to accelerate efforts to move up in the value chain at the global level.
Fourth, given the global uncertainties and volatility in capital flows, the resilience of capital account needs to be further enhanced by encouraging FDI inflows.

NEED TO ADDRESS TWIN DEFICITS
The emergence of twin deficits during 2011‐12 was a major cause of macro‐economic weakness

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Issues for IIM PI Process http://www.essaysforIIM.com With growth remaining slow, budgetary targets are at risk. Shortfall in indirect tax revenue, decline in corporate earnings, difficulties with disinvestment and expenditure overshooting due to under‐ provision of petroleum subsidies are likely to put fiscal position under pressure
Consequently, some level of fiscal slippage is unavoidable. Estimates suggest that if no revision is made in administered fuel prices, this slippage may turn out to be about 0.4 per cent of GDP at the current level of crude prices on this account alone. Such slippage could crowd‐out private investment at a time when reviving investment, both public and private, is critical. This could through higher aggregate demand then spill over to higher inflation and wider current account deficit (CAD)
CAD risks are maintained and overall CAD‐GDP ratio may not correct significantly in 2012‐13. Even though merchandise trade balance narrowed in Q1 of 2012‐13, net services exports were 22 per cent lower on a year‐on‐year basis. Software exports are likely to moderate as global IT spending is expected to be lower
With a lower growth, the sustainable level of CAD is now assessed at around 2.5 per cent of GDP. It is important not only to focus on financing of CAD, but also on compressing it to lower manageable levels In recent period, CAD has been managed by improving debt inflows. However, this has long‐term costs for debt sustainability and increase refinancing risk over time. Therefore, there is urgent need to step‐ up non‐debt creating inflows, especially in form of Foreign Direct Investment (FDI)

NEED FOR AN INDEPENDENT MEDIA REGULATOR
The dividing lines between business and media have long been erased. Quid pro quo is virtually the norm, not the exception. As a result, readers and viewers are justified in their scepticism about the coverage of any story involving powerful business houses. If the truth comes out eventually, it is because despite a so‐ called “free” media, there are individuals out there in Indian society who are not satisfied, and who find ways, including using the Right to Information Act, to put the real facts out in the public realm.
So essentially, the job of investigating abuse of power, misdemeanours, squandering public funds, or getting out‐of‐turn favours through the subversion of established systems – something that the media ought to be doing – has been left to people outside the media. It is difficult to recall the last time a major media house did an expose on a corporate house.
Whenever media ethics hit a new low, there are calls for setting up regulatory bodies. The media’s response is to assert that self‐regulation is adequate. Yet, against the background of what happened recently in Britain, where the conduct of the Rupert Murdoch‐owned media house was the subject of an independent inquiry, it would be worth discussing the need for such an institution in India. Whether a really autonomous and independent regulatory body is possible in a society where the rot of corruption has seeped so deep is difficult to imagine. Yet, this might be the time to at least begin the conversation.
A free press is an essential part of a democratic system. In a society like ours, with its stark inequalities, only a media free of government and corporate pressures can ensure that the voiceless are heard. What we are seeing currently is not just blatant collusion between the media and big business but also a deliberate obliteration of much of what happens to the millions who live on the margins.
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Issues for IIM PI Process http://www.essaysforIIM.com Issues raised by a recent Law Commission report
Limitations of the existing self‐regulation mechanisms within the three self‐regulation bodies — o Press Council of India (PCI) for print, o Broadcasting Content Complaints Council (BCCC) for channels other than news and current affairs, and the o News Broadcasters Association (NBA) for news and current affairs channels.
Legal challenge of Section 66A of the Information Technology Act, which many view as violating free speech. There are many instances in the recent past where this Section has been arbitrarily invoked to block access to content allegedly objectionable.
Solutions
First, the Commission must refrain from recommending a meta‐regulator for the four forms of media
— print, radio, television and the Internet. There should be different regulators for different forms of media as each media platform has its own sets of problems that are neither transferable nor replicable. Second, it should come out with clear implementable and binding codes, for each of the media, which draw from Articles 19 (1)(a) and 21, and that provide an effective complaint redress mechanism and its enforcement. The first tier of regulations should focus on course correction rather than being punitive in its approach.
Third, there should be space for arbitration to resolve some of the issues. The idea of arbitration is to make the redress system accessible to the general public both in terms of costs and time.
The legal recourse, in the event of unsatisfactory outcome during the arbitration, should be at the level of the High Court.
Fourth, the Commission must come up with a set of rules that do not prioritise one element of freedom at the cost of others.\
Hence need of the hour is to create a robust self‐regulation mechanism that is two‐tiered and platform‐specific. o Two‐tiered
1ST Tier:‐ Within the news organisations — an ombudsman, a readers’ editor or a public editor.
2nd Tier:‐ national level o Regulating body should be independent of serving journalists, the government and commercial concerns, and not include any serving editors, government members or Members of Parliament.

ROLE OF CIVIL SOCIETY
In a country as large and diverse as ours, the government alone cannot be the sole dispenser and catalyst of services and an agent of change.
Nor can the state deliver it wholly without working out a strong and active participation of civil society, non‐governmental organisations, social institutional players, voluntary agencies, business houses and
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Issues for IIM PI Process http://www.essaysforIIM.com financial institutions as a multi‐sectoral partnership. However, this did not mean a retreat from social basics and basic responsibilities of the government.
What it meant was that the participatory mode acted as a supplementary and vital facilitator in every sphere of governance and development.
Civil society participation and governance have to function as an ecosystem that allowed civil society and institutional players to act together in a symbiotic relationship. That process released the government from the pressure of micro‐managing affairs down to the village and ward and enabled it to turn its energies and resources to macro issues.
Civil society has a right to demand participation and call the government to accountability and transparency and lead on to realisation of power. This may not be construed as causing affront to the government and it may be recognised as the engagement of the beneficiaries and consumers of state policies towards strengthening the hands of development actors to achieve the goal of an inclusive society. 73rd and 74th amendments to the Constitution of India gave an impetus to the participatory development and governance process and to a people‐centric development culture
Civil society has a connect with multi‐sectoral services embracing healthcare, literacy, water conservation, management of natural resources, low‐cost housing, capacity building, skill development, social reforms, information and data provision. Plus varied empowerment interventions among the disadvantaged rungs of society converging on social inclusiveness and enabling access to and control over the resources and developmental instrumentalities

JUDICIAL ACTIVISM
Taking cognisance of cases on issue of public interest; Locus standi not required; came in 1979 after famous cases of Hussainara Khatoon vs. Bihar case and Sunil Batra vs. Delhi Administration (1980)
Judicial activism has had manifold impact on the political system. o o

o o o

o

As Justice Bhagwati said in a speech, the judiciary has been able to develop our Human Rights jurisprudence and brought help and succour to the masses of people in India, thru JA.
Acc to him, law‐makin gis an inherent and inevitable part of the judicial process. The judge infuses life and blood into the dry skeleton provided by the legislature and creates a living organism appropriate and adequate to meet the needs of the society.
It has democratised the judicial system by giving not just to individuals but also groups access to the courts.
It has forced executive accountability.
It has also made an attempt to make the electoral system much more free and fair. The court asked candidates contesting elections to file affidavits indicating their assets and income along with educational qualifications so that the people could elect their representatives based on accurate knowledge. the judiciary has also shown readiness to take into consideration rights of those sections who cannot easily approach the courts. For this purpose, the judiciary allowed public spirited

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citizens, social organisations and lawyers to file petitions on behalf of the needy and the deprived. The right to life and personal liberty and the procedure established by law has been converted de facto and de jure into a procedural due process clause contrary to the intent of the makers of the constitution. This expanding right has encompassed, within itself, the right to bail, the right to a speedy trial, immunity against cruel and unusual punishment, the right to dignified treatment in custodial institutions, the right to legal aid in criminal proceedings and above all the right to live with basic human dignity.
Through the PIL, the court has expanded the idea of rights. Clean air, unpolluted water, decent living etc. Are rights for the entire society. Therefore, it was felt by the courts that individuals as parts of the society must have the right to seek justice wherever such rights were violated.

There is however a negative side to the large number of PILs and the idea of a pro‐active judiciary. o o

o

In the first place it has overburdened the courts.
Secondly, judicial activism has blurred the line of distinction between the executive and legislature on the one hand and the judiciary on the other. The court has been involved in resolving questions which belong to the executive. Thus, for instance, reducing air or sound pollution or investigating cases of corruption or bringing about electoral reform is not exactly the duty of the Judiciary. These are matters to be handled by the administration under the supervision of the legislatures.
Therefore, some people feel that judicial activism has made the balance among the three organs of government very delicate. Democratic government is based on each organ of government respecting the powers and jurisdiction of the others. Judicial activism may be creating strains on this democratic principle.

More about Judicial Activism
Judicial activism is a philosophy of judicial decision‐making whereby judges allow their personal views about public policy, among other factors, to guide their decisions. It can be narrowly defined as one or more of three possible actions: overturning laws as unconstitutional, overturning judicial precedent, and ruling against a preferred interpretation of the constitution. (For instance widening the right to life to include right to free legal aid, right to privacy, right to healthy environment etc)
The chief instrument through which judicial activism has flourished in India is Public Interest Litigation
(PIL). In normal course of law, an individual can approach the courts only if he/she has been personally aggrieved. But in the case of PIL, the case is filed not by the aggrieved persons but by others on their behalf. Many public spirited citizens and voluntary organisations (eg. Center for PIL ‐ CPIL represented by Prashant Bhushan and Shanti Bhushan) sought judicial intervention for protection of existing rights, betterment of life conditions of the poor, environment etc.
Detractors of judicial activism charge that it usurps the power of the elected branches of government or appointed agencies, damaging the rule of law and democracy. They argue that an unelected or elected judicial branch has no legitimate grounds to overrule policy choices of duly elected or
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Issues for IIM PI Process http://www.essaysforIIM.com appointed representatives, in the absence of a real conflict with the constitution. In some instances, government regulation by appointed officers in government agencies are overturned by elected judges. Defenders of judicial prerogatives say that many cases of so called "judicial activism" merely exemplify judicial review, and that courts must uphold existing laws and strike down any statute that violates a superseding law.
Some recent instances of Judicial Activism can be – o Distribution of food under Public Distribution System free to poor instead of letting it rot in godowns o The SC ordered the Delhi Government not to demolish night shelters in Delhi for the homeless in the midst of winters as it is against the right to life. The court had taken suo moto cognizance from news paper reports o The brawl on the appointment of CVC PC Thomas
In India, even as Prime Minister Manmohan Singh frowned upon “judicial overreach”, Supreme Court former chief justice K G Balakrishnan had welcomed its outcome as a desirable “tension” between the judicial and the legislative and executive branches. The source of the tension, however, lies in the vacuum created by the lapses of both the legislative and executive branches.
The judiciary is giving the impression of stepping in to fill the vacuum by often forcing the executive to take action (against the privileged sons of politicians, as in the Jessica Lal case) or compelling
Parliament to enact laws (for example, to curb sexual harassment at workplaces). This has encouraged the Indian urban middle class to repose its faith in the new‐found concept of judicial activism, and to wish that the judiciary replaces the corrupt legislature and bureaucracy as the benevolent authority.
But there is a catch in this wishful belief. Barring a few recent cases of judicial intervention, which have had some positive effect on governance, the Indian judiciary on the whole has not displayed any spontaneous will to act on behalf of the common people.
Even though this phenomenon has been welcomed by many, it has many negatives – o It has overburdened the courts leading to delayed justice for normal cases o It has blurred the line of distinction between the legislature on the one hand and the judiciary on the other. o It has made the balance among the three organs of government very delicate. Democratic government is based on each organ of government respecting the powers and jurisdiction of the others. Judicial activism may be creating strains on this democratic principle.
Even though Judicial review is essential to maintain the fundamental rights of citizens, the constitution clearly defines the legislature as the law making body. Any aberration in either of these will be against the spirit of the constitution. The two parts should try to work together without stepping into the jurisdiction of each other for the benefit of the nation’s common man.

INCREASING IMPORTANCE OF BRICS
The BRICS are now making an impact on global governance. The theme of the fourth Summit, ‘BRICS
Partnership for Global Stability, Security and Prosperity’, signaled its strategic intent through an
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Issues for IIM PI Process http://www.essaysforIIM.com alternative interpretation of interdependence. The Delhi Declaration has elements that primarily have an economic dimension though these are essentially political, suggesting a new system of multilateralism. So far the focus of the BRICS has been on reforming governance structures of international organizations like the International Monetary Fund and the World Bank, while allowing them to continue to maintain a central role. The decision to work towards the establishment of a Development
Bank for infrastructure and sustainable development, better responds to emerging global needs than the ‘Washington Consensus’ with its focus on the social sector and the attendant conditionalities.
Inclusion of the provision for relief in cases of financial crises and disasters, as well as risk sharing, in effect re‐defines international development policy.
A beginning has been made towards a new international monetary policy. The decision to link markets and establish financial integration of their economies by managing the $230bn intra‐ BRIC trade, which is projected to increase to $500bn in 2015, through extending credit in local currencies and benchmark equity index derivatives will allow investments without currency risks while cross‐linking the stock exchanges. Eliminating the intermediate step of converting to and from the dollar reduces its role between them as trade would be independent of the value of the dollar, and will impact on its global dominance.
For the first time advanced economies were advised “to adopt responsible macroeconomic and financial policies, avoid creating excessive global liquidity and undertake structural reforms to lift growth that create jobs" .
The Declaration also backed a "merit‐based selection‐process" for the heads of the IMF and the World
Bank, posts reserved customarily for a European and an American respectively, since the 1950’s.
A new international security policy is also emerging. The call for an “inclusive political process” in Syria also backs a Syria‐led democratic transition. The resolution supports “political and diplomatic means and dialogue between the parties concerned” on Iran and also recognises Iran’s right to pursue peaceful nuclear energy. On Iran, the BRICS have made clear that they will follow United Nations resolutions and not the domestic laws and rules of any country, read United States. This is a move against selective regime change through multilateral action, as was done in Libya, and brings the deliberations of the BRICS into the political sphere.
However, the current dynamics is such that BRICS countries are now gaining strength, and the ability to exercise influence, through economic rather than military power. BRICS countries have accounted for over 50 per cent of global economic growth in the last decade. By focusing on economic integration they are also shifting the balance of power, and overriding bilateral differences.
As economic growth and the political centre of gravity continue to shift, BRICS already have a major role in dealing with transnational challenges, with power sharing institutionalised in the international architecture through the G20. For global leadership the BRICS will have to espouse new universal values that reflect the concerns of the world’s poor.
The fourth BRICS summit held in New Delhi saw steps towards greater financial integration and the establishment of a development bank. On the political front, the five leaders unanimously agreed, amongst other things, that dialogue is the way out for solving the Syrian crisis and the Iranian nuclear
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Issues for IIM PI Process http://www.essaysforIIM.com issue. While the summit ended with consensus about future plans of cooperation and on crucial issues of global concern, doubts still remain about the cohesiveness of the grouping.

EXPANSION OF UNSC
There has always been a desire for a normative system among the states to conduct international affairs in a manner that promotes co‐existence. The system is achieved bilaterally or collectively reflecting the
‘contemporary realities’ which, more or less, means the contemporary ‘power and influence hierarchy’ of the states in the international system. The UN, which we have, is a product or a reflection of the power hierarchy of the world after the Second World War. The UN has a Security Council and a General Assembly.
The former comprises of the P5 (victorious allied powers) and 10 other non‐permanent members, and the latter contains all the member states. The Security Council, especially the P5 (US, Russian Federation,
China, U.K. and France), countries with veto power in the council, take important decisions related to the maintenance of peace and security in the world. The power of veto tacitly given to them by the principle of great power consensus has been institutionalised in the UN Charter as they emerged as the most powerful military and ‘moral’ authority after the Second World War. Initially, the P5 were the only countries that had the military and economic power to enforce any order in the international system just after the Great War. Both the realists and the idealists for their own reasons supported the constitution of the United Nations in the current form as they had seen the failure of the League of Nations because of lack of US support. Both agree on the point that an international organisation should have the powerful countries in the core decision‐making and executive organs as only their participation and support can enforce any order in the international system. After the Great War, the axis powers (Japan, Germany, and
Italy) were destroyed and most of the Asian, African and Latin American states were colonies of the victorious powers or some other European countries. So, the primacy of allied and other powers in the
United Nations system was in tandem with the ‘contemporary realities’.
The world has seen changes and many new states have emerged since the end of the Second World War.
They vie for a more just and democratic world order. They feel that the United Nations should reflect the following ‘contemporary realities’ which is structured on the basis of the post‐Second World War realities:
The aspirations for a multilateral world — the rise of other major economic and military powers —
India, Brazil, Japan, Germany, South Africa and others.
The democratic aspirations of the people—the UN needs to be more democratic.
Rise of regionalism—each region wants its representation in the system.
The constitution and composition of the Council has been changed twice in the past to adjust with the
‘contemporary realties’ of the times. The Council was expanded from 11 to 15 members in 1965 and the
People’s Republic of China was recognised as successor to the Republic of China in 1971.

REASONS FOR FAILURE IN TACKLING NAXALISM
The reason lies in the government’s inability to properly implement policies on the ground. Some of the key inhibiting factors in this regard are:
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Issues for IIM PI Process http://www.essaysforIIM.com a. Terrain: The areas where the Naxals operate are thickly forested, hilly, remote, and have limited roads and tracks. There are no proper detailed maps available as some of these areas have not been surveyed properly.
b. Location of villages: The villages are located in remote areas separated by thick jungles. There are no good roads or tracks connecting these villages, with the result that there is lack of communication.
Generally the local people move on foot. To approach these people living in such remote areas from the district/tehsil headquarters takes considerable time. A determined government machinery is the only device to approach the people in the region.
c. Poverty: Most of the people live in extreme economic conditions as there are hardly any employment avenues available. Therefore, they are easily motivated and lured to join the Naxalite organisations.
d. No Presence of Government Machinery: There is no presence of state government in these remote areas with the result neither these poor people are aware about the policies of the government and their benefits, nor the government has shown any interest to know about the needs of these tribal people. This has been taken advantage of by the Naxals to endear themselves to the local people.
e. Deployment of Security Forces: There is no presence of police in some of these remote areas. Even if it is there, they are not effective. The Central Forces i.e. BSF, CRPF and the ITBP are thinly deployed as compared to the requirement. Moreover, the area has been heavily mined by the Naxals and therefore the security forces have not been able to dominate these areas.
f. Lack of Proper Training: To operate against the Naxals, no proper training was imparted to the security forces at the time of their induction, and therefore, they initially suffered heavy causalities. Besides this, the central armed forces also do not enjoy special powers like the Armed Forces Special Powers
Act in these states. In addition, the fear of human rights violations has made the security forces adopt a defensive posture.
g. No Development: The affected areas have been neglected by the state governments. These areas remain economically deprived and backward as the local government never tried to approach or communicate with the common people. Now several efforts are being made, but the development progress has been very slow.
h. Political Attitude: The most important aspect is the political attitude of the state governments when it comes to implementing the programmes and taking necessary effective measures to deal with the
Naxalite problem. While Andhra Pradesh has largely succeeded in controlling the situation, other
States have failed to view and acknowledge the prevailing situation in the correct prospective.
The Naxalites are well entrenched and are spreading their wings to larger areas. Their movement has so far been well planned and organised. Pro‐Naxal activists have been placed at all strategically important locations to counter government plans. These activists not only agitate against government policies but also effectively resist the implementation of developmental policies. To neutralise the Naxalite movement, constant, determined and well‐ coordinated efforts are required on all fronts. There is an urgent need to ensure that the policies and programmes of the government reach the people. However, all this would take time may be a minimum of five to six years.

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NAXALISM‐ NEED FOR HOLISTIC APPROACH
Naxalism, which started from Naxalbari area in West Bengal in 1967, ostensibly to champion the cause of small farmers and tribals through violence, was wiped out in 1970. It soon became out of fashion in its homeland West Bengal. But the underground operations of the outfit continued.
The problem became more serious after the merger of the Peoples War Group (PWG) and the Maoist
Communist Centre (MCC) in September, 2004 which led to the formation of the CPI (Maoist). Naxalism today holds sway in vast swathes of 10 states in the country, involving about 180 districts.
The Home Minister said in the Parliament that Naxal challenge had been underestimated over the years as a result of which left wing extremism had increased its area of influence. The Home Minster said that they now pose a very grave challenge to the state. Just days before his statement 36 policemen, including an SP, had been ambushed by the Maoists in Chhatisgarh. It was in this backdrop Mr. Chidambaram urged the Members of Parliament to join hands in facing the challenge. “All sections of the house must recognize that if we must remain a democratic, republic ruled by law, we must collectively rise and face the challenge of left wing extremism” Shri Chidambaram said.
In its status report presented to the Parliament on March 13, 2006, the then Home Minister Mr. Shivraj
Patil said that the Naxalite movement continues to persist in terms of spatial spread and intensity of violence. He pointed out that it remains an “area of serious concern”. Naxal violence has claimed about
6000 lives during the last 20 years.
The question that arises is why have the Naxals been able to extend their area of influence over the years to become a serious threat to the country’s internal security?
It is encouraging to know that the government is not treating it as a mere law and order problem. The
2006 status report itself made it clear that the Government would address the problem in a holistic manner. That includes ‘political security, development and public perception management fronts’ as well.
Surely, the Naxal problem is deeply rooted in the social and economic disparities in remote and tribal areas. Since the fruits of development have not percolated to these areas, the Naxal outfits are able to exploit the sentiments of the local people. But the outfits themselves have been preventing and in fact destroying, developmental initiatives taken by the government. They destroy roads, railway infrastructure and administrative institutions that are needed for speeding up developmental activities. Not only this, they indulge in train hold‐ups, jail breaks and attacks on politicians. That is proof enough to indicate that they do not have real interest in the development of these areas and their loyalties lie elsewhere. Perhaps, they want to usurp political power which, they think, flows through the barrel of the gun.
At the same time, a lot many measures need to be taken to make the fight against Naxalism effective. On top of this is improving governance in the affected areas by moving corrupt officials who exploit the local people. It must also be ensured that large scale projects in these areas do not lead to displacement of people, who in any case, live a life of penury.
Since law and order is a state subject, the role of State Governments in dealing with the problem can hardly be overemphasized. They too have their share of responsibility to fulfil. A good deal of coordination
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Issues for IIM PI Process http://www.essaysforIIM.com between the Centre and the States is, therefore, called for. This is particularly true in view of the fact that the Outfits have established inter‐state networks. The state police need to be modernized to be able to tackle the Naxal attacks. The Greyhounds experiment in Andhra Pradesh is a case in sight. Actionable intelligence collection and sharing mechanisms need to be strengthened. Funds provided to the States under the Police Modernization Scheme need to be better utilized.
The states also need to go fast with raising India Reserve Battalions, particularly in Naxal affected areas, which besides addressing security concerns, provide jobs to the unemployed youth.
A specially trained police force also needs to be put in place to fight the Maoists who basically are adopting guerrilla warfare techniques. There is also a difference in their targets. While other terrorist groups attack the strong foundations of the country such as democracy, secularism and the financial institutions,
Maoists make India’s weak points like poverty and economic disparity as their targets. All this needs to be factored in the strategy to deal with the Maoist problem.
Keeping in view the fact that the Naxal groups have been raising mainly land and livelihood issues, it is important that land reforms are taken up on a priority basis. States have also to focus on physical infrastructure like roads, buildings, bridges, railway lines, communications and power etc. There is no room to brook any delay on this account.
Unfortunately, the several rounds of talks held with the Naxals hitherto and the announcements of amnesties and attractive rehabilitation schemes have not worked so far. Some states like Andhra Pradesh have a good rehabilitation policy and it has achieved some success, but a lot more remains to be done.
The Government indeed is committed to address the Naxal problem in right earnest. It is focusing on improving intelligence set up at the state level, providing help to the states to modernize and train their police forces and accelerate development in the affected areas. What is needed is better coordination both on security and developmental fronts to meet the challenge posed by the Naxals.

NUCLEAR ENERGY – PROS AND CONS
Some countries favour nuclear energy due to following reasons:
Nuclear energy is a viable, clean and green gas free solution to the ever increasing demand for electricity; It is one of the economically most attractive sources of energy;
Its sustainability can be assured for a long period of time;
Though the capital and operational cost is high but in the long run the fuel cost is low;
Even if the uranium cost from which nuclear fuel is to be produced rises, it will not affect the cost of nuclear energy;
Nuclear fuels can be stored for a long period in a compact space; and
Nuclear fuel can be transported easily
If other countries do not favour nuclear energy, it is because of following reasons:
There are huge capital and operational costs involved;
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Issues for IIM PI Process http://www.essaysforIIM.com Nuclear energy generation involves several risks including those of a reactor accident, nuclear proliferation and nuclear terrorism;
Opponents believe that there are other alternative sources of renewable energy like wind power and solar energy which are developing fast;
Nuclear power poses many threats to people and the environment including health risks and environmental damage from uranium mining and processing and transport; and
There also exists the unsolved problem of radioactive nuclear waste

CRITICAL POLICY CHALLENGES BEFORE INDIA
Financing the Plan with Macroeconomic Balance:‐ Need to decrease FD by 2.2% while also achieving an increase of at least around 1.5 %age points of GDP in Plan expenditure of the centre and states combined.( edn‐1%, health‐ 1%, infra – 0.5%) => increase in revenues by a little over 2 %age points and a reduction in non‐Plan expenditure by about 1.5 %age points.
Revenues => achieve higher tax ratios without resorting to distortionary taxation; buoyancy+ tax reforms‐ GST
Expenditure:‐ some decrease automatic if g high because of low government employment + no pay commission; subsidies need to be curtailed o Major subsidies in the centre are on food, fertilisers and on petroleum products, which together account for around 2 % of GDP.

o

Food subsidies – 0.7% of GDP ‐ difficult to contain coz of National Food Security.=> Focus should be on fuel and fertilisers

o

State budgets also have subsidy elements, but the major “subsidy” is the very large losses of the state power utilities, which has now touched almost 1 % of GDP.

Policies for Better Agricultural Performance:‐ better systems of water management(land levelling, use of drip irrigation, zero till cultivation, raised seedbed planting); availability of better quality seeds; soil health, focusing particularly on micro‐nutrients and carbon content; logistics of transporting produce; reform of leasing laws;
Employment Generation:‐ shift of surplus labor necessary to reduce the present underemployment in agriculture and a steady improvement in real wages in this sector; shift should occur not as distress migration, but as a natural movement to higher paid employment in non‐agricultural occupations;
Industry should grow at min 10% and absorb relatively unskilled rural labor; MSMEs more labor absorbing + potential seedbeds for innovation and entrepreneurship; ‐ not sops and subsidies but provide infra, skilled labor, financial sector, reliable power; regionally balanced industrial growth as migration can’t solve whole regional mismatch
Infrastructure Development:‐ should aim at increasing the rate of investment in infrastructure to around 10.5% of GDP by 2017‐18.( 11TH FYP – 8.5%); => $1trillion over plan period; 2 challenges ‐ how
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Issues for IIM PI Process http://www.essaysforIIM.com to finance the investment needed, and the second is how to overcome implementation hurdles, which currently delay project completion. o o o Public investment would have to be directed to areas where the private sector is unlikely to come, with the rest of infrastructure being developed as far as possible through PPP. role of PPP in infrastructure investment should ↑ from 30% in 11th fyp to 50% in 12th fyp
Hurdles – Land acquisition, forest and environmental clearances, dealing with encroachments and lack of coordination with other utilities

Reforms in the Financial Sector:‐ Rapid growth needs to be supported by an efficient financial system capable of mobilising the savings in the system and using them to support economically efficient units. o while the financial system scores high on stability, there is room for improving the efficiency of financial intermediation and increasing innovation => continue Calibrated fin reform

o

Important Initiatives recently taken or in pipeline

o o o

o o o

announcement of road map for new private sector banks and foreign investment in banks deregulation of the savings rate legislation increasing the limit on FDI in insurance from 26 % to 49 % passage of the Pension Fund Regulatory and Development Bill, passage of the legislation allowing shareholders to vote their equity share in banks instead of being limited to 10% as at present passage of the Company Laws Amendment which will modernise bankruptcy proceedings. Creation of a vibrant and liquid corporate bond market should have particularly high priority, especially in view of the need to finance large private investments in infrastructure.
Reform of the government securities market in terms of building institutions, introduction of technology, etc, is also necessary for the establishment of a G‐sec yield curve for all maturities against which corporate bond yields can be priced.
The creation of the Public Debt Management Office outside the RBI, which has been announced and is in the process of being established, will be another important step as it would free the RBI from having to perform the role of debt manager.
Improved access to liquidity for primary dealers in the bond market is another important step.
Investment policies of LIC, EPFO, etc, are very conservative – low investment in corporate debt – reason absence of efficient debt recovery mechanism if default;passage of the
Company Law Amendment Bill, which contains provisions to modernise bankruptcy proceedings, is an important step in this context.
Government launched $2 bn infra debt fund. More much infra Debt funds would help infra because to refinance shorter term bank debt with longer term debt while freeing banks to finance new projects.

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o

The size of Indian banks is another important issue. Even the largest Indian bank, the State
Bank of India, is actually quite small by global or even Asian standards. the capital of the banks has to be increased greatly to allow larger exposures to individual projects and also to sectors.
A more flexible policy for allowing existing private sector banks to grow more rapidly is also urgently needed.

Managing the Energy Challenge o Reducing Energy Intensity
Rationalizing energy prices
Integrated Energy Policy, adopted in 2009, endorsed the principle that prices of imported energy inputs must be aligned with world prices, but this policy has yet to be fully implemented
Decontrol of motor spirit done but diesel, kerosene, LPG
Coal is technically not under price control, but the nationalised coal companies have set domestic coal prices well below world prices, even after adjusting for the lower quality – either equate with world prices or atleast have pooled pricing by raising domestic price for all
Electricity pricing – pr of political players; leads to financial unviability of distribution system,
Adopting non‐price measures to improve energy efficiency
Regulation can be used to push major energy using industries to achieve internationally benchmarked levels of energy efficiency.
Resort to standard setting and labelling for appliances, equipments, transport vehicles and buildings to encourage energy efficiency.
Energy efficiency for the economy as a whole would be greatly helped by intra‐ sectoral shifts in the transport sector that would economise on energy. The most notable shift in this context is shifting freight from road to rail, and shifting from private to public transport in urban areas. These shifts can be facilitated by appropriate tax and tariff policies.

o

Increasing Domestic Energy Supply:‐ expand domestic production of petroleum, natural gas and also coal to avoid excessive import dependence allowing private investment in non‐captive mining subject to appropriate regulation for safety and environment standards ‐ will need to import about 250 million tonnes of coal by 2016‐17 take steps to exploit the full potential of other energy sources notably nuclear, solar and wind power

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Managing Water Resources o o

o

o

o

o o o

India’s available supply of fresh water is the same as it was 5,000 years ago, and the population has grown and so has the GDP, with a concomitant increase in demand for water
More recent studies indicate that the demand for water at present is roughly equal to supply for the country as a whole and this near balance at a national level hides wide regional variations with acute shortages in many parts
The Twelfth Plan must signal the need for a radically new approach. Since water is largely a state subject, success depends critically on the state governments. They need to act on both the supply and the demand side. supply side: action is necessary on several fronts including building storage dams, investing in watershed management to improve surface water retention and groundwater recharge, and forcing industry to treat waste water for reuse
Demand Side: About 80 % of India’s water use is for agriculture and it is technically feasible with better agricultural practices, to reduce water use in agriculture by 40 % to 50 %. For example, the System of Rice Intensification (SRI) enables rice to be grown with much less water than in traditional flood irrigation.
Policies are often enunciated on the principle that water is scarce and we must “conserve every drop”, but if water is underpriced, there is no incentive to achieve efficiency.
Pricing of canal water in large irrigation projects is supposed to be based on the principle of covering operation and maintenance (O&M) costs, but in most places it is priced at levels which cover only about 15 % of O&M costs. eliminates any incentive to adopt less water‐ intensive cropping patterns in the command area, especially among upper end users evolving a rational water policy is to make a scientific assessment of the available water resources in each basin and then define basin specific strategies for water management.

Managing the Urban Transition o o o The urban %age of the population is currently around 30 %, and is expected to reach 40 % by
2030, implying an increase in numbers from 350 million today, to around 600 million.
The resources needed to achieve this expansion in urban infrastructure are much larger than what the cities or local urban bodies can mobilise on their own
JNNURM introduced in the Eleventh Plan is a mechanism for channelling resources from the centre to the states linked to specific reforms in urban governance and finances. The results thus far are mixed, partly because of inadequate implementation capacity at the city level and also because of reluctance to pursue reforms.

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The JNNURM initiative will have to be expanded in the Twelfth Plan but it is also true that the cities and the states have to take on a much larger share of the burden than they do today the former through user charges and the latter through stronger devolution of resources.

Four critical challenges facing the economy in the Twelfth Plan, which are perhaps more serious than they were at the start of the Eleventh Plan, are those of (a) managing the energy situation, (b) managing the water economy, (c) addressing the problems posed by the urban transformation that is likely to occur, and (d) ensuring protection of the environment in a manner that can facilitate rapid growth.

STEPS FOR TRANSFORMING THE ELEPHANT INTO A TIGER
The elephant and the tiger: Which one should we prefer?
Firstly, let us understand what these metaphors mean. So let me see the key attributes of elephants
& tigers. There are four key attributes of an elephant – the size, the herbivores nature, its perceived moderate pace and its anatomy that includes large ears, the trunk and the tusks. Tiger, on the other hand, is not as large as the elephant, but is largest of the cat species. It is carnivore, and is known for its speed and agility. Its anatomy includes the stripes, the powerful jaws and razor sharp teeth, sharp claws and a flexible backbone. But, what conclusively differentiates the two is the tiger’s killer instinct.
In terms of size, the Indian economy is, of course, an elephant. It is also herbivores by habit given its democratic structure, unlike the carnivore habits of tigers and dragons. In terms of speed, many people have a misconception that elephants can’t run or walk fast. The fact is that elephants can walk as fast as 25 miles per hour (mph), while tigers can run only a shade faster. Bengal tigers can run at
35 mph, but for short spurts and they can’t keep this pace for long.
So, it is not axiomatic that one should try transforming the elephant into a tiger. Yes, we could do with an added bit of speed but what we should really aim at is developing a tiger’s killer instinct. These, together with a better use of our anatomy or resources, both human and capital, would help us achieve what the dragons and the tigers have achieved, perhaps, with a smaller downside.
For this to happen, we need to take the following steps:
1. Preserve Demographic Dividends by investing in human capital
India’s demographic dividend presents the country with a great opportunity to enhance its growth and seek convergence of per capita incomes with that in the developed world. Median age for India’s population is about 27 years compared with over 40 for most OECD economies.
It will add significantly to its labor pool and, even as the median age bucket rises, it will still be at a relatively young 30‐34 age bracket by 2026.
To reap this dividend, we need to increase investment in human capital through increased spending on education and health which is just about 3.3% of GDP in education, while 1.3 per cent of GDP in health currently. We also need to focus on the quality of this spending and think whether we can achieve better outcomes with less spending.
The second step we need to take is for right skilling of our work force. There is shortage of trained manpower for the industry, both at the bottom of the pyramid and higher up the ladder.
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Issues for IIM PI Process http://www.essaysforIIM.com The biggest challenge is to ensure jobs for additional supply of labour that comes in to join the workforce. For this, our manufacturing sector needs to become more competitive and creates lot more jobs
2. Improve productivity and efficiency
Productivity is an important driver of growth. A great deal of the growth for most countries can be explained by productivity growth, especially total factor productivity growth (TFPG). Factor accumulation (such as increase in labour or capital) explains a smaller part of the growth. Given this experience, if India were to become a tiger, it would need to focus on technological developments to improve its rate of TFPG. Capital deepening may also help, but the key lies in overall productivity enhancements. First, improving agriculture productivity is necessary as, clearly, increase in area under cultivation is just not practical and, therefore, increasing demand for cereals, pulses, fruits and vegetables would need to be met by improving yields.
Second, we need to focus on issues confronting our Small and Medium Enterprise (SME). SME sector accounts for over a third of our industrial output and contributes around 50% of our total merchandise exports. In the current downturn, SMEs are facing adverse business climate with rising receivables, inadequate credit and high cost of credit. If SMEs are to effectively integrate with supply chains, we need to ensure that links of finance and technology with large firms work at all times.
India’s next growth push has to come from manufacturing sector. We had a missed century of opportunities. India cannot boast of one big ‘home grown’ global brand while much smaller nations like South Korea, Taiwan, etc. have plenty of them. Our abundant human capital has not been effectively channelized for supporting the manufacturing growth. What is really to be blamed for this is a lack of ‘R & D’ culture that we suffer from. Globally, India figures at near the bottom in terms of
R&D intensity. It spends less than one percentage of its GDP on R&D expenditure, Countries like Israel,
Finland, Sweden, Korea, Japan, US and Germany have R&D intensities that are higher by three times or more.
Fourth, a key issue related to productivity is our attitude to work. It is strange that India, that epitomised the dignity of labour in the Early Vedic period, has imbibed a culture that does not respect workers. We have forgotten Swami Vivekananda’s contribution in equating work to worship. No form of work, whether manual or intellectual is less inferior to the other. As a nation, we have been steadily neglecting our respect for dignity of labour. Since the manual labour does not receive the same respect as an intellectual work in India, work efforts are lost. This results in lower GDP and lower
Welfare. Individuals idle away than take up a manual job. What else would explain the fact that labourers from poor states like Bihar, Orissa, UP, etc. migrate and work hard in the agricultural farms in Punjab and Haryana, while refusing to do the same in their own locality where the land is more fertile and same amount of labour would be much more productive. We must emulate the western society in this regard where no form of labour is discriminated against.
3. Revive infrastructure investments and harness natural resources better
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Issues for IIM PI Process http://www.essaysforIIM.com Much has been said about India’s infrastructure deficit and rightly so. India does not have sufficient roads, nor sufficient power.
Take for example coal, which accounts for India’s 55 per cent of energy needs. We have hard coal reserves of around 246 billion tonnes, of which 92 billion tonnes are proven. Yet, we are able to produce only 530 million tonnes of coal, leaving supply shortages of over 150 million tonnes. Coal shortages are constraining our power generation and though about 55 GW of new capacity was created during the 11th Five Year Plan (FYP), a large part of it remains unutilised due to coal shortages.
Private sector has failed to develop most of the new coal blocks that were allotted to them. We ended up with inadequate planning and poor execution in this area. We are now planning to create even more thermal power capacity during the 12th FYP, but remain unsure of coal supplies. At the same time, banks have heavily extended themselves into lending to power sector both on generation and distribution side. On the distribution side, the State distribution companies (discoms) are sitting on huge losses and bank debt that is threatening to go bad. The end result is a loss of business confidence that has brought the investment boom to a premature halt.
What is most important in this context is to revive the confidence for investing and lending to the infrastructure sector. The government, in recent period, has taken several steps to facilitate this. The broad contours of the New Fuel Supply Agreements (FSAs) have been worked out, though some thorny issues such as price pooling of imported and domestic coal are still to be resolved. These pending issues must be solved quickly. Similarly, a debt restructuring package for the discoms has been worked out. The private sector must seize the initiative and rekindle the Schumpeterian spirit at this juncture. Banks also need to perform their core banking business while balancing risk assessment with the functional need to support growth.
India also needs to utilize its mining, spectrum and air resources better. The importance of clean air is often not recognized. We need to strike a right balance between our development needs and environmental commitments to ensure long‐run growth sustainability. We are not among the world’s top polluters. It needs to be recognized that average per square kilometre carbon dioxide (CO2) pollution in Japan is 7.5 times more than in India. Similarly, per capita CO2 emission by India is amongst the least globally. Nevertheless, we also need to note that air pollution has serious health costs and India ranks fourth in the list of the largest CO2 pollutants after China, US and Russia. As such, if we want to ensure not just fast growth but also good quality growth sustainable for a fairly long period of time, we must continue to make efforts to exploit natural resources in an environmentally friendly way.
4. Improve governance at every level
Our governance deficit, in some form, is reflected in our ranking on ease of doing business. According to the IFC‐World Bank Report 2013 released in 2012, India ranks 132nd on the index measuring ‘ease of doing business’ amongst 185 economies. Singapore and Hong Kong got the top and second spots overall. In its sub‐components, India stands at an impressive 23rd on the criteria of ease of getting credit and 49th in terms of protecting investors. However, it figures at 173rd in terms of starting a business, 182nd in terms of dealing with construction permits and 184th in contract enforcement.
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Issues for IIM PI Process http://www.essaysforIIM.com According to the same report, on an average, in India it requires 173 days to start a business, 196 days for obtaining a construction permit and 67 days to get electricity. In Singapore one needs just 3 days to start a business, 26 days for construction permit and 36 days for getting electricity. All other East
Asian tigers also have a far superior record than India on these parameters.
If we aspire to become a tiger we must become more business friendly, both for domestic and foreign firms, traders and tourists. We, of course, have an enviable record of a democratic system, a responsive government, an active media and an independent judiciary. However, the risk of dealing with India must come down further. In a limited way, this is being attempted in the form of National
Investment Board (NIB) which can go a long way in cutting project delays. However, in our federal structure, NIB would still have some limitations. It will not have jurisdiction over project clearances that are required at sub‐national levels. The Singapore model is a step further. It requires all concerned agencies to sit together in a time bound manner to clear or reject projects, failing which the clearance is deemed to be automatic. We must make doing business easy, to unleash entrepreneurship and venture capitalism in India.
5. Enforce Accountability in all walks of life
Just as we need better governance at every level, we also need to enforce accountability in all walks of life. Our accountability structures, especially in public sector, are weak. In administration, the civil servants are insufficiently incentivized for the risks they take, are seldom rewarded for successful completion of their goals and are, at best, merely transferred for poor implementation. Mangers in public sector enterprises face similar problems in addition to bureaucratic interventions that delay decisions or require them to move away from policies which may be in the best interests of a public sector unit. It is difficult to enforce accountability in this climate.
On corporate accountability, the principal‐agent relationship between the management or those who wrest ownership and control and the shareholders as actual owners is rather weak. We have seen asset stripping and bankruptcies in this weak environment. There are, sometimes, grave cases of businessmen launching new firms, renaming firms or indulging in M&As to garner fresh public money after they misused funds in the first instance. The concept of the modern firm based on limited liability principle requires care to prevent such practices.
Our political process ensures a fair deal of accountability through our democratic institutions. Yet, there is debate on whether a right to recall should exist. A more fragmented polity and existence of coalitions and minority governments, sometimes, make matters worse. Accountability at the municipal levels is also lacking. This, in turn, impacts the upkeep of our infrastructure that gets built.
Roads seldom last more than a year. Drainage systems choke.
What is, therefore, necessary in this climate is to do four things. First, stakeholder engagement must be intensified in all institutions – public or private. Furthermore, there should be a principle of inclusivity in stakeholder engagement so that any sort of regulatory capture by interest groups is avoided. Second, individuals, rather than committees or groups, should be made accountable even where a collegiate approach is adopted. Such accountability should not be time barred by transfers of jobs or retirements. Third, financial accountability must be enforced for all. For enhancing fiscal
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Issues for IIM PI Process http://www.essaysforIIM.com transparency, the budgetary processes should be made tighter so that slippages are eliminated.
Similarly, financial accountability needs to be promoted for firms and non‐profit institutions. Fourth, accountability should be codified to the degree it can be done and a periodic evaluation must be done to assess achievement, failures and correctives.
6. Make finance more responsive to real sector and promote inclusive growth
Finance must be regulated more tightly. This does not require more regulations but perhaps less and newer regulations with greater effectiveness. At the same time, those who engage in finance must have an obligation towards promoting financial inclusion, without which inclusive growth cannot be achieved.
Banking should have a human face for it is the households who provide the base for all banking activities.
They are the only ones with financial surpluses which can be intermediated to corporate and public sectors that run financial deficits. It has been my endeavour to push policies on bank lending with a view to encourage credit flows to the vulnerable section of the population that would otherwise get financially excluded. REAPING THE DEMOGRAPHIC DIVIDEND
Current situation:
India’s demographic dividend presents the country with a great opportunity to enhance its growth and seek convergence of per capita incomes with that in the developed world. Median age for India’s population is about 27 years compared with over 40 for most OECD economies. It will add significantly to its labor pool and, even as the median age bucket rises, it will still be at a relatively young 30‐34 age bracket by 2026.
Most developed countries would see a rapid ageing of their population over the next 2‐3 decades putting severe pressure on their social security systems with the rise in dependency ratio. The overall median age of these countries rose from 29.0 in 1950 to 37.3 in 2000, and is forecast to rise to 45.5 by 2050.
Many developing countries like China, Brazil and Thailand too face issues of ageing population having passed through the demographic transition.
How we could score over China: Over the last 60 years, China has experienced demographic change at a historic pace that had a profound impact on its population structure. China is now a 'post‐ transitional' society, where life expectancy has reached new heights, fertility has declined to below‐ replacement level, and rapid population ageing is expected over the next few decades. China’s population will start to shrink after reaching a peak of about 1.4 billion by 2025 A.D. The median age of its population could touch 50 years by then. India’s population would overtake that of China at that point. Its population is expected to peak only at 1.7 billion by 2060 A.D.
Clearly, India has a potential advantage of demographic dividend over its emerging market peers. But, this demographic dividend could be a boon or a curse[called demographic nightmareby some authors] depending upon how we exploit it, for, the time to reap these gains is finite. By the turn of this century,
India would be facing a demographic discount rather than dividend because India’s population would have aged and the developed countries’ population would be much younger.
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Issues for IIM PI Process http://www.essaysforIIM.com Steps to be taken to reap the dividend
The very first thing is to invest in the resources that are expected to give us advantage. India invests much less than it should in its human capital. The combined spend of central and state governments in education, is just about 3.3 per cent of GDP, while that on health is another 1.3 per cent of GDP. In contrast, the European Union (EU) countries spend from their general government account, 5.5 per cent of their GDP on education and 7.5 per cent of their GDP on health – i.e. nearly three times more of their GDP. Canada’s public spending on health alone is over 11 per cent of their GDP and that on education is nearly 5 per cent. India needs to step up its public spending on education and health considerably over the next five years. However, spending alone does not guarantee high quality human capital. We also need to focus on the quality of this spending and think whether we can achieve better outcomes with less spending.
The second step we need to take is for right skilling of our work force. There is shortage of trained manpower for the industry, both at the bottom of the pyramid and higher up the ladder. India is often considered to be a source for skilled labour supply to the rest of the world, given its sheer size of manpower. o It is often not recognized that over four‐fifths of our rural population and over half of our urban population remains unskilled. o Women participation rate in the labour market remains poor. o The biggest problem is the lack of focus on technical education that could absorb a large chunk of unskilled labour, if backed by greater push to primary education. o Less than 11 per cent of the job‐seeking population in the age group of 15‐29 receives any form of vocational training in India and only one of every three who do get vocational training receive it from specialized training institutes. o Furthermore, even in the value added segment, where we have the largest pool of skilled manpower i.e. in the area of information technology, real wages are rising at a pace that may impact our competitiveness.
The biggest challenge is to ensure jobs for additional supply of labour that comes in to join the workforce. On a rough basis, about 10 million people would need a job every year for the next 15 years. Though disguised unemployment in agriculture sector has reduced over the years, it may not be possible for the sector to provide additional jobs given the rising rural wages and the need to shift to a corporate, more mechanized and capital intensive model of farming. While the services sector has led India’s growth and employment story for some time now, India’s growth pace may not be sustained unless the manufacturing sector also becomes more competitive and creates lot more jobs.
This poses a significant challenge in employment generation and skilling our work force.

GROWING JOBS CHALLENGE
Demographic changes are enlarging its pool of working age population, the average age of which will be just 34, thirty years from now. Meanwhile, agriculture is dropping its output share steadily by a

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Issues for IIM PI Process http://www.essaysforIIM.com percentage point each year. That suggests that the unemployment level of 9.4% (2010) will rise unless consciously addressed
In its Global Employment Trends Report, 2012, ILO brought out the fact that total employment in India grew just 0.1% each year in 2004‐05 to 2009‐10.
Moreover, the labor demand‐supply gap is widening fast as the working age population is growing 2% annually, pointing to the urgency of creating jobs.
World Bank too, in its report “More and Better Jobs in South Asia”, stated that India needs to create up to 10 million new jobs each year for the next two decades.
From being the country’s top export in 2000 ‐ more than one‐fifth share in total exports ‐ clothing and textiles gave way to engineering goods (22% share) and petroleum products (14%) by 2009. => India’s exports transitioning from low‐skill to high‐skill products, far ahead of its stage of economic development and to the detriment of its employment needs.
New Manufacturing Policy aims to arrest; Issues: rising import prices, labor flexibility, implementation of basic policies

G‐20 AND INDIA
What is the G‐20?
The G‐20 is an informal club with 19 member countries and the European Union which together represent 90 per cent of global GDP, 80 per cent of global trade and two‐thirds of the global population. Contrary to popular belief, the G‐20 is not a new international grouping triggered by the global financial crisis. It was, in fact, triggered by an earlier crisis, the Asian crisis of 1997. Although, it has been meeting regularly since 1997, it acquired a higher profile and credibility in the aftermath of the global financial crisis during which time it was elevated from a Finance Ministers’ forum to a Leaders’ forum. The G‐20 leaders meet at the summit level once a year.2 Besides, the Finance Ministers and central bank governors of G‐20 meet twice a year.
Why is the G‐20 important?
The G‐20 can be seen as a watermark in international economic diplomacy in at least two ways.
First, it is a major step forward from the old divisive style of global governance of the Bretton Woods system characterized by little communication and much acrimony between major developed (G‐8) who were largely seen as donors, and developing (G‐77) countries that were seen as the recipients of bilateral and multilateral aid. Differences in perception remain, but there is now a paradigm shift in the donor‐recipient equation, a better appreciation of each others’ viewpoint, and an emerging consensus on what increasingly appears to be an incipient new international order through G‐20 reports and declarations to which both sets of countries are committed.
This new style of international governance had been in the making for some time. The bigger EMEs, particularly the BRICS, were growing at a much faster pace than OECD countries for a long time, and
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Issues for IIM PI Process http://www.essaysforIIM.com were becoming increasingly systemically important. It became clear that for any multilateral economic consultative process managing globalization to be effective, their inclusion in the process was imperative.
The second factor that makes the G 20 unique is its attempt to coordinate the macroeconomic policies of systemically important economies to make them more effective in a world where national macroeconomic policy instruments are being blunted via rapid global integration through trade and financial markets. Following its concerted and coordinated policy response to the crisis, the G 20 set about the task of addressing reform of the global economic and financial architecture, and to remove long‐standing structural impediments to strong, sustainable and balanced global growth going forward by launching its signature ‘mutual assessment process’ which is increasingly seen as the heart and soul of the G 20. The success of this process is important for global financial stability, as I will explain later.
Main Issues on the G 20 Agenda
Global Rebalancing
Almost everyone is agreed that one of the root causes of the global financial crisis is the buildup of global imbalances. In as much as global imbalances ‐ no matter whether they were caused by a
‘consumption binge’ in advanced economies or a ‘savings glut’ in EMEs ‐ were the root cause of the crisis, reducing imbalances is a necessary condition for restoring global financial stability.
Global imbalances and their correction were the main concern in the G20 Framework and Mutual
Assessment Process (MAP) exercise. The MAP exercise is aimed at making countries commit to external sector policies that lead to strong, sustained and balanced growth at the global level. The understanding is that global imbalances, especially imbalances built on the strength of undervalued exchange rates accompanied by a build‐up of reserves, threaten the stability of the global economy due to the possibility of disorderly unwinding.
China’s exchange rate policies were at the centre of the debate in the G 20. As on date, China’s current account surplus (in relation to its GDP) has declined from the pre‐crisis peak, and China’s real effective exchange rate has also appreciated since 2005, even though it is widely believed that it needs to appreciate further.
Indianperspective on the global imbalance problem: India did not contribute to the generation or transmission of global imbalances. As much as we want to enhance our export competitiveness, we believe that it should come from improved productivity rather than an artificially calibrated exchange rate. Our exchange rate is largely market driven, and we intervene in the forex market only to manage volatility in the rate and to prevent macroeconomic disruptions. As a developing economy, we run a large current account deficit (CAD) that has in recent period expanded relative to our historical record.
We need capital flows to finance the CAD. We have an express preference for equity flows over debt flows, for direct investment over portfolio investment and for long term over short term flows and.
We are moving gradually towards opening our capital account along a roadmap, the roadmap itself being recalibrated to the evolving global situation. Our policy, in short, is festina lente which is Latin for ‘make haste slowly’.
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Issues for IIM PI Process http://www.essaysforIIM.com Global Reserve Currency
The global crisis has revived the familiar concerns about the robustness of the international monetary system, and in particular about the global reserve currency and the provision of liquidity in times of stress.
The system we now have is that the US dollar is the world’s reserve currency by virtue of the dominant size of the US economy, its share in global trade and the preponderant use of dollar in foreign trade and foreign exchange transactions.
The problem with the world having only a single reserve currency came to the fore during the crisis as many countries faced dollar liquidity problems as a consequence of swift deleveraging by foreign creditors and foreign investors. Paradoxically, even as the US economy was in a downturn, and its central bank resorted to extraordinary quantitative easing, the dollar strengthened as a result of flight to safety.
Based on the experience of the crisis, several reform proposals have been put forward to address the problems arising from a single reserve currency.
One is to have a menu of alternative reserve currencies. But this cannot happen by fiat. To be a serious contender as an alternative, a currency has to fulfill some exacting criteria. It has to be fully convertible and its exchange rate should be determined by market fundamentals; it should acquire a significant share in world trade; the currency issuing country should have liquid, open and large financial markets and also the policy credibility to inspire the confidence of potential investors. In short, the ‘exorbitant privilege’ of a reserve currency comes with an ‘exorbitant responsibility’. develop the SDR as a reserve currency. This does not seem to be a feasible option the SDR basket by including the currencies of countries that are increasingly important economically and politically. aims at reducing the need for self‐insurance and thereby the dependence on a reserve currency by supporting a multilateral option of a prearranged line of credit that can be easily and quickly accessed.
India’s own position on the global reserve currency is that the world will be better served by increasing the number of reserve currencies, but this has to happen in an organic way, not by fiat. Meanwhile countries need safety‐nets to protect themselves against the vulnerabilities of the global currency system.
Also, the US has the responsibility of ensuring that every country has access to dollar liquidity, especially in times of stress. According to this view, countries cannot be asked to desist from building up reserves and depend entirely on external safety‐nets. Foreign exchange reserves should invariably form the first line of defence. On top of that, they need currency swap arrangements.
Protectionism
In the post‐crisis world, there may not actually be ‘deglobalization’ but the earlier orthodoxy that globalization is an unmixed blessing is being increasingly challenged. The rationale behind globalization was, and hopefully is, that even as advanced countries may see some low end jobs being outsourced, they will still benefit from globalization because for every low end job gone, another high end job ‐ that is more skill intensive, more productive ‐ will be created. If this does not happen rapidly

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Issues for IIM PI Process http://www.essaysforIIM.com enough or visibly enough, protectionist pressures will arise, and rapidly become vociferous and politically compelling.
Recent international developments mark an ‘ironic reversal’ in the fears about globalization.
Previously, it was the EMEs which feared that integration into the world economy would lead to welfare loss at home. Those fears have now given way to apprehensions in advanced economies that globalization means losing jobs to cheap labour abroad.
Following the global financial crisis, the G 20 leaders were determined not to repeat the mistakes of the 1930s when the brunt of protectionism exacerbated the Great Depression. However, there is concern in some quarters that even as open protectionism has been resisted relatively well during the current crisis, opaque protectionism has been on the rise. Opaque protectionism takes the form of resorting to measures such as anti‐dumping actions, safeguards, preferential treatment of domestic firms in bailout packages and discriminatory procurement practices. To strengthen multilateral trade discipline, the need for a quick conclusion of the Doha Round can hardly be overemphasized. In a world with growing worries about the debt creating stimulus packages, a Doha Round agreement should be welcomed as a non‐debt creating stimulus to the global economy.
India opposes protectionism in all its forms. However, at the same time, we have to respect the WTO‐ consistent policy space available to the developing countries to pursue their legitimate objectives of growth, development and stability. We are encouraged by the analysis of the recent trade monitoring report jointly released by WTO, OECD and UNCTAD on G 20 economies which shows that majority of the trade measures taken by India in the review period were either trade facilitative or roll back measures. IMF Quota and Governance
While agreement has been reached in the G 20 for effecting major reforms, implementation has so far has been disappointing. The agreement for IMF quota and governance reforms in 2010 has not yet been implemented. India’s major concern is that we should adhere to the timeline for completing the
IMF Quota reforms by January 2013, so that it serves as the basis for the 15th General Review of
Quotas to be completed no later than January 2014.
Global institutions can only be legitimate and credible if their vote share and governance structure reflect members’ share in the world economy. It is in this context that India and other emerging countries believe that GDP should have predominant weight in the quota formula as it is the most robust measure of relative economic weights in the global economy.
Financial Sector Reforms
Received wisdom today is that financial deregulation shares the honours with global imbalances as being one of the twin villains of the crisis. Not surprisingly therefore, reforms to the financial sector regulation have been on top of the G 20 agenda.
The broad contours of the international initiatives spearhead by the G 20 on financial sector reform rest on four broad pillars: regulation, supervision, resolution, especially in respect of global systemically important financial institutions (or SIFIs), and assessment of the implementation of new
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Issues for IIM PI Process http://www.essaysforIIM.com standards. So far, one pillar that has received substantial public attention is regulatory reform, where there have already been some notable achievements, including agreement on the new Basel III capital and liquidity standards.
Future Challenges for the G 20
1. The first challenge is drawing a balance between short term compulsions and medium term sustainability. A case in point is the intense debate in the advanced economies on fiscal austerity vs growth. 2. The second challenge for the G 20 is to nudge countries’ policies in mutually agreed directions and hold sovereigns accountable for commitments given, especially since these are not legally binding and there is no enforcement mechanism. This is particularly difficult in vigorous democracies where the popular perception could be that national interests are being compromised for the sake of global stability. 3. The third challenge for the G 20 is that the success of domestic policy actions in an increasingly globalizing world with growing policy and market spillovers is linked to global outcomes. If rebalancing is uncoordinated, the outcomes could be even worse. Policy co‐operation is therefore potentially win‐ win, since economic integration has moved far ahead of political integration. While this is most clearly manifest in the case of the euro zone, to a great extent, the challenges ahead before the G 20 may be similar. In this sense, the G 20 can be seen as a brave new experiment to push the boundaries of globalization to harvest this cooperation dividend.

VIOLENCE AGAINST WOMEN
The outrage and shock over the bestial gang rape of a 23‐year‐old woman in a moving bus in Delhi has generated a wide range of discussion on women’s safety and has brought into focus women’s rights and status in India. However, as so often happens after such brutal acts of violence against a woman, particularly in an urban area and more so in the national capital, you see a combination of genuine anger and despair as well as a great deal of rhetoric and demands for extreme solutions, such as castration and the death penalty for rapists. What is often overlooked in the course of these passionate debates is what this growing incidence of sexual violence and assault reveals about Indian society and the place of women in it.
We forget, for instance, that even as evidence of the alarming decline in the child sex ratio emerged after the 2001 Census (attributed to the deliberate use of sex‐selection techniques) and the inevitability of greater violence against women was discussed, few acknowledged that this was a serious issue. The stronger laws that followed to check sex‐selection did not stem the tide because of half‐hearted implementation. In any case, the law did not touch the root issue of son‐preference that remains virtually unaddressed. Although the last decade has seen a marginal improvement in sex ratios in some of the worst districts, the decline has become evident in other districts where such a trend was not seen before.
New data on the neglect of the health of girls underlines how deep is this malaise. A recent study by Tata
Memorial Hospital (TMH) in Mumbai has thrown up worrying figures that illustrate how the health of girls
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Issues for IIM PI Process http://www.essaysforIIM.com is neglected even for serious ailments like cancer. Girls constitute barely one‐third of the children being treated and yet constitute almost half of those who drop out of treatment.
The researchers found that girls are often not brought to the hospital for treatment and when they are, parents take them away before the treatment is concluded. Although some of this is because the parents are poor, or illiterate, it is also because parents conclude that even if the girl survives, her marriage prospects will diminish and therefore she will be a burden. This happens despite the fact that a complete cure is possible in over 70% of cases of children with cancers.
According to data from the population register maintained by the Indian Cancer Society, the male‐female ratio of children with cancer is 1.3:1. Yet if you look at the male‐female ratio of children being treated for cancers at TMH (3:1) or at the All India Institute of Medical Sciences (5:1), you can see clearly that more boys are being brought in for treatment than girls.
Another study by the United Nations Department of Economic and Social Affairs (UN‐DESA) of 150 countries over 40 years shows that only in India and China is the female child mortality (1‐5 years) higher than male in the last decade. While in other developing countries, the ratio is 122 males to 100 females, in China it is 76 males to 100 females and in India 56 males to 100 females. By way of comparison, the ratio in Sri Lanka is 125 males to 100 females and in Pakistan 120 males to 100 females. The authors of the study pointed out that these higher mortality figures are “a powerful warning that differential treatment or access to resources is putting girls at a disadvantage”. Girls are supposed to be biologically stronger than boys at birth and yet in India more girls die than boys.
Studies on the discrimination towards girls in India have clearly shown that this higher ratio of deaths can be principally attributed to the continuing discrimination towards girls in healthcare, food and nutrition and emotional support. Several studies have established that most families ignore early signs of illness in girls and take them for treatment when the situation becomes critical. By then, it is often too late. Thus, while in the wealthier districts and amongst the better off sex‐selection has contributed to the steep decline in the child sex ratio, the continuing belief in treating boys better than girls has been responsible for the higher mortality rate amongst girl children everywhere.
These figures also reflect the consequence of poverty that is forcing parents to choose who to treat for illness. Inevitably, the girl is the second choice. Studies on discrimination against girls have concluded that the decline in sex ratio in poorer areas can be largely attributed to the choices that poverty‐stricken parents have to make to access healthcare for their children.
If today the inherent violence against women is becoming more visible – although away from the metropolitan cities and the media, women suffer equally brutal forms of sexual assault everyday that are not reported – the remedy lies in a deeper interrogation of the values that govern Indian society.
We cannot deal with this violence if half the population is automatically considered as less deserving of rights and care. The violent consequences of this imbalanced society that is premised on a deep‐rooted misogyny are being played out everyday in the lives of ordinary women, like that unfortunate young woman in Delhi. The young women and men who came out in such large numbers demanding “justice”
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SECTION 66A OF THE IT ACT Be it the case of Shaheen Dhada and her friend in Palghar, Maharashtra, who were arrested for posting and “liking” an innocuous opinion about the bandh following Bal Thackeray’s death on the social media website Facebook, or the arrest of India Against Corruption volunteer Ravi Srinivasan in Pondicherry for using Twitter to make a remark about Union Finance Minister P Chidambaram’s son Karthi Chidambaram, the use of Section 66A in these instances shows up the law in a very poor light.
Section 66A penalises anyone for “sending false and offensive messages through communication services” and defines such messages as “grossly offensive or of menacing character”.
The fact that “grossly offensive” or “menacing” could be subject to any interpretation, not necessarily reasonable, clearly violates the reasonable restrictions imposed on freedom of expression under Article
19(2) of the Constitution. In fact, the scope of the Act’s provisions is so broadly defined that they run afoul of the fundamental right to freedom of speech and expression, repudiating Union Minister for
Communications and Information Technology Kapil Sibal’s assertions to the contrary. That the penalty – a cognisable and bailable offence – is up to three years of imprisonment and a fine, much higher than for comparable offences that are not committed using the computer medium, makes it even more draconian.
Part (b) of Section 66A considers the sending of “any information which [is known] to be false, but for the purpose of causing annoyance, inconvenience, danger, obstruction, insult, injury, criminal intimidation, enmity, hatred or ill will, persistently by making use of such computer resource or a communication device” as a cognisable offence. The trouble is that there is no distinction being made between messages that cause annoyance, inconvenience, ill will or insult which are surely not necessarily criminal in nature with those that cause injury, danger, criminal intimidation or enmity.
What is more disturbing is that Section 66A has been invoked to book cases against people who have posted messages or views related to political issues, along with other clauses of the IPC. As the recent case of arrest and detentions of two trade union members of the All India Cabin Crew Association or the arrest of Jadavpur University professor Ambikesh Mahapatra for sending a sarcastic cartoon featuring
West Bengal Chief Minister Mamata Banerjee via email, or Shaheen Dhada’s arrest point out, the provisions of the Act have been used for political vendetta.
In November, a public interest litigation was filed in the Madurai bench of the Madras High Court to declare Section 66A as unconstitutional and ultra vires. One hopes that a legal evaluation of the provisions results in the scrapping of the section in the IT Act.
The laws envisaged for regulating the internet have not kept pace with the changes in the medium and that is a cause for worry as these laws have been proven to be either unconstitutional or obsolete. When one also takes into consideration the fact that censorship and restriction of freedom of expression on the
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LOBBYING
“Lobbying is as old as legislation and pressure groups are as old as politics.”
The role of lobbyists had come in for an intense discussion in Parliament, with Opposition parties stalling proceedings on a few occasions following reported conversations between a lobbyist and Telecom
Minister A Raja on the 2G spectrum issue and the recent Walmart lobbying for FDI in retail.
Views of FICCI: The government's job is to be a facilitator; that's what they should do and if they they do that there is no room for any lobbyist. If the government opens avenues, remove obstacles and roadblocks, why should you have a lobbyist?. FICCI said that it is not a lobby group and worked only as an
"influencer" to engage the government on policy issues.
Lobbying is a part of the democratic process. The human rights activist who meets legislators and
Ministers to press for ratification of an international convention is also a lobbyist. Not all such lobbyists are unpaid. Non‐governmental organisations (NGOs) remunerate them sometimes. This lobbyist acts out of conviction. It is the lobbyist hired to promote an interest who poses the problem. India has ignored this problem despite growing signs of abuse. The H.G. Mudgal case is 60 years old. He was expelled from the
Lok Sabha for taking money from a business house in return for promoting their interests.
Santhanam Committee which looked into issues of Corruption had said that no officer should have any dealing with any representative of any business firm unless that representative is properly accredited to the government. There was, however, no restriction on proprietors and managers contacting officials.
Lobbying is not a crime but influencing legislation is an activity that should be carried on in a goldfish bowl.
The nature of the pressure and who is paying for it ought always to be public knowledge, and there ought always to be some accurate way of distinguishing between a million dollars and a million votes. If this can be done lobbying can be a part of the democratic process; if it can't some new legislation may be required.

CREATION OF NEW STATES
The Uttar Pradesh Legislative Assembly had a year back passed a resolution calling for the division of Uttar
Pradesh into four States. But the procedure for formation of new States laid down in Article 3 of the
Constitution provides that a State has no say over the formation of new States beyond communicating its views to Parliament.
Procedure For Formation Of New States
Article 3 assigns to Parliament the power to enact legislation for the formation of new States. Parliament may create new States in a number of ways, namely by (i) separating territory from any State, (ii) uniting two or more States, (iii) uniting parts of States and (iv) uniting any territory to a part of any State.

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Two checks constrain Parliament’s power to enact legislation for the formation of new States. Firstly, a bill calling for formation of new States may be introduced in either House of Parliament only on the recommendation of the President. Secondly, such a bill must be referred by the President to the concerned State Legislature for expressing its views to Parliament if it contains provisions which affect the areas, boundaries or name of that State.
As can be seen, the only role that the U.P. State Legislature [the Legislative Assembly and Legislative
Council] will play in any future formation of new States is when the President calls for its views to be placed before Parliament. Parliament will not be bound by these views in the process of enacting legislation for the formation of new States.

LEGISLATURE VERSUS JUDICIARY
The doctrine of separation of powers implies that each pillar of democracy – the executive, legislature and the judiciary – perform separate functions and act as separate entities. The executive is vested with the power to make policy decisions and implement laws. The legislature is empowered to issue enactments.
The judiciary is responsible for adjudicating disputes. The doctrine is a part of the basic structure of the
Indian Constitution even though it is not specifically mentioned in its text. Thus, no law may be passed and no amendment may be made to the Constitution deviating from the doctrine. Different agencies impose checks and balances upon each other but may not transgress upon each other’s functions. Thus, the judiciary exercises judicial review over executive and legislative action, and the legislature reviews the functioning of the executive.
There have been some cases where the courts have issued laws and policy related orders through their judgements. These include the Vishakha case where guidelines on sexual harassment were issued by the
Supreme Court, the order of the Court directing the Centre to distribute food grains (2010) and the appointment of the Special Investigation Team to replace the High Level Committee established by the
Centre for investigating black money deposits in Swiss Banks.
In 1983 when Justice Bhagwati introduced public interest litigation in India, Justice Pathak in the same judgement warned against the “temptation of crossing into territory which properly pertains to the
Legislature or to the Executive Government”. Justice Katju in 2007 noted that, “Courts cannot create rights where none exist nor can they go on making orders which are incapable of enforcement or violative of other laws or settled legal principles. With a view to see that judicial activism does not become judicial adventurism the courts must act with caution and proper restraint. It needs to be remembered that courts cannot run the government. The judiciary should act only as an alarm bell; it should ensure that the executive has become alive to perform its duties.”
While there has been some discussion on the issue of activism by the judiciary, it must be noted that there are also instances of the legislature using its law making powers to reverse the outcome of some

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Issues for IIM PI Process http://www.essaysforIIM.com judgements. We discuss below some recent instances of the legislature overturning judicial pronouncements by passing laws with retrospective effect.
On September 7, 2011 the Parliament passed the Customs Amendment and Validation Bill, 2011 which retrospectively validates all duties imposed and actions taken by certain customs officials who were not authorized under the Customs Act to do the stated acts. Some of the duties imposed were in fact challenged before the Supreme Court in Commissioner of Customs vs. Sayed Ali in 2011. The Supreme
Court struck down the levy of duties since these were imposed by unauthorised officials. By passing the
Customs Bill, 2011 the Parliament circumvented the judgement and amended the Act to authorize certain officials to levy duties retrospectively, even those that had been held to be illegal by the SC.
Another instance of the legislature overriding the decision of the Supreme Court was seen in the Essential
Commodities (Amendment) Ordinance, 2009 which was passed into an Act. The Supreme Court had ruled that the price at which the Centre shall buy sugar from the mill shall include the statutory minimum price
(SMP) and an additional amount of profits that the mills share with farmers. The Amendment allowed the
Centre to pay a fair and remunerative price (FRP) instead of the SMP. It also did away with the requirement to pay the additional amount. The amendment applied to all transactions for purchase of sugar by the Centre since 1974. In effect, the amendment overruled the Court decision.
The executive tried to sidestep the Apex Court decision through the Enemy Property (Amendment and
Validation) Ordinance, 2010. The Court had issued a writ to the Custodian of Enemy Property to return possession of certain properties to the legal heir of the owner. Subsequently the Executive issued an
Ordinance under which all properties that were divested from the Custodian in favour of legal heirs by a
Court order were reverted to him. The Ordinance lapsed and a Bill was introduced in the Parliament. The
Bill is currently being examined by the Parliamentary Standing Committee on Home Affairs.
These examples highlight some instances where the legislature has acted to reverse judicial pronouncements. The judiciary has also acted in several instances in the grey areas separating its role from that of the executive and the legislature. The doctrine of separation of powers is not codified in the
Indian constitution. Indeed, it may be difficult to draw a strict line demarcating the separation. However, it may be necessary for each pillar of the State to evolve a healthy convention that respects the domain of the others.

DIRECT TAXES CODE (DTC)
The Direct Taxes Code Bill, 2010 introduced in Parliament, seeks to consolidate and amend the laws relating to all direct taxes, that is income‐tax, dividend distribution tax, and wealth tax so as to establish an economically efficient, effective, and equitable direct tax system which will facilitate voluntary compliance and help increase the tax to GDP ratio. The salient features of the DTC are :
1. It consolidates and integrates all direct tax laws and replaces both the Income Tax Act 1961 and the Wealth Tax Act 1957 with a single legislation.

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2.

3.

4.

5.

6.

1. It simplifies the language of the legislation. The use of direct, active speech, expressing only a single point through one sub‐section and rearranging the provisions into a rational structure will assist a layperson to understand the provisions of the DTC.
2. It indicates stability in direct tax rates. Currently, the rates of tax for a particular year are stipulated in the Finance Act for that relevant year. Therefore, even if there is no change proposed in the rates of tax, the Finance Bill has still to be passed indicating the same rates of tax. Under the Code, all rates of taxes are proposed to be prescribed in Schedules to the Code, thereby obviating the need for an annual finance bill, if no change in the tax rate is proposed. The Code proposes a corporate tax rate of 30 per cent against the current effective rate of 33.2 per cent and raises the exemption limit as well as broadens the tax slabs for personal income tax.
It strengthens taxation provisions for international transactions. In the context of a globalized economy, it has become necessary to provide a stable framework for taxation of international transactions and global capital. This has been reflected in the new provisions.
Phasing out Profit‐linked Tax Incentives and Replacing them by Investment‐linked Incentives‐‐It has been observed that profit‐linked deductions are inherently discriminatory, prone to misuse by shifting of profits from non‐exempt to exempt entity or by reporting higher profits in exempt income entity, and also lead to high level of litigation and revenue foregone. They also impede the Government’s efforts to give a moderate tax rate to other taxpayers as the higher taxes paid by others by implication cross‐subsidize the lower tax rates of the profit‐linked deduction sectors.
Such profit‐linked deductions are being phased out of the Income Tax Act and have also been dropped in the DTC. They are being replaced by investment‐linked deductions for specified sectors. Investment‐linked incentives are calibrated to the levels of creation of productive capacity and therefore are superior instruments. Profit‐linked deductions currently being availed of have been protected for the unexpired period in the DTC.
Rationalization of Tax Incentives for Savings‐‐In order to focus savings incentives on long‐term savings for social security of the taxpayer during his non‐working life, deduction of up to Rs 1 lakh has been provided for investments in approved provident funds, superannuation funds, and pension funds.
General Anti Avoidance Rule to Curb Aggressive Tax Planning—Direct tax rates have been moderated over the last decade and are in line with international norms. A general anti‐avoidance rule assists the tax administration in deterring aggressive tax avoidance in a globalized economy.
Such general anti‐avoidance rules already form a part of the tax legislation in a number of G‐20 countries. Taxation of Non‐profit Organizations: It is proposed to tax non‐profit organizations set up for charitable purposes on their surplus (at the rate of 15 per cent), after allowing for accumulation of a specified proportion for creation of assets or for long‐term projects, a further carry forward for receipts of the last month of the year, and also after a basic exemption limit of Rs 1 lakh.
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GAAR / GENERAL‐ANTI‐AVOIDANCE RULES
Background
The SC in Azadi Bachao Andolan’s case observed that:
The contention that the Double Taxation Avoidance Convention (DTAC) between India and
Mauritius is ultra vires is not acceptable — even if the DTAC is susceptible to ‘treaty shopping’ on behalf of the residents of third countries.
A tax treaty or convention must be given a liberal interpretation. A holistic view has to be taken in this regard.
An act, which is otherwise valid in law, cannot be treated as non‐est merely on the basis of some underlying motive (supposedly resulting in some economic detriment or prejudice to the national interest, as perceived by the respondents).
However, the Revenue authorities have over the years challenged various forms of transactions entered into by taxpayers, specifically with regard to cross‐border transactions. The recent example being in the case of the purchase of shares by Vodafone International of a foreign company, which held directly/indirectly shares in an Indian company. In the matter before the Bombay High Court, it was observed that the domestic tax law recognizes the right of a taxpayer to plan his transactions to reduce the incidence of tax. In the absence of statutory provisions to the contrary, instruments and legal structures which are utilized for a bonafide business purpose do not permit an enquiry by the authorities into the underlying economic interest. However, the parties cannot conceal the nature of their legal relationship by adopting a structure which is different from the legal character assumed by them. This prompted the government to bring in GAAR.
GAAR Implications in India
Indian Government is trying to give powers to income tax authorities as implementation of GAAR provides tremendous powers to deny tax benefit to an entity if a transaction has been carried with the sole intention of tax avoidance. Due to powers in the hand of taxmen, now innocents may be harassed by them.
FII & FDI money coming to India through Mauritius route will now become taxable.
Increased litigations.
Deferred till 2016
In Jan 2013, Fin Min announced that the government will delay by two years implementation of controversial rules on tax avoidance to 2016. They had been scheduled to be implemented from April
2014. They will now come into effect from April 1, 2016.

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INDIA’S SOVEREIGN DEBT: SUSTAINABILITY ATTRIBUTES
There have been concerns about the level of public debt, with consolidated debt (Centre and State) at
78.8 per cent of GDP. For determining the vulnerability level of public debt, it is important however to look at the composition, refinancing requirements and the investor base.
Following issues highlight the specific attributes of Central Government public debt, which place it in a distinct class, making it less vulnerable to market risks, as experienced in many advanced countries:
a) The share of sovereign external debt in total public debt was 10.8 per cent at end‐September 2010.
The bulk of the debt was from multilateral and bilateral creditors with FIIs investment in Government securities accounting for less than 1 per cent of total public debt. As India does not access international capital markets as a sovereign entity, the refinancing risk due to foreign commercial investors, which significantly contributed to the euro area sovereign debt crisis, is therefore largely absent; b) Domestic debt accounts for 89.2 per cent of the total Central Government sovereign debt. Out of this,
11.5 per cent is in non‐marketable categories like securities issued to the National Small Savings Fund.
The remaining 77.7 per cent is marketable securities with 73.4 per cent in dated securities (long term) and 4.3 per cent in Treasury Bills (short term);
c) In the dated securities category, banks (including co‐operative banks) accounted for 51.9 per cent and insurance companies (mainly Life Insurance Corporation) 22 per cent of the total debt. Given the
Statutory Liquidity Ratio (SLR) requirement for banks and the fact that a significant share of banking and insurance sector remains in the public sector, the refinancing risk, is at best minimal;
d) The average maturity of Central Government securities is nearly 10 years, making it less vulnerable to refinancing risk.

CAN ASIA STEP UP TO 21ST CENTURY LEADERSHIP?
If one had any doubts about the world being in the midst of a huge power shift, events this month should have dispelled those. From Europeans appealing to China to save the euro to President Barack Obama arriving in Bali to lobby for Asian support, the transformation is evident. Less clear is who will lead the world in the 21st century and how. There is plenty of talk about the 21st century being an Asian century, featuring China, Japan and India. These countries certainly seek an enhanced role in world affairs, including a greater share of decision‐making authority in the governance of global bodies. But are they doing enough to deserve it?
The intervention in Libya, led by Britain and France, and carried out by NATO, says it all. There is no NATO in Asia, and there’s unlikely to be one. Imagining a scenario in which China, India and Japan come together to lead a coalition of the willing to force a brutally repressive regime out of power, or undertake any major peace and security operation in their neighborhood, is implausible.

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Issues for IIM PI Process http://www.essaysforIIM.com China and Japan are the world’s second and third largest economies. India is sixth in purchasing‐power parity terms. China’s defense spending has experienced double‐digit annual growth during the past two decades. India was the world’s largest buyer of conventional weapons in 2010. A study by the US
Congressional Research Service lists Saudi Arabia, India and China as the three biggest arms buyers from
2003 to 2010. India bought nearly $17 billion worth of conventional arms, compared to $13.2 billion for
China and some $29 billion for Saudi Arabia.
Chinese, Indian and Japanese foreign policy ideas have evolved: India has abandoned non‐alignment.
China has moved well past Maoist socialist internationalism. Japan pursues the idea of a “normal state” that can say yes to using force in multilateral operations.
But unfortunately, these shifts have not led to greater leadership in global governance. National power ambitions and regional rivalries have restricted their contributions to global governance.
President Hu Jintao has defined the objective of China's foreign policy as to “jointly construct a harmonious world.” Chinese leaders and academics invoke the cultural idea of “all under heaven,” or Tianxia. The concept stresses harmony – as opposed to “sameness,” thus signaling that China can be politically non‐democratic, but still pursue friendship with other nations. China has increased its participation in multilateralism and global governance, but not offered leadership. This is sometimes explained as a lingering legacy of Deng Xiaoping’s caution about Chinese leadership on behalf of the developing world. More telling is China’s desire not to sacrifice its sovereignty and independence for the sake of multilateralism and global governance, along with limited integration between domestic and international considerations in decision‐making about issues of global governance.
Japan’s policy conception of a “normal state,” initially presented as a way of reclaiming Japan’s right to use force, but only in support of UN‐sanctioned operations, may sound conducive to greater global leadership. But it also reflects strategic motivations: to hedge against any drawdown of US forces in the region, to counter the rise of China and the growing threat from North Korea, and to increase Japan’s participation in collective military operations in the Indian Ocean and Persian Gulf regions. Beset by chronic uncertainty in domestic leadership and a declining economy, Japan has not been a proactive global leader when it comes to crisis management. Its response to the 2008 global financial crisis was a far cry from that to the 1997 crisis, when it took center stage and proposed the creation of a regional monetary fund, a limited version of which materialized eventually within the Chiang Mai Initiative.
In 2005, Indian Prime Minister Manmohan Singh asserted that “the 21st century will be an Indian century.”
He expressed hope that “The world will once again look at us with regard and respect, not just for the economic progress we make but for the democratic values we cherish and uphold and the principles of pluralism and inclusiveness we have come to represent which is India’s heritage as a centuries old culture and civilization.” In this ambition, India was praised by US presidents George W. Bush and Barack Obama, the latter describing India as “a leader in Asia and around the world” and as “a rising power and a responsible global power.”
Yet, the Indian foreign‐policy worldview has shifted in the direction of greater realpolitik. Some Indian analysts such as C. Raja Mohan have pointed out that India might be reverting from Gandhi and Nehru to
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Issues for IIM PI Process http://www.essaysforIIM.com George Curzon, the British governor‐general of India in the early 20thcentury. Curzonian geopolitics assumed Indian centrality in the Asian heartland, and envisaged a proactive and expansive Indian diplomatic and military role in stabilizing Asia as a whole. Indian power projection in both western and eastern Indian Ocean waters is growing, thereby pursuing a Mahanian approach for dominance of the maritime sphere rather than a Nehruvian approach. It is partly driven by a desire, encouraged by the US and Southeast Asian countries, to assume the role of a regional balancer vis‐à‐vis China. Like Japan, India has sought a permanent seat in the UN Security Council, a dream likely destined to remain unfulfilled for some time. India has engaged in the G‐20 forum, but has not presented obvious Indian ideas or imprints to inspire reform and restructuring of the global multilateral order.
Asia’s role in global governance cannot be delinked from the question: Who leads Asia? After World War
II, India was seen as an Asia leader by many of its neighbors and was more than willing to lead, but unable to do so due to a lack of resources. Japan’s case was exactly the opposite; it had the resources from the mid‐1960s onwards, but not the legitimacy – thanks to memories of imperialism for which it was deemed insufficiently apologetic by its neighbors. China has had neither the resources nor the legitimacy, since the communist takeover, nor the political will, at the onset of the reform era to be Asia’s leader.
In Asia today, although Japan, China and India now have the resources, they still suffer from a deficit of regional legitimacy. This might be partly a legacy of the past – Japanese wartime role, Chinese subversion and Indian diplomatic highhandedness. But their mutual rivalry also prevents the Asian powers from assuming regional leadership singly or collectively.
Hence, regional leadership rests with a group of the region’s weaker states: ASEAN. While ASEAN is an useful and influential voice in regional affairs, its ability to manage Asia – home to three of the world’s four largest economies; four, excluding Russia, of the eight nuclear weapon states; and the fastest growing military forces – is by no means assured.
Greater engagement with regional forums is useful for the Asian powers to prepare for a more robust role in global governance. So many of the global problems – climate change, energy, pandemics, illegal migration and more – have Asian roots. By jointly managing them at the regional level, Asian powers can limit their rivalries, secure neighbors’ support, and gain expertise that could facilitate a substantive contribution to global governance from a position of leadership and strength.

EUROZONE CRISIS
How did it happen?
In June 2009 it became apparent that the peripheral countries of the Eurozone (Greece, Portugal, Spain and Ireland) were grossly over‐indebted.The continued viability of their public finances depended entirely on markets being willing to refinance them with cheap money.But, when markets scrutinised the sustainability of their fiscal positions, they baulked from refinancing except at punitive rates.
CDS spreads (against Germany as a benchmark) of peripheral Eurozone countries (PIGS or Club Med) debt began widening relentlessly.Global financial markets began to price in an escalating risk of partial/full voluntary/involuntary default on PIGS bonds since December 2009.
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Issues for IIM PI Process http://www.essaysforIIM.com Greece, Portugal, Spain and Italy, as a direct consequence of joining the Eurozone, had been running up unsustainable fiscal deficits since 2000. PIGS became over‐indebted despite the supposed self‐imposed discipline adopted by the Eurozone of prohibiting fiscal deficits >3% of GDP.
That discipline was violated by almost all Eurozone members, beginning with France and Germany, but more egregiously by the PIGS. To make matters worse, however, the PIGS were also running increasingly large current account deficits (with Germany, France, China). Though countries like France (and to a lesser extent) Germany were fiscal sinners, they were at least running current account surpluses.
PIGS had access to excessively cheap public and private money available on terms totally inappropriate to their economic circumstances. Given their inherent risks, which markets mispriced completely, their borrowing costs should have been 300‐500 bp higher than Germany's. Instead, they were virtually the same for nearly a decade. That relieved market‐induced pressure on PIGS' governments to behave responsibly. How has the Eurozone crisis been handled?
Eurozone leaders learned nothing from the preceding debt crises in Latin America (1982‐87, 1994‐95) and
Asia (1997‐2000).They went through avoidable phases of serial denial that there was a structural debt
(solvency) crisis that could spread via contagion.
They treated it as a liquidity crisis that could be dealt with by temporary patch‐ups of additional money combined with fiscal restraint. They reiterated their commitment to ensuring there would be no default by any Eurozone member and believed that their remedial measures would stop the crisis from ballooning beyond the first bailout package for Greece.
In fact, the inadequacy of that first bailout package ‐‐ which did not provide enough money for sufficiently long ‐ became quickly apparent. Least of all were bailout packages designed to restore growth in a conscionable period of time that would be socially/politically acceptable. Without financial system (and borrowing cost) stability, and absent growth, debt problems can never become better. They can only worsen. Instead, as a result of poor design, all the bailouts did (except for Ireland) was to add new debt to bad debt and reduce growth prospects.
To exemplify: In mid‐2009 the debt/GDP ratio for Greece was 115% of GDP and the debt service ratio about 11% of GDP. But, by October 2011 the debt/GDP ratio for Greece was 161% of GDP and the debt service ratio nearly 20% of GDP. It is projected with the third bailout to rise to 185% of GDP (although debt service will be lowered to 16%) before it comes down again.
In the meantime, over the last 32 months, the Greek economy has shrunk in size by almost 17% in nominal terms. It will be 1/5 th less in 2012. Such inane 'remedies' do not solve debt problems. They only aggravate and exacerbate them.
While behaving in this absurd fashion Eurozone leaders repeatedly asserted for two years that they would do everything in their power to:
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Not allow any default of publicly issued bonds to occur; and
Do everything possible to avoid contagion spreading beyond PIGS (even as it became clear that markets were worried about Italy.
Instead they achieved the exact opposite of all three objectives through their inability to understand the implications of what they were doing.
The EFSF facility they created is woefully underfunded. It can barely deal with financing the third Greek bailout. Yet over‐indebted governments (including France and Germany) would have to issue more public debt in order to fund the EFSF properly. That would simply mean requiring their fragile, near‐bankrupt, banking systems (or the ECB) or global markets to buy more Eurozone debt.
Except for Germany (and even that will be in doubt soon) the market has no appetite for taking on more
Eurozone debt given its risks. Contagion has spread from the periphery and now lodges at the core of the
Eurozone economy in which Italy is the third largest member. What could have been resolved with about
300 billion euro in additional financing in mid‐2010 is now a problem that may require 2 trillion euro.

PAK‐ INDIA MFN ISSUE: IMPLICATIONS
India gave Pakistan MFN status way back, in 1996, without getting into any reciprocity requirements. Now,
Pakistan is talking about giving MFN status to India. If Pakistan gives India MFN status, the plausible impacts could be:
1. At present, there is significant Indo‐Pak trade; it merely gets routed through Dubai. Once Pakistan gives India MFN status, the entrepot trade that was going Bombay ‐> Dubai ‐> Karachi will go Bombay
‐> Karachi. This is bad news for Dubai and for individuals and firms which are invested in the future of
Dubai as an entrepot centre. Trade data should show a fairly sharp decline in India's exports to UAE and a fairly sharp rise in India's exports to Pakistan.
2. There will be a boom in shipping, communication and trade serving the direct Bombay ‐> Karachi route. Similarly, the ports of Gujarat will do a lot of business directly to Karachi.
3. Initially little changes: the goods that used to go via Dubai would now go directly to Karachi. Another dimension is the cost of the middleman in Dubai, which would be eliminated.
4. Important dynamics will now set in amidst firms in Pakistan. Firms that compete with exports from
India will suffer. Firms that consume imported inputs from India will thrive. Creative destruction will take place; resources will shift from one group of firms to another. Exporters will be better able to export to India, both because of access to cheaper labour and capital that's freed up by firms that die owing to import competition, and because of improved competitiveness that comes from cheaper raw materials. Exports from Pakistan to India will go up significantly through this movement on import liberalisation.
5. Large Indian and Pakistani corporations will look much more seriously at the opportunities that lie just beyond the national border. Over time, human capacities and human networks will build up on both sides, supporting cross‐border operations. This will take time to ripen, but when it does, the effects
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Issues for IIM PI Process http://www.essaysforIIM.com will be large. A good fraction of global trade is intra‐firm trade, so it's very important to have large firms of both countries having operations in both countries, in order to get growth of trade. But for this, both sides have to do more on capital account liberalisation through which firms will expand operations across the border.
6. The biggest gains in India will be in Gujarat, given the myriad ports in Gujarat which are a short distance away from Pakistan. But in the future, if road and rail links open up, then there are big opportunities in Punjab also.

IMPACT OF RUPEE DEPRECIATION
There are three important effects:
1. Some people who have borrowed in dollars, and left it unhedged since they were speculating that the
INR would appreciate. They get hurt in the process. But this is fine as in a market economy, many people place bets about future fluctuations of financial prices, and half the time the speculator loses money. (If the rupee had not depreciated sharply, these speculators would have been gained).
2. When the rupee depreciates, imports become costlier and India's exports become more competitive.
So exports (X) gradually start going up and imports (M) gradually start going down. The net gain in X‐
M is increased demand in the local economy. Hence, INR depreciation is good for aggregate demand
(and conversely INR appreciation pulls back demand). However, we have to bear in mind that these effects are small and take place with long lags.
3. Many things in India are tradeable. It is important to focus on the things that are tradeable and not just on the things that are imported. As an example, there are many transactions between a domestic producer of steel and a domestic buyer of steel. The buyer and seller are both in India. But the price at which they transact is the world price of steel (which is quoted in dollars) multiplied by the INR/USD exchange rate. This is called `import parity pricing'. Through this, the domestic prices of tradeables goes up when the rupee depreciates.

REPOS: CONCEPT, MECHANICS AND USES
Repo is a money market instrument, which enables collateralised short term borrowing and lending through sale/purchase operations in debt instruments. Under a repo transaction, a holder of securities sells them to an investor with an agreement to repurchase at a predetermined date and rate. In the case of a repo, the forward clean price of the bonds is set in advance at a level which is different from the spot clean price by adjusting the difference between repo interest and coupon earned on the security.
Repo rate is nothing but the annualised interest rate for the funds transferred by the lender to the borrower. Generally, the rate at which it is possible to borrow through a repo is lower than the same offered on unsecured (or clean) interbank loan for the reason that it is a collateralised transaction and the credit worthiness of the issuer of the security is often higher than the seller. Other factors affecting the repo rate include, the credit worthiness of the borrower, liquidity of the collateral and comparable rates of other money market instruments.

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Issues for IIM PI Process http://www.essaysforIIM.com A reverse repo is the mirror image of a repo. For, in a reverse repo, securities are acquired with a simultaneous commitment to resell . Hence whether a transaction is a repo or a reverse repo is determined only in terms of who initiated the first leg of the transaction. When the reverse repurchase transaction matures, the counterparty returns the security to the entity concerned and receives its cash along with a profit spread. One factor which encourages an organisation to enter into reverse repo is that it earns some extra income on its otherwise idle cash.
RISKS
As far as risks are concerned although repos are collateralised transactions they are still exposed to counterparty risk and the issuer risk associated with the collateral. As far as the counterparty risk is concerned, the investor should be able to liquidate the securities received as collateral, thus largely offsetting any loss. Against this the seller /lender of bonds will hold cash or other securities as protection against nonreturn of the lent securities. In both the cases it is to be ensured that the realisable value equals or exceeds the exposure. There is also the concentration risk resulting from illiquid issues which are used as collateral in the transaction.
USES
There are a variety of advantages repos can provide to the financial market in general, and debt market, in particular as under:
An active repo market would lead to an increase in turnover in the money market, thereby improving liquidity and depth of the market;
Repos would increase the volumes in the debt market as it is a tool for funding transactions. It enables dealers to deal in higher volumes. Thus, repos provide an inexpensive and most efficient way of improving liquidity in the secondary markets for underlying instruments. Debt market also gets a boost as repos help traders to take a position and go short or long on security. For instance, in a bullish scenario one can acquire securities and in a bearish environment dispose them of thus managing cash flows taking advantage of flexibility of repos.
For institutions and corporate entities repose provide a source of inexpensive finance and offers investment opportunities of borrowed money at market rates thus earning a good spread;
Tripartite repos will offer opportunities for suitable financial institutions to intermediate between the lender and the borrower.
A large number of repo transactions for varying tenors will effectively result in a term interest rate structure, especially in the interbank market. It is well known that absence of term money market is one of the major hindrances to the growth of debt markets and the development of hedging instruments. Central banks can use repo as an integral part of their open market operations with the objective of injecting/withdrawing liquidity into and from the market and also to reduce volatility in short term in particular in call money rates. Bank reserves and call rates are used in such instances as the operating instruments with a view to ultimately easing /tightening the monetary conditions.

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FACTORS DRIVING FOOD INFLATION
There are 5 main factors:
1. Shift in dietary habits towards protein food:‐ A distinct feature of recent food price inflation has been the sustained price pressure in protein rich items (pulses, milk, fish, meat and eggs). Inflation in protein rich items has generally exceeded both headline (WPI) inflation and inflation in primary food articles. The reason structural changes have triggered inflation in India is that the supply response in respect of most protein items has not been adequate. With the exception of pulses, other protein rich items are not crop products. This is an important point since it explains the growing disconnect between the performance of agriculture and the trajectory of food inflation.
2. Pressure stemming from inclusive growth policies:‐ The need for making growth inclusive is incontestable, but it is important to recognize that policies aimed at inclusion can stoke inflationary pressures. Two examples are: first, the significant increase in rural wages triggered by the MGNREGS, and second, inflationary implications of the proposed Food Security Bill. The indexation of the wage rate to CPI‐AL since the beginning of 2011 has exacerbated the wage‐price inflation spiral.
3. Large increases in MSPs of foodgrains: Compared with the past, hikes in MSPs for wheat and rice have been more substantial in recent years, as the table below shows. The increase in MSPs is consistent with the rising input costs i.e. of Fodder, diesel oil, lubricants, fertilizer and pesticides along with higher labour costs due to MGNREGS
Annual Average Percentage Increase in MSP

2002‐07

2007‐12

Rice

1.8

13.6

Wheat

4.0

11.9

4. Shocks from global food inflation: Demand side pressures have stemmed from growing population and rising incomes. Supply side pressure have been triggered by a host of factors ‐ increasing urbanization, diversion of land for bio‐fuel production, inadequate investment in research and technology, spikes in costs of inputs such as diesel and fertilizer and disturbances arising from climate change. It is important to note that prices of food items actually declined in real terms over several decades from early 1960s to early 2000. This trend began to be reversed, gradually during 2003‐06, and rapidly thereafter up until the 2008 global financial crisis.
5. Financialisation of commodities:‐ Some analysts contend that speculation in commodity futures has been a key driver of global food inflation in recent years. In general, there has been a marked increase in financial investment in commodity markets, relative to both global GDP and physical commodity production. The financialisation channel is often perceived to have magnified the impact on prices of the disequilibrium between demand and supply, thereby weakening the role of fundamentals in the price formation process.
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Issues for IIM PI Process http://www.essaysforIIM.com How do we respond to the challenge of food inflation?

RAISE AGRICULTURAL PRODUCTIVITY
:‐ Even our best productivity achievements in terms of yields of major crops are way behind world numbers. During 2010‐11, Punjab, with the highest yield in rice, produced 3.8 tonnes per hectare as against the world average of 4.3 tonnes per hectare. Yield of oilseeds in Tamil Nadu, the highest in India, at 2.1 tonnes per hectare is lower than the US average of 2.7 tonnes per hectare. There are wide variations in productivity levels of crops across states. Unlike food grains where the Green Revolution improved the food security situation, we are still not self‐sufficient in pulses and edible oilseeds. The demand for other farm products like fruits and vegetables has also been rising significantly faster than supply, putting pressure on food inflation.
Rethink Price Policy Interventions:‐ Paradoxically, in India, we subsidize both agricultural inputs and outputs, and we subsidize both producers and consumers. There is a case for revisiting the subsidy regime for a number of reasons, including the pressure it exerts on food inflation. Subsidies on inputs
(fertilizer, electricity, irrigation) to incentivize production and subsidies on output for the PDS system, entail a large fiscal burden. Over and above the input subsidies, remunerative MSPs and procurement for the public distribution system (PDS) at prices linked to MSP further distort the price situation. There is a moral hazard here like in any subsidy. A farming sector that depends excessively on input subsidies and cost plus MSPs to raise production does not have much of an incentive to raise productivity. If the amount spent on subsidies could be diverted to augment capital formation in agriculture and creation of rural infrastructure, higher productivity would raise the income of farmers while lowering the prices for the consumers.
Improve Supply Chain Management:‐ The supply chain through which farm products move to reach the final consumers is a major source of price pressures. 2 initiatives, currently under debate, that could potentially improve the situation are: (a) revamping the PDS to check leakage of food subsidies, and (b) allowing entry of FDI into multi‐brand retailing.
Manage Competition for Land From Non‐farm Activities:‐ Land acquisition for industrial and other commercial uses is an issue that has been headline news in recent years; clearly, it is an emotive issue involving difficult tradeoffs. No matter how the tradeoffs are resolved, the reality of increasing demand for land from fast growing and more productive sectors cannot be ignored.

INFLATION IMPACT ON ECONOMY
Inflation has an adverse impact on the real economy. The following points are worth noting
1.

2.

High and persistent inflation imposes significant socio‐economic costs. Given that the burden of inflation is disproportionately large on the poor, high inflation by itself can lead to distributional inequality. Therefore, for a welfare‐oriented public policy, low inflation becomes a critical element for ensuring balanced progress.
High inflation distorts economic incentives by diverting resources away from productive investment to speculative activities.

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4.
5.
6.
7.

Inflation reduces households saving as they try to maintain the real value of their consumption.
Consequent fall in overall investment in the economy reduces its potential growth.
As inflation rises and turns volatile, it raises the inflation risk premia in financial transactions. Hence, nominal interest rates tend to be higher than they would have been under low and stable inflation.
If domestic inflation remains persistently higher than those of the trading partners, it affects external competitiveness through appreciation of the real exchange rate.
As inflation rises beyond a threshold, it has an adverse impact on overall growth.
RBI's current assessment suggests that the threshold level of inflation for India is in the range of 4‐
6%. If inflation persists beyond this level, it could lower economic growth over the medium‐term.

Hence there is a need for a monetary policy response by the Central Bank to control inflation

FACTORS THAT WILL SHAPE INFLATION TRAJECTORY Five factors will shape the inflation trajectory are:‐
1.

2.

3.
4.

5.

The first is the trend in domestic food prices. Given the current stage of our economic development, the demand for food items, particularly animal protein, will increase with economic growth and a rise in income levels.The demographic dividend, which has been contributing to our growth and productivity, has also raised consumption demand, particularly food.
Second, global commodity prices and, particularly, crude oil prices will have an impact on overall inflation. This requires policy initiatives towards energy conservation, efficiency in energy usage, recourse to alternative sources of energy, and step up in domestic exploration of oil and gas.
Third, on the demand side, there is a need to shift aggregate demand away from consumption towards investment, to augment the potential output of the economy.
Fourth, the level of the fiscal deficit and the quality of government expenditure have significant influence on inflation. Under normal circumstances, when private demand is buoyant, expansion in the fiscal deficit could be inflationary. Since private borrowing competes with government borrowing, it could exert upward pressure on interest rates. This could crowd out private investment, which would have an adverse impact on the overall economic growth. Further, it also matters whether the government borrowing is for financing consumption or investment.
Fifth, the stance of monetary policy and its ability to anchor inflationary expectations will affect how inflation evolves in future. The level of the policy interest rate should be such that it is neither too stimulative nor too tight.

Containing inflation
Costs of Inflation:‐
1. Prolonged high inflation, even if originating from the supply side, could give rise to increased inflation expectations and cause general prices to rise. Poorly anchored inflation expectations make long‐term financial planning more complex, with potential adverse effects on investment and growth.
2. High inflation deters financial saving and increases lending rates, which discourage investment.
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Issues for IIM PI Process http://www.essaysforIIM.com 3. Moreover, high inflation is the most regressive form of taxation, particularly on the poor.
It is, therefore, important to contain inflation and keep inflation expectations anchored so that consumers do not mark up their long‐run inflation expectations by reacting to short periods of higher‐than‐expected inflation. RBI signalled the reversal from its crisis‐driven expansionary monetary policy stance in October 2009.
Since then, the cash reserve ratio has been raised by 100 basis points (bps). The policy repo rate has been raised by a cumulative 325 bps. As the liquidity in the system went from surplus to deficit, the effective policy rate tightening has been of the order of 475 bps. Thus, the cumulative monetary policy action would have the desired impact on inflation going forward.

TEN CHALLENGES FOR INDIA FOR A SUSTAINED GROWTH PATH
1. Raising Agricultural Production and Productivity:‐ It is important for containing price pressures, raising rural incomes and making growth more inclusive. There are several initiatives necessary to launch the second Green Revolution ‐ larger public investment, greater input efficiency, soil conservation, improved farming practices, developing resilience to rainfall variations and climate change effects, to name just a few.
2. Expanding Employment opportunities:‐ various estimates suggest that India’s labour force will increase by 250‐300 million in the next twenty years. Finding productive jobs for such huge numbers is a big challenge, and clearly the answer lies in stepping up growth, and importantly, stepping up the employment intensity of growth. There is a need to move people out of low productivity jobs in agriculture to industry and services. A portion of the surplus labour in agriculture could be absorbed in non‐farm allied activities. There will be opportunities also in the construction sector which is growing, but a major expansion of job opportunities in the service sector will not be possible without skill improvement. That will inevitably take time. So, much of the burden of job creation falls on the manufacturing sector
3. Raising Productivity:‐ Productivity improvement entails better managing factors of production as well as factor productivity. In terms of factors of production, managing surplus labour in the farm sector, raising the rate of domestic savings, attracting stable foreign savings, sustainable use of natural resources and managing the demand on land from key growth sectors will be important.
4. Managing Urbanization:‐ Historically, there has been a strong correlation between urbanization and economic growth across countries and across time with the causation possibly running both ways.
Empirical studies show that middle income countries reach about 50 per cent urbanization and high income countries typically have 70‐80 per cent urbanization. In the twenty years since the start of reforms, the proportion of urban population increased from 26 per cent in 1991 to just about 31 per cent in 2011. The costs of unplanned urbanization are already very visible in terms of the huge strains on infrastructure and sanitation, pressure on utilities and inadequate and low quality social service provision. 5. Bridging the Infrastructure Deficit:‐ The Eleventh Five Year Plan projected investment in infrastructure of $500 billion but the final expenditure is likely to fall well short of that. The Twelfth Plan doubles the
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6.

7.

8.

9.

10.

projected investment over the five year period 2012‐17 to $1 trillion which means that annual investment in infrastructure has to increase from the current level of 6 per cent of GDP to over 10 per cent. Given its fiscal compulsions, the Government will clearly not be able to mobilize resources of this order. The Twelfth Plan projections call for 50 per cent of the projected investment to come from the private sector and much of the project implementation to happen in the PPP mode. Infrastructure investment, therefore, poses three sub‐challenges: mobilizing the necessary resources, reforming regulations and contractual arrangements and efficient project planning and execution.
Improving Social Sector Outcomes:‐ India’s human development indicators are distressing. As per the
UNDP’s Human Development Index (HDI) 2011, we rank 134 out of 187 countries, clearly in the bottom third of the league of nations. Even as education and health outcomes have improved over the years, on many indicators such as life expectancy at birth, educational attainment and nutrition levels, we rank well below average. For improving service delivery, we need to spend more on the twin merit goods of primary education and basic health.
Promoting Financial Inclusion:‐ It is important because it is a necessary condition for sustaining equitable growth. Out of the 600,000 habitations in the country, less than 30,000 have a commercial bank branch. Just about 40 per cent of the population across the country have bank accounts, and this ratio is much lower in the north‐east of the country. The proportion of people having any kind of life insurance cover is as low as 10 per cent and proportion having non‐life insurance is an abysmally low 0.6 per cent. Such access is especially powerful for the poor as it provides them opportunities to build savings, make investments and avail credit. Importantly, access to financial services also helps the poor insure themselves against income shocks and equips them to meet emergencies such as illness, death in the family or loss of employment. Needless to add, financial inclusion protects the poor from the clutches of the usurious money lenders.
Managing Globalization:‐ Globalization, as measured by the movement of ideas, people, goods, services and capital across borders has undoubtedly been one of the defining features of the last twenty‐five years. India’s two‐way trade flows doubled in the ten year period 1998‐2008, but the two‐ way current and capital flows increased by more than two and a half times evidencing that India’s trade integration with the world got deeper, but that its financial integration got even deeper. The challenge for us will be to minimize the costs and maximize the benefits of globalization.
Providing a Stable and Predictable Macroeconomic Environment:‐ It is only in such an environment that both savers and investors can make informed decisions so that savings translate efficiently into productive investment. One task is reduction of fiscal deficits both at the Centre and in the states to stabilize the debt‐GDP ratios at sustainable levels. The second task is to bring inflation down first to
5%, and then even lower, consistent with India’s broader integration into the global economy.
Good Governance:‐ good governance is at the very heart of economic growth and poverty reduction.
It is the quality of governance that separates success and failure in economic development as can be seen from vast differences across states in development outcomes from out of the same mix of development policies

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DEREGULATION OF SAVINGS BANK DEPOSITS INTEREST RATE
RBI recently deregulated savings bank deposit interest rate which had been kept constant since 2003. The pros and cons of the move are:‐
Pros
1. May Enhance Attractiveness of Savings Deposits
2. Will Improve Transmission of Monetary Policy:‐ For transmission of monetary policy to be effective, it is necessary that all rates move in tandem with the policy rates. This process, however, is impeded if the interest rate in any segment is regulated. Savings deposit constitutes a sizeable portion (about
22 per cent) of total deposits. The fact that the savings deposit interest rate has not been changed since March 1, 2003, prima facie implied that changes in policy rates did not transmit to savings bank deposits. 3. May Lead to Product Innovations:‐ The requirements of different banks and different depositors are not necessarily the same. Just as each bank may like to tailor the savings product to suit its requirement, each depositor may like to choose a product which suits his requirements.
Cons
1. Possibility of an Unhealthy Competition:‐ A major attraction of savings deposits for banks is that it offers a low cost source of funds. Should it really happen, it will have implications in that it will push up the cost of funds of the banking sector. This, if passed on to the borrower, will raise the cost of borrowings and if not, it will affect the interest margins and profitability of the banking sector.
2. Risk of Asset Liability Mismatches:‐ One of the issues often raised by banks in the context of deregulation of savings bank interest rate is that in the event of such deregulation, it would result in an asset‐liability mismatch. This is because, although savings bank deposits represent short‐term savings and withdrawable on demand, a large part of savings deposits is treated as ‘core’ deposits, which together with term deposits have been used by banks to increase their exposure to long‐term loans, including infrastructure loans.
3. May Lead to Financial Exclusion:‐ Should unhealthy competition result in increase in interest rate and the overall cost of funds, banks might be discouraged from maintaining savings deposits with small amounts due to the associated high transaction costs.
4. Could Adversely Affect Small Savers/Pensioners:‐ Many senior citizens, pensioners, small savers, particularly in rural and semi‐urban areas, depend on interest as a source of regular income. In the recent period, interest rate on savings deposits has been lower than that on term deposits and deregulation may push up savings deposits higher, in which case small savers/pensioners would benefit. However, there could be occasions, especially when the liquidity is in surplus, when savings deposit interest rates may decline even below the present level. This will affect the income flow to small savers/pensioners.
5. Possibility of Introduction of Complex and not so Easily Understood Savings Products:‐ Although deregulation of savings deposit interest rate may lead to product innovation, which, in general, will benefit savers, it is also possible that banks introduce some complex products, which may not be so
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BUFFETT TAX
Warren Buffett called on the so‐called “mega‐rich” Americans to pay more in taxes.He proposed higher tax rates on households with taxable income of more than $1 million, and an additional increase for those making $10 million or more while leaving rates for 99.7 per cent of taxpayers unchanged.
Sixteen of France's richest people have sparked a lively debate by offering to pay higher taxes. They did this in a joint letter titled “Taxez Nous!” (“Tax Us!”). Among them are the heads of some of the country's largest corporations, including Liliane Bettencourt, Europe's richest woman
The Buffett Rule is a tax plan proposed by President Barack Obama in 2011 to alleviate income inequality in the United States between the top 1% of Americans and the remaining 99% of Americans, due to the disproportionate income growth in the 1% group as compared to the 99% group. The tax plan would apply to individuals earning more than $1 million per year.
Why rich generally pay low taxes: the mega‐rich pay income taxes at a rate of 15 per cent on most investment income but practically nothing in payroll taxes. The middle class, meanwhile, typically falls into the 15 per cent and 25 per cent income tax brackets and is hit with heavy payroll taxes.
Pros:
1. It decreases inequality in the society leading to decreased social tension
2. Taxes should be paid on the principle of “Ability to Pay”. The rich obviously have lower marginal utility of money and hence have a higher ability to pay more taxes
3. The income is earned from the society as a whole and the rich need to pay their due share back as taxes to the society
Against:
1. It decreases incentives for the rich to earn more. They are generally entrepreneurs who create employment by investing and building companies
2. A large amount of consumption (in absolute terms) is done by the rich, creating demand for goods and services
3. With a higher propensity to save than the poor, the savings of the economy would be lowered.This could impact the growth of the economy
4. Some tax economists propound proportional tax instead of the progressive demanded by the Buffett
Tax

ELECTORAL REFORMS
Reform of Political Funding: In India, one of the sources of funding of political parties has been through private donations. While the Representation of the People Act puts limits on election expenditure, company donations to political party were banned in 1969 but later allowed by an amendment of the
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Issues for IIM PI Process http://www.essaysforIIM.com Companies Act in 1985. In order to eradicate the major source of political corruption, there is a compelling case for state funding of elections. As recommended by the Indrajit Gupta Committee on State Funding of Elections, the funding should be partial state funding mainly in kind for certain essential items.
Appointment of the Chief Election Commissioner/Commissioners: The present procedure of appointment of the CEC and other Election Commissioners, is laid down in Article 324 of the Constitution and stipulates that they are to be appointed by the President on the advice of the Prime Minister. Given the far reaching importance and critical role of the Election Commission in the working of our democracy, it would certainly be appropriate if a similar collegium is constituted for selection of the Chief Election
Commissioner and the Election Commissioners.
Right to Recall:‐ Anna Hazare's demand for right to recall elected representatives and reject candidates is not feasible in a huge country like India and cthe provision, if implemented, could create political instability. Chief Election Commissioner Quraishi said he is not in favour of ‘Right to Recall' or ‘Right to Reject' elected representatives, warning that any such electoral rule will “destabilise” the country.
Opposing any move to have a ‘Right to Recall' as in many developed countries, Mr. Quraishi said it may not work in India given the size of the country.
The inclusion of any right to reject proposal in voting could be misused to put out an unintended political message, especially in places such as Kashmir and North‐Eastern states where people already feel alienated.
Anna Hazare suggested that if candidates spending crores in elections are rejected by the voters, it will discourage them from overspending and would control election expenditure.
Right to Reject:‐ The right can be looked at in 2 ways. One is that the people should have a right to vote that no candidate deserves his vote. In this way, the right is already there in the Representative of the
People's (RPI) Act, but not being exercised ever since EVMs were deployed. The need is for the government to frame laws to include a rejection button in EVMs to allow the people of India the right already bestowed on them.
Second way, is that if no candidate secures more votes than the votes secured by Rejection button, then the election will be held again and with a new set of candidates.

PROBLEMS WITH THE AVIATION SECTOR
Rising Fuel Cost
The aviation sector is confronted with rising prices of jet fuel, which accounts for 40% of the operating cost of an airline. Jet fuel prices have increased by more than 28% since January and nearly 45% from a year ago
High State Tax on Jet Fuel
High state tax on jet fuel in India makes it among the most expensive in the world. Tax ranges from as low as 0% in Andaman and Nicobar Islands to 28‐30% in Karnataka, Bihar, MP, TN and Gujarat
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Industry suffers from a deficit of maintenance, repair and overhaul units. Existing ones are expensive due to the high taxes. These charges account for nearly 13% for total costs of an airline company
Nascent Hedging Market
The under‐developed commodity hedging market makes it hard for companies to hedge against the fluctuating prices of air fuel, which on a few occasions has also resulted in huge forex losses
Heavy Debt Burden
The Indian aviation industry is also saddled with a debt of nearly $13 billion, which happens to be the highest in the Asia Pacific region, according to the International Air Transport Association
Cut‐throat Competition
Low‐cost carriers are known to price tickets aggressively, but are facing stiff competition from state‐ owned Air India. Airline bosses took up the issue with aviation minister Vayalar Ravi
Weak Rupee
The weakening of the rupee hits carriers because they pay for leasing or purchase of aircraft, fuel abroad and spares in dollars. Indeed, 70% of airline costs are dollar denominated. Rupee has depreciated by 11% since January

PIIGS – DEMYSTIFYING THE CRISIS
[This is an overview of the genesis of the crisis; What is happening currently in Europe is covered separately] Portugal, Ireland, Italy, Greece and Spain share a currency and an acronym PIIGS. Each lost cost competitiveness after 1999, seeing prices and wage rose more rapidly than the Euro area average. As members of the Euro zone, they cannot devalue their currencies, making the struggle out of recession harder. Thus they need internal devaluation which means falling wages, and falling GDP (Due to fiscal consolidation). But, as GDP falls, the tax collections will drop too and the deficit will not get reduced as much, thus a further fall in GDP is necessitated.
As the trouble brewed, the symptoms varied in each country. Greece and Spain sucked in cheap imports and ran‐up huge current account deficits. They at least enjoyed prosperity for a while unlike Portugal and
Italy whose economies were held back by high wage costs and poor productivity. Ireland’s export‐led success gave way to a bubble economy built on low interest rates.
Some data can be presented:

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Details:
Portugal – It seemed to have exhausted the benefits of Euro even before it was launched. Its boom in the second half of 1990s was fed by a sharp decline in borrowing costs, based on the mere prospect of Euro membership. Rapid wage inflation eventually made it harder for local firms to compete with foreign rivals.
By 2000, Portugal’s current account deficit had widened to a deficit of 10% of GDP. The emerging economies of Eastern Europe and Asia have further dulled Portugal’s appeal as a low‐cost producer. Its poor education system keeps it trapped in low‐skilled work, which can be done more cheaply by others.
Ireland – Ireland had a more ruinous credit boom that even America or Britain. Bank lending was heavily tilted towards mortgages and construction. One legacy is the bad commercial‐property loans that have crippled its banks. Another is the stockpile of household debt, mostly mortgages that exceeded 100% of
GDP. The regulation of banks was also an issue. There was huge and wasteful investment in real estate sector, financed by banks by borrowing from non residents and capital markets. At one time, 60% of bank assets = 250% of nominal GDP = loans to real estate sector. (Infact, it had a current account surplus – so that was not part of the problem) The government guaranteed all liabilities of Irish banks including private sector banks against defaults.
But, those banks were not facing a liquidity problem but a solvency crisis. Thus, the problem could not be solved. Finally, IMF and EU bailout became necessary. The bailout was of Euro 85 bn.
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Issues for IIM PI Process http://www.essaysforIIM.com Ireland seeks to return to export‐led growth that was once its key to success. To do so, it must lower its wages relative to its trading partners in euro area. For many households, that means wages will fall, making debt looms larger. One salve is that mortgage rates in Ireland are linked to the European Central
Bank’s main interest rate, which is set to remain low.
Italy‐ Italy had a nasty recession but unlike others was not pulled out of shape by a big credit boom or housing boom. Between 2002 and 2007, Italy’s current account deficit averaged less than 2% of GDP compared with between 7% and 9% of Greece, Spain and Portugal. Yet Italy suffers many of the same problems. Like Spain, its productivity growth is dismal. Like Greece, it has huge public debts and trouble collecting taxes. That is in part due to the country’s vibrant North that the levies raised there help pay for the many failures of the poorer south.
Spain‐ Spain’s economic troubles are closely tied to its housing bust. The unemployment rate is close to
20% and many of the newly idle had been construction workers. Spain’s poor productivity growth is partly the result of the housing mania.(construction booms are labour‐intensive). Yet much of the fault lies with
Spain’s labour market rules. Wages are set centrally and most jobs are protected, making it hard to shift skilled workers from dying to blooming industries. (Most job losers were low skilled temporary workers, who are hard to reemploy). Recession revealed how dependent public finances had been on housing‐ related tax revenues. House prices have further to fall. On one measure, the ratio of house prices to rent,
Spanish property is more than 50% above its face value.
Greece‐ Public finances are in a mess in most rich European countries, but Greece is in by far the worst shape. There was fiscal and financial irresponsibility resulting in ultra loose fiscal policy and a huge Current account deficit. In 2009, the government ran a budget deficit of 13.6% of GDP. Greece’s debt stood at
115% of GDP in 2009. Among OECD countries, only Japan has a higher burden. Public spending was 51% of GDP– bloated by the standards of America, but broadly in line with the average for Euro area countries.
Greece’s main fiscal problem is collecting revenues. Tax evasion is endemic, contributing to Greece’s low tax/GDP ratio of 31%. Among Euro area counties, only Ireland’s figures are lower.
All this necessitated a record 110 bn euro ($147 bn) bailout for debt‐stricken Greece after Athens committed itself to years of painful austerity. It is a three‐year package of emergency loans. In exchange for by far the largest bailout ever assembled for a country, Greece announced further spending cuts and tax increases totaling 30 billion euros over three years on top of tough measures already taken.
Telling angry Greeks to choose between the painful rescue or economic collapse, the government now aims to bring its towering budget deficit back to the EU limit by 2014, two years later than originally promised. CORPORATE SOCIAL RESPONSIBILITY
Government won’t set CSR floor for India Inc
The government has watered down its proposal on corporate social responsibility (CSR) by not including a provision in the Companies Bill that would have mandated firms to spend 2% of their profit on social causes.
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Issues for IIM PI Process http://www.essaysforIIM.com The final proposal of the government only requires a company to have a policy that targets to spend
2% of its profit on CSR. The bill, however, seeks to make it compulsory for a company to give details of the money it has spent on CSR in its annual report.
The proposal is a dilution of the government’s stance before the Parliamentary Standing Committee on Finance that it was considering making the CSR spend mandatory.
The actual spend of most companies on CSR is well below the 2% threshold, and much of it would not be considered if a strict definition is applied.
But central public sector enterprises have a policy that requires them to spend 0.5‐5% of their net profit on CSR activities.
Some examples of CSR:
ITC Limited: ITC partnered the Indian farmer for close to a century. ITC is now engaged in elevating this partnership to a new paradigm by leveraging information technology through its trailblazing 'e‐Choupal' initiative. ITC is significantly widening its farmer partnerships to embrace a host of value‐adding activities: creating livelihoods by helping poor tribals make their wastelands productive; investing in rainwater harvesting to bring much‐needed irrigation to parched drylands; empowering rural women by helping them evolve into entrepreneurs; and providing infrastructural support to make schools exciting for village children. Through these rural partnerships, ITC touches the lives of nearly 3 million villagers across India.
Tata Consultancy Services: The Adult Literacy Program (ALP) was conceived and set up by Dr. F C Kohli along with Prof. P N Murthy and Prof. Kesav Nori of Tata Consultancy Services in May 2000 to address the problem of illiteracy. ALP believes illiteracy is a major social concern affecting a third of the Indian population comprising old and young adults. To accelerate the rate of learning, it uses a TCS‐designed
Computer–Based Functional Literacy Method (CBFL), an innovative teaching strategy that uses multimedia software to teach adults to read within about 40 learning hours.
Infosys Technologies Limited: Infosys is actively involved in various community development programs.
Infosys promoted, in 1996, the Infosys Foundation as a not‐for‐profit trust to which it contributes up to
1%PAT every year. Additionally, the Education and Research Department (E&R) at Infosys also works with employee volunteers on community development projects. Infosys leadership has set examples in the area of corporate citizenship and has involved itself actively in key national bodies. They have taken initiatives to work in the areas of Research and Education, Community Service, Rural Reach Programme,
Employment, Welfare activities undertaken by the Infosys Foundation, Healthcare for the poor, Education and Arts & Culture.

TOTALIZATION AGREEMENTS
[Important only for those with Software industry work experience]
Typically, an employee makes a definite contribution towards social security against the salary received by him and a matching contribution is made by his employer. These contributions, together with interest, are received by the employee on retirement or on cessation of work, subject to the fulfillment of various conditions. © EssaysforIIM.com 2014‐15

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Issues for IIM PI Process http://www.essaysforIIM.com In India, social security is covered by the Provident Fund Scheme, whereby the employee contributes 12% of his basic salary plus dearness allowance and his employer makes a matching contribution.
The problem arises when employees are deputed abroad and are forced to contribute not only to the provident fund scheme in India, but also to the social security scheme prevailing in the other country. In practice, an Indian company that deputes its employees abroad, guarantees that the assignment will not result in a reduction of the employee's after tax income. Such an arrangement is known as a 'tax equalisation' scheme. Consequent to this, the employer typically agrees to pay both the employer and employee share of the host country social security taxes on behalf of its deputed employees. This increases the costs for the Indian corporate sector. If there is no such scheme, then it is the deputed employee who faces a direct hit.
In both cases however, the employee who is deputed on a short term is unable to take advantage of the social security scheme in the other country. Further, even while he is on deputation abroad, he continues to contribute to the provident fund scheme in India.
A totalisation agreement is an agreement entered into between two countries so as to prevent double expenditure on social security. The purpose of such an agreement is to:
Relieve the employer and employee from double social security with respect to the same employment, A totalisation agreement does not permit an employee to avoid social security in both countries; rather it merely allows the employee to pay tax to either one country or the other.
Nine pacts in hand, India presses US to begin totalisation talks
India has totalisation agreements with Belgium, France, Germany, Switzerland, the Netherlands, Hungary, the Czech Republic, Denmark and Luxembourg.
These agreements entitle people from both countries to be exempt from paying social security tax if they work for a short period in the foreign country and make contributions back home.
India has stepped up pressure on US to start negotiations on a totalisation agreement that would exempt Indians working for a short period in the country from making social security contributions there. A social security agreement with the US could save India more than a billion dollar in lost salary every year, according to estimates made by software industry body NASSCOM.
A foreigner working in the US for less than five years could be exempt from paying social security tax if his home country has a totalisation agreement with the US and the worker contributes to the social security scheme of its native country.
The US has been dilly‐dallying on an agreement with India on the ground that social security structures of the two countries were different.
Since contributions made for social security in the US yield benefits only after ten years of work,
Indians working on H1B visas are not in a position to gain from it as the maximum stay allowed under these visas is six years.
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BASE RATE
Current System: In the existing system, banks are free to fix their Prime Lending Rates (PLRs). Most of the variable rate loans, like home loan and some of the term loans are pegged against PLR. This means, if the
PLR is not changed, the loan rates remain the same. Banks have taken advantage of existing PLR system at the cost of their borrowers.
When interest rates increase, banks hike their PLRs immediately, leading to rise in the home loan rates.
But, when interest rates fall, they don't reduce PLRs. Because of this, the existing customers are not benefited by the lowering of the interest rates. However, banks pass on the benefit to new customers by increasing the discount against PLRs.
Need for a new system: In order to make the credit market more transparent and ensure that banks pass on the lower cost of fund automatically to existing customers, RBI replaced the existing system of prime lending rate (PLR) to a new base rate, which will be fixed on the basis of cost of funds. So, the main reasons were: large quantum of sub‐BPLR lending, lack of transparency by banks on lending rates, downward stickiness of BPLRs and perception of cross‐subsidization in lending. All this leads to inefficient monetary policy transmission to the economy. New System: Under the new system, home loans and other variable loans will be pegged against a base rate. As the new base rate is fixed on the basis of cost of funds, any change in the interest rate will reflect in the base rate. And therefore, it will be automatically passed on to the existing customers also. At the same time, RBI has clearly said that the base rate will be minimum rate for all commercial loans and banks will not be permitted to resort to any rate below it. Base Rate shall include all those elements of lending rates that are common across all categories of borrowers.
Advantages of New system: Since, now base rate is the minimum rate, no sub‐base rate lending is possible.
The transparency in lending increases as borrowers are charged according to the risk‐class they are assigned to. Once they know the risk factor above the base rate charged to them, the changes in base rate will be passed on to them in a transparent manner. This reduces the stickiness problem and hence making the monetary policy transmission effective. For eg: if RBI decreases interest rates and so the banks decrease the base rate (because of competitive environment they will feel the need to do so), then the decrease will be passed on to all customers and not to only the new ones or a select few.

RIGHT TO PRIVACY Context: There is a lot of hue and cry about the leaked Radia tapes and the consequent encroachment of
‘right to privacy’. Therefore, there can be an essay/GD on this topic. Some basics are discussed below:
Is there is constitutional right to Privacy?
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Issues for IIM PI Process http://www.essaysforIIM.com In certain countries, such as South Africa and Argentina, the right to privacy is incorporated into the constitution. In India, the right of privacy ‐ derived through judicial decisions, from Articles 19(1) (a) and 21 ..
However, these fundamental rights are not without restrictions. Article 19(2) imposes restrictions on this right‐ in the interests of the sovereignty and integrity of India, the security of the State, friendly relations with foreign States, public order, decency or morality, or in relation to contempt of court, defamation or incitement to an offence.
By natural extension of this principle, the Supreme Court, in Gobind v. State of Madhya Pradesh, held that a violation of personal privacy is possible with the sanction of law.
However this position was clarified and extended in People's Union of Civil Liberties v. the Union of
India where the right of government authorities to intercept, in the interests of national sovereignty, messages transmitted or received by any telegraph, was challenged in the context of wire tapping.
The Supreme Court held that tapping a person's telephone line violated his right to privacy, unless it was required in the gravest of grave circumstances such as in the case of a public emergency. This case was significant in that while the court upheld the restrictions on the fundamental freedoms that have been guaranteed under the constitution, it insisted that the government must use restraint in exercising these powers.
All available cases on this point have been decided in the context of government actions that resulted in the deprivation of personal privacy of individuals.
There has been no case decided in the context of the infringement of personal privacy by private citizens. It is therefore unclear as to how these precedents will apply in such cases.
In the absence of specific data protection entries in the state and concurrent lists, entry 97 in Union list grants the Parliament the residuary powers needed in order to make laws on any matters it deems fit in national interest, including the power to enact the data protection legislation.
Is there a need for privacy protection?
India does not currently have a general data protection statute. Judiciary has derived a "right of privacy" . No privacy judgment has granted private citizens a right of action against the breach of privacy by another private citizen. To that extent, the data protection and personal privacy jurisprudence in the country is not yet fully developed.
India is not a particularly private nation. Personal information is often shared freely and without thinking twice. Public life is organized without much thought to safeguarding personal data‐ currently most data in silos ‐databases do not talk to each other – less concern when data is stored in a decentralized manner – less likelihood of damage
One of the inevitable consequences of the UID Project will be that the UID Number will unify multiple databases. As more and more agencies of the government sign on to the UID Project, the UID Number will become the common thread that links all those databases together. Over time, private enterprise could also adopt the UID Number as an identifier for the purposes of the delivery of their services or even for enrollment as a customer. Once this happens, the separation of data that currently exists between multiple databases will vanish.
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Issues for IIM PI Process http://www.essaysforIIM.com Such a vast interlinked public information database is unprecedented in India. It is imperative that appropriate steps be taken to protect personal data before the vast government storehouses of private data are linked up and the threat of data security breach becomes real. Similarly, the private sector entities such as banks, telecom companies, hospitals etc are collecting vast amount of private or personal information. Tremendous scope for both commercial exploitation of this information without the consent/ knowledge of the individual consent and also for embarrassing an individual whose personal particulars can be made public by any of these private entities.
The IT Act does provide some safeguards against disclosure of data / information stored electronically, but there is no legislation for protecting the privacy of individuals for all information that may be available with private entities. In view of the above, privacy of individual is to be protected both with reference to the actions of Government as well as private sector entities

LAND ACQUISITION – EMINENT DOMAIN Eminent domain (United States) or compulsory purchase (United Kingdom) is an action of the state for public purpose to seize a citizen's private property, expropriate property, or seize a citizen's rights in property with due monetary compensation, but without the owner's consent.
It is extremely important to acquire land from Farmers/land owners for various infrastructural developments in the country but due to poor compensations and lack of proper alternative arrangements for rehabilitation and survival, the farmers are not ready to give away their lands.
Collectors and related authorities have been ignoring the legitimate rights of land owners
Generally a group of people other than the land losers get benefited and they manage to get away with their illegal acquisitions leading people to being resistant and hostile towards the whole process
The landowner who parts with his land for commercial purposes like SEZ, must get reasonable compensation promptly at the time of the disposition itself in order to make alternative arrangements for rehabilitation and survival.
If the land is acquisited for the housing development in an urban area then the land loser should be given an appropriate share in the development itself.
A robust land acquisition policy is also in favour of industries as it can prevent disputes with land owners at a later stage. Eg. After protests in Singur, West Bengal, Tata had to shift the Nano plant to
Gujarat. This cost the company a lot of money, time.
The state governments needs to act like a trustee and should safeguard the Land losers against any malpractices. Some issues raised by farmers – o Future flow of income that could have accrued to the land, gets affected and thus livelihood problems can ensue o Future land appreciation, especially when land is acquired for commercial purposes, is not accounted for while deciding prices

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The farmers, whose lands are adjacent to the acquired lands, participate in the price appreciation of the area, while those who have lost the land, are left high and dry.

Some suggestions for land acquisition
1. In case of acquisition for commercial purposes, the conversion of land to commercial area should be done before the land acquisition so that farmers get better prices.
2. Over and above a one‐time payment, an annuity for a period of 33 years should be given to the farmer.
The amount should be increased by a predetermined amount every year.
3. Another suggestion can be to provide jobs to willing land owners instead of the annuity.
4. If a company acquires the land, then the farmer should have the option to hold 25% share of the land acquired by the company;
5. Land owners should be alloted 7% of acquired land for residential purposes
Some of these have been implemented in the state land acquisition policies of Uttar Pradesh and Haryana

LAND ACQUISITION, REHABILITATION AND RESETTLEMENT BILL
Land Acquisition, Rehabilitation and Resettlement Bill in India is a much awaited bill for Land acquisition reforms and rehabilitation for the development projects in India. The bill was introduced in Lok Sabha in
India on September 7, 2011.
Need for the Bill
The Government claims there is heightened public concern on land acquisition issues in India. Of particular concern is that despite many amendments, over the years, to India's Land Acquisition Act of 1894, there is an absence of a cohesive national law that addresses: fair compensation when private land is acquired for public use, and fair rehabilitation of land owners and those directly affected from loss of livelihoods.
The Government believes that a combined law is necessary, one that legally requiresrehabilitation and resettlement necessarily and simultaneously follow government acquisition of land for public purposes.
PROVISIONS IN THE BILL
The provisions of the Bill relating to land acquisition, rehabilitation and resettlement shall be applicable in cases when the appropriate government acquires land, (a) for its own use and control,
(b) to transfer it for the use of private companies for public purpose, and (c) on the request of private companies for immediate use for public purpose.
The Bill proposes that private companies shall provide for rehabilitation and resettlement if they purchase or acquire land, through private negotiations, equal to or more than 100 acres in rural areas and 50 acres in urban areas. In addition, if such companies request the appropriate government to acquire part of an area for public purpose, they shall be liable for rehabilitation and resettlement of

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Issues for IIM PI Process http://www.essaysforIIM.com the affected persons, for the area acquired by the government, as well as the land purchased previously through private negotiations.
The term ‘public purpose’ in the Bill includes provision of land for, (a) strategic defence purposes and national security, (b) roads, railways, highways, and ports, built by government and public sector enterprises (c) project affected people, (d) planned development or improvement of villages, and (e) residential purposes for the poor and landless. Public purpose includes other government projects which benefit the public as well as provision of public goods and services by private companies or public‐private partnerships; these require the consent of 80 per cent of project affected people.
Affected families include those whose livelihood may be affected due to the acquisition, and includes landless labourers and artisans.
A maximum of 5% of irrigated multi‐cropped land may be acquired in a district, with certain conditions. Every acquisition requires a Social Impact Assessment (SIA) by an independent body followed by a preliminary notification and a final award by the District Collector.
In the case of urgency, the Bill proposes that the appropriate government shall acquire the land after
30 days from the date of the issue of the notification (without SIA). This clause may be used only for defence, national security, and conditions arising out of a national calamity.
The compensation for the land acquired shall based on the higher of (a) the minimum land value, specified in the Indian Stamp Act, 1899 for the registration of sale deeds; and (b) the average sale price of the higher priced 50% of all sale deeds registered in the previous 3 years for similar type of land situated in the vicinity. This amount is further doubled in case of rural areas. The value of the assets (trees, plants, buildings etc) attached to the land being acquired will be added to this amount.
This total amount will then be multiplied by two to get the final compensation amount; in case of the urgency clause, this multiplication factor will be 2.75.
The Bill proposes the following authorities; Administrator; Commissioner for Rehabilitation and
Resettlement; Rehabilitation and Resettlement Committee (for acquisition of 100 acres or more of land); National Monitoring Committee for Rehabilitation and Resettlement; and Land Acquisition,
Rehabilitation and Resettlement Authority (which shall adjudicate all disputes, with appeal to the High
Court).
If an acquired land which is transferred to a person for a consideration, is left unutilised for a period of 10 years from the date it was acquired, it shall be returned to the Land Bank or the appropriate government. The Bill proposes that in cases where the ownership of an acquired land is sold to any person, without any development made, 20 per cent of the profit made shall be shared among all the persons from whom the land was acquired.
Criticism of the Bill
It is heavily loaded in favour of land owners and ignores the needs of poor Indians who need affordable housing, impoverished families who need affordable hospitals, schools, employment opportunities and infrastructure.
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Issues for IIM PI Process http://www.essaysforIIM.com Economists suggest it as well intentioned but seriously flawed. Its principal defect is that it attaches an arbitrary mark‐up to the historical market price to determine compensation amounts, along with its numerous entitlements to potentially unlimited number of claimants. Such a Bill, some claim, will guarantee neither social justice nor the efficient use of resources.
LARR 2011 places no limit on total compensation or number of claimants; nor does it place any statute of limitations on claims or claimants. The beneficiaries of the Bill, with guaranteed jobs for 26 years, will have no incentive to be productive.
Amartya Sen claims prohibiting the use of fertile agricultural land for industries is ultimately self‐ defeating. Sen claims industry is based near cities, rivers, coast lines, expressways and other places for logistical necessities, quality of life for workers, cost of operations, and various reasons. Sen, further suggests that even though the land may be very fertile, industrial production generates many times more than the value of the product produced by agriculture.

PAID NEWS
The phenomenon of “paid news” has acquired serious dimensions. Today it goes beyond the corruption of individual journalists and media companies and has become pervasive, structured and highly organized.
In the process, it is undermining democracy in India. This has anguished the leading sections of the society, including political leaders, thinkers, journalists and media owners. They all have expressed their unhappiness and concern about the pernicious influence of such malpractices.
Definition: Paid News can be defined as “Any news or analysis appearing in any media (Print & Electronic) for a price in cash or kind as consideration”
Paid news is a complex phenomenon and has acquired different forms over the last six decades. It ranges from accepting gifts on various occasions, foreign and domestic junkets, various monetary and non‐ monetary benefits, besides direct payment of money.
Another form of paid news that has been noticed is that the non‐media company transfers certain shares of the company to the media company in lieu of advertisement space and favourably coverage
The election‐time paid news phenomenon has three dimensions.
1. One, the reader or the viewer does not get a correct picture of the personality or performance of the candidate in whose favour or against he decides to cast his vote. This destroys the very essence of the democracy.
2. Two, contesting candidates perhaps do not show it in their election expense account thereby violating the Conduct of Election Rules, 1961 framed by the Election Commission of India under the
Representation of the People Act, 1951.
3. Third, those newspapers and television channels which received money in cash but did not disclose it in their official statements of accounts, have violated the Companies Act 1956 as well as the Income
Tax Act 1961 besides other laws. Recommendations
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Issues for IIM PI Process http://www.essaysforIIM.com Separating Management from Editorial: A clear distinction should be drawn between the management and editorial staff and the independence of the editor should be maintained and safeguarded
Role of Press Council of India: The Press Council of India was set up by Parliament as a statutory, quasi judicial body “for the purpose of preserving the freedom of the Press and of maintaining and improving the standards of newspapers and news agencies in India.” However, it has been entrusted with only limited powers to admonish, reprimand and pass strictures. It cannot penalize the errant or those found guilty of malpractices. Besides, the Council’s mandate does not extend beyond the print medium. A proposal to amend Section 15(4) of the Press Council Act, 1978, to make the directions of the Council binding has been pending for a long time. It should be taken up on a priority basis.
Amendment of Representation of the People Act, 1951: The Union and state elections are regulated by the provisions of the Representation of the People Act, 1951. The main purpose of this Act is to ensure free and fair elections in the country. Therefore, since election‐time “paid news” undermines free and fair elections, it is recommended that Section 123 of the Representation of the People Act, 1951, should be suitably amended so as to declare any payment for the publication of news 7 as a corrupt practice or an
“electoral malpractice” and should be made a punishable offence
Separate Font for News and Advertisement: The guidelines of the Press Council of India that news should be clearly demarcated from advertisements by printing disclaimers, should be strictly enforced by all publications. As far as news is concerned, it must always carry a credit line and should be set in a typeface that would distinguish it from advertisements.
Special cell of EC: Election commission should set up a special cell to receive complaints of paid news in the run up to conduct of elections and initiate a process through which expeditious action should be taken.
Self‐Regulation by the Press: Self‐regulation is the best option to check the “paid news” phenomenon.
However, self‐regulation only offers partial solutions to the problem since there would always be offenders who would refuse to abide by voluntary codes of conduct and ethical norms that are not legally mandated. Election campaign along communal or caste lines is banned under the election rules. Hence, the Press should eschew reports which tend to promote feelings of enmity or hatred between people on the ground of religion, race, caste, community or language.
Exit‐Poll Ban: No newspaper shall publish exit‐poll surveys, however, genuine they may be, till the last of the polls is over.
Educating voters: efforts should be made to educate the voters to differentiate between the doctored reporting and the balanced and just reporting. This can be done by the Ministry of Information and
Broadcasting with the help of Press Council of India and various associations of journalists and newspaper owners MICROCREDIT
What is micro‐credit?

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Issues for IIM PI Process http://www.essaysforIIM.com Micro‐credit institutions would make small loans to groups of women at rates lower than what moneylenders charge. The microfinance business model is designed to address the challenges faced by the traditional financial services sector in fulfilling the credit requirement of the low income segment at an affordable and sustainable cost. Most MFIs follow the Joint Liability Group (JLG) model.
A JLG consists of five to ten women who act as co‐guarantors for the other members of their group.
This strategy provides an impetus for prudent self‐selection of reliable and fiscally responsible co‐ members. Moreover, the JLG has an inbuilt mechanism that encourages repayment in a timely fashion as issuance of future loans is contingent upon the prior repayment record of the group.
Today, it’s reckoned that women’s self help groups (SHGs) reach about 50 million people. Another 20 million are covered by microfinance institutions (MFIs). That leaves about 100 million people who still rely on moneylenders or relatives for loans.
By market standards, the SKS IPO was a great success. Institutional investors over‐subscribed their allocations by 13 times, and the company’s valuation of USD 1.5 billion came in at the top end of the offer band price.
Moneylenders are not a declining lot inspite of MFIs: Numbers from the Reserve Bank of India (RBI) show that over 53% of loans there are sourced from moneylenders. Tamil Nadu follows, with moneylenders accounting for 40% of all borrowings. Moneylenders account for more than 30% of all lending in four more states: Bihar, Manipur, Punjab and Rajasthan.
Interest rates charged by MFIs: MFIs borrow from banks at around 12% and lend at anything between
25% and 30%. The return on assets — a ratio used to measure profitability of financial institutions — is
6.8 for SKS Microfinance; it’s 1.7 for HDFC Bank and 1.1 for SBI. Microfinance institutions typically charge a higher rate of interest to their clients than traditional commercial banks as the administrative costs of servicing smaller loans is far higher in percentage terms than the cost of servicing larger loans.
Additionally, MFIs provide doorstep services to their customers, a strategy that has a high cost associated with it, especially in rural areas where population densities tend to be low.
Problems in the sector: Recently, the MFI sector has come under increasing attack. Some of the problems being pointed out are:
1. High interest rates being charged from poor people. The rates are considered to be predatory
2. Coercive recovery tactics: Many MFI institutions are resorting to coercive recovery tactics. This has led to wide spread antagonization among the rural people and the government alike.
3. Multiple lending practices: Many borrowers have many simultaneous loans from MFIs. Further, there is no credit check being done at the time of sanctioning the loan. Many times the loans are given for consumption purposes rather that investment purposes. This affects their repayment ability.
4. Suicides by borrowers: Due to all the aforementioned reasons, farmer suicides related to MFI loans is becoming increasingly common. This is especially true in Andhra Pradesh.
Regulation of the MFI sector

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The finance ministry could move a bill in the winter session of Parliament that will make Nabard responsible for regulation of all non‐profit microfinance institutions structured as trusts, cooperatives, or mutual benefit societies.

2.

As many as 15 states already have laws on money lenders in place under which they attempt to regulate the high interest rates and usurious practices followed by micro‐lenders. The state governments say although the RBI protects the interests of the depositors, there is no framework to safeguard the interests of the borrower who are at times charged interest rates as high as 30%. The finance ministry wants to prepare a comprehensive law after discussing the issue with the regulators.

AP passes microfinance bill in December 2010 to regulate interest rates
Andhra Pradesh, the nation’s biggest market for microfinance companies, passed a law to regulate interest rates and recovery practices among companies that offer loans to the poor.
The act makes it mandatory for companies to collect payments once a month instead of weekly.
The new law is expected to raise costs for companies.
Microfinance companies in Andhra Pradesh, which account for a third of India’s microfinance market, collected less than 20% of loan repayments from 98% after the state ordinance was introduced in October (Which had similar provisions to those that are passed in this act). This shows that while the consumers will get a better deal, the bottomline of the MFI companies is set to take a hit.
MALEGAM COMMITTE REPORT ON MFIs
1. Limit the total loans to an individual to Rs 25,000
2. Cap the interest rate at 24%
3. Suggested that bank loans to MFIs should continue to be treated as priority sector loans, but with a higher capital adequacy ratio of 15%.
4. More than two MFIs cannot lend to the same person
5. The repayment tenure should be less than 12 months for loans below Rs 15,000 and less than two years for loans above Rs 15,000. Minimum period of moratorium of loans.
6. Borrowers should be allowed to choose a weekly, fortnightly or monthly repayment schedule.
7. At least 75% loans should be for income generation purposes
8. Severe penalties for coercive collections
9. Solvency ‐ maintain an aggregate provision for loan losses which shall be the higher of 1% of current loan portfolio or 50% of the aggregate loan installments that are overdue for 90‐180 days, and for
100% of aggregate loan installments that are overdue for 180 days or more.
10. If MFI doesn’t comply with the norms being set for the sector they should be denied priority sector lending 11. NBFC‐MFIs should be exempted from the purview of the Moneylending Acts, and that Andhra Pradesh should withdraw its controversial Andhra Pradesh MFI (regulation of moneylending) Act
12. Establish a credit information bureau

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Issues for IIM PI Process http://www.essaysforIIM.com In an essay/GD on Microfinance, these points can be used as solutions to some of the problems being faced by the MFI sector. But in the interview, do mention that the Malegam committee recommended this as the interviewers might know about this report.

FOREIGN DIRECT INVESTMENT The role of Foreign Direct Investment (FDI) in the upgradation of technology, skills and managerial capabilities is now well accepted. Additional investments, over and above the investments possible with the available domestic resources, help in providing much needed employment opportunities.
Foreign Direct Investment Policy
India's foreign investment policy has been formulated with a view to inviting and encouraging FDI into
India. The process of regulation and approval has been substantially liberalised. FDI under automatic route is permitted in most activities/sectors, except a few where prior approval of the Government is required. Government of India welcomes FDI in all sectors where it is permitted, especially for development of infrastructure, technological upgradation of Indian industry through 'greenfield' investments and in projects having the potential of creating employment opportunities on a large scale. Investment for setting up Special Economic Zones (SEZs) and establishing manufacturing units are also welcomed.
Foreign Direct Investment (FDI) inflows for the year 2009‐10
Cumulative amount of Foreign Direct Investment (FDI) flows into India from April 2000 to March 2010 amounted to US$ 161.54 billion.It covers the equity inflows, including data on ‘re‐invested earnings’
& ‘other capital’, available from April 2000 onwards.
Cumulative amount of Foreign Direct Investment (FDI) equity inflows (from August 1991 to March
2010) stood at US$ 132.43 billion.
Foreign Direct Investment (FDI) equity inflows of US$ 34.17 billion were received during the financial year 2009 10 (from April 2009 to March 2010) covering the equity inflows, including (Provisional) data on ‘re‐invested earnings’ & ‘Other capital’ compiled at the end of the financial year.
Under the extant Foreign Direct Investment (FDI) policy, FDI upto 100 percent is allowed under the automatic route in most sectors/activities, except a few, where sectoral equity/entry route restrictions have been retained. FDI, under the automatic route, does not require any approval and only involves intimation to the Reserve Bank of India within 30 days of inward remittances and/or issue of shares to non‐residents.
Sector‐wise distribution of equity inflows
The highest Foreign Direct Investment (FDI) equity inflows were received in the Services Sector (financial
& non financial) amounting to (21 percent) of the total FDI inflows, followed by Computer Software &
Hardware (9 percent), Telecommunications (8 percent), Housing & Real Estate (8 percent), Construction
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Issues for IIM PI Process http://www.essaysforIIM.com Activities (11 percent), Power (4 percent), Automobile Industry (4 percent), Metallurgical Industries (3 percent), Petroleum & Natural Gas (2 percent),and, Chemicals (2 percent).
Country‐wise distribution of Foreign inflows
Foreign Direct Investment (FDI) from Mauritius accounted for 43 percent of total inflows into the country, followed by Singapore with (9 percent), U.S.A (8 percent), U.K. (5 percent),Netherlands (4 percent), Cyprus
(4 percent), Japan (3 percent), Germany (3 percent), U.A.E. with (1 percent) and France (1 percent) of the total inflows.
Foreign direct Investment (FDI) Promotion Initiatives
Several steps have been initiated to facilitate increased Foreign direct Investment (FDI) inflows. These include, inter‐alia, the following:
On the policy front, while the Foreign direct Investment (FDI) policy is already very liberal, it is being further progressively rationalised. An exercise has been initiated for integration of all prior regulations on Foreign direct Investment (FDI), contained in FEMA, RBI circulars, various Press Notes etc., into one consolidated document, so as to reflect the current regulatory framework. The consolidated FDI policy has been launched by Department of Industrial Policy & Promotion (DIPP).
On the investment promotion front, the Department organizes 'Destination India' and Invest India' events in association with Federation of Indian Chambers of Commerce and Industry (FICCI) and
Confederation of Indian Industry (CII).
DIPP has been undertaking concerted efforts for improving the business environment in the the country. The business reforms aimed at improving the business environment include setting up of single windows, online registrations, computerization of information, simplification of taxes and payments, reduction of documents through developing single forms for various licences/permissions and reduction of inspections etc.
To promote an online single window at the national level for business users, the Department has undertaken the eBiz project, which is one of Mission Mode Projects (MMPs) under the National eGovernance Plan (NeGP). The objectives of setting up of the e‐Biz Port are to provide a number of services to business users covering the entire life cycle on their operation. The project aims at enhancing India's business competitiveness through a service oriented, event‐driven G2B interaction.
The National Manufacturing Competitiveness Council (NMCC) has been set up to provide a continuing forum for policy dialogue to energize and sustain the growth of manufacturing industries.
The Department has regular interaction with foreign investors. Such interactions have been held in bilateral/ regional/ international meets such as Indo‐ASEAN, Indo‐EU, Indo‐Japan, etc. Meetings with individual investors were also held on a regular basis.

CIVIL NUCLEAR COOPERATION

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Issues for IIM PI Process http://www.essaysforIIM.com Energy is likely to become a constraint on growth in the coming years. Concern over climate change impacts of fossil fuel use, particularly the use of coal, will only add to this constraint. Nuclear power, which is a clean source of energy and for which technology is proven and tested.
Over 70% of our oil needs are met from imports. This figure is expected to rise to 90% by 2030.
Even coal, which is the mainstay of our power industry, accounting for over 50% of generating capacity, will soon be insufficient for the projected increase in coal‐based thermal power. It is estimated that by 2030, about two‐thirds or three‐quarters of our coal needs would have to be sourced from outside.
India’s Nuclear Cycle: India has adopted a 3‐stage nuclear energy development strategy, in which the first stage of uranium‐fuelled reactors would generate reprocessed spent fuel for second generation
Fast Breeder Reactors, enabling significant capacity expansion. The third stage is one where our vast resources of thorium could be used together with plutonium generated by FBR, to allow a very large expansion in capacity. The third stage of thorium based reactors, would, conceptually, enable much larger generating capacities.
With the decision taken by the Nuclear Suppliers’ Group in September 2008, to resume full civil nuclear energy commerce with India, there have been a series of bilateral cooperation agreements concluded with a number of friendly countries.
In this regard, it may be worth mentioning that India and Russia are already collaborating on the setting up of two 1000 MW reactors at Kudan Kulam. Earlier the two sides agreed to an ambitious road map for setting up 4 additional reactors of Russian design at Kudan Kulam itself and two more at a site in Haripur in eastern India.
With the United States of America, we are close to concluding agreement on administrative arrangements for implementing India’s upfront entitlement to reprocess spent fuel. This will pave the way for implementing the Letter of Intent already signed by the two countries, which will eventually result in 10,000 MW of additional nuclear power capacity being created.
Bilateral agreements have been concluded with France, Argentina, Kazakhstan, Namibia, and
Mongolia, covering all aspects of civil nuclear cooperation, including nuclear fuel. Negotiations on a similar agreement with Canada have been concluded and await formalization. India and RoK have agreed to commence negotiations on a framework for civil nuclear cooperation.
Therefore, within a year and a half of the NSG decision, there has been keen interest in our partners to engage India both in nuclear energy commerce as well as in scientific and technical cooperation.
This promising trend lends credibility to our plans to reach an installed capacity of 60,000 MW by
2030, both on account of international cooperation and expanded indigenous capabilities. We would welcome Japan participating in India nuclear energy development plans as a full and valued partner.
India’s nuclear power capacity currently stands at a modest 4000 MW, while Japan already possesses
47,500 MW of installed capacity.
Therefore, the opportunities in this particular sector are immense and could give Japanese nuclear industry a major boost. This would be welcome at a time when advanced economies like Japan are facing depressed economic conditions.
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Issues for IIM PI Process http://www.essaysforIIM.com Indo‐Japan cooperation in this field would also add substance to our strategic partnership.
India is already making a major contribution to the International Thermal Energy Research project or
ITER in which Japan is a lead country.
There is already a mutual familiarity with our respective strengths and expertise and there is no reason why we cannot expand our cooperation further in this field

NEW INTERNATIONAL POLITICAL AND ECONOMIC ORDER

1.
2.

3.

4.

5.

The new international order should reflect the universal aspirations and common interests of the peoples of various countries and give expression to the demands of the development of history and the progress of the times.
The Panchsheel, the purposes and principles of the Charter of the United Nations and other universally recognized norms governing international relations should serve as the foundation of the new international political and economic order. Specifically, this new order should adhere to the following basic principles: First, Mutual respect of sovereignty and territorial integrity, mutual non‐aggression and mutual non‐ interference in internal affairs.
Second, to persist in handling international disputes peacefully. To thoroughly abandon Cold War thinking and foster a new security concept with mutual trust, mutual benefit, equality and coordination as its core. To enhance mutual trust through dialogue and promote common security through cooperation.
Third, all the countries in the world enjoy equal sovereignty. All the countries, strong or weak, rich or poor, are equal members of the international community and have the right to equally take part in world affairs. The peoples of various countries should be masters of their own affairs. International matters should be handled through equal consultations among the countries and global challenges addressed through cooperation among them.
Fourth, to respect the national conditions of various countries and seek common ground while shelving differences. Each country has the right to choose its own social system and road to development independently. Ours is an inherently diverse and colorful world. It is impossible, therefore, to have only one model for everyone. The differences in social system and value between the countries should not become barriers to the development of normal state‐to‐state relations, even less the reason for interference in the internal affairs of other countries.
Fifth, mutually beneficial cooperation and common development. Countries, particularly developed and developing ones, should cooperate with one another on the basis of equality and mutual benefit

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Issues for IIM PI Process http://www.essaysforIIM.com to realize common development. The old irrational international economic order should be reformed to serve the rights and interests of the countries of the world, especially the numerous developing countries. India is ready, together with other countries in the world, to make joint efforts to facilitate the establishment of a new international political and economic order that is fair and rational and the creation of a new world of lasting peace and universal prosperity. Views on the Development of Multipolarization
While complex and deep changes are taking place in the international situation, the trend towards multipolarization has not changed. Nearly 200 countries with a population of more than 6 billion and
Differences exists between these countries in ethnic traditions, religions and cultures, economic levels and political systems. It is hardly possible to imagine how to unify them with one model and one value
Basic norms governing international relations on equality of sovereignty and non‐interference in each other's internal affairs between the member states as stipulated in the Charter of the United Nations are absolutely not outdated
The history and culture, social systems and development models of various countries should be respected. The multipolarization process may be zigzag, protracted and full of struggles, but this is a historical trend independent of human will. It is in conformity with the common aspirations and interests of the majority of countries and conducive to world peace and security.
Our efforts to promote the development of the world towards multipolarization are not targeted at any particular country
Rather, these efforts are made to boost the democratization of international relations, help the various forces in the world, on the basis of equality and mutual benefit, enhance coordination and dialogue, refrain from confrontation and preserve jointly world peace, stability and development.
India's Views on the Current World Economic Situation
Currently, the world economy is at the stage of slow recovery and still faced with numerous uncertain factors. Currency Issues: Yen appreciated a lot and BoJ had to intervene; US taking measures ag Yuan undervaluation Governance reform: WB voting reform done and IMF expected to be done soon
With trade protectionism of the developed countries on the rise, the prospect of the new round of the WTO negotiations is unclear. This has an impact on the sound development of the multilateral trade system.
Moreover, the turbulent Afghanistan situation, a possible U.S. military action on Iran and the possible impact on oil prices are all potential threats to world economic development.

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Issues for IIM PI Process http://www.essaysforIIM.com We believe that the developed countries should shoulder the responsibility to push forward world economic development, eliminate trade barriers, increase development aid, help relevant countries shake off the troubling financial crisis and enhance cooperation with developing countries to jointly facilitate sustained recovery and development of the world economy.

MEASURES TO CONTROL RAPES
Some measures that have been taken:
1.
2.
3.
4.
5.

6.
7.

BPOs have to maintain a database of all employees
Hire security personnel and other contractual personnel as far as possible from licensed agencies only
Ensure that women employees are not made to travel alone
Choose the route in such a manner that as far as possible a woman employee is not the first one to be picked up or the last to be dropped
Ensure that the cab involved in the transportation of women employees drops them right at their houses; remains halted at the point till they confirm their arrival at their residence through a telephone call
Ensure that a duly verified security guard accompanies a woman employee on foot up tp her house if it’s not on a motorable road
Get GPS system installed in the cabs

Other measures announced include deployment of more women officers, gender sensitisation and a rapid response of the police, movement of PCR vans in vulnerable areas, setting up citizen panchayats
Establishing fast track courts to try rape cases.
Special drive against vehicles with reflective and dark glass (infringement of Central Motor Vehicle
Rules)
The issue of migrants/ ‘outsiders’
“Migrants” and “outsiders” become handy culprits to blame for rising urban crime. According to the Delhi police records, more than 83% of people involved in crimes were from the city itself, while only 17% were
“outsiders”.
Some other suggestions:
1.
2.
3.
4.
5.

Less intrusive surveillance technology like CCTV cameras to be installed
Certify and assess women‐friendly workplaces
An elaborate women's safety audit of public areas such as parks and streets to map the unsafe ones
Gender governance strategies;
Specific brand programmes such as safe parking locations for women.

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Issues for IIM PI Process http://www.essaysforIIM.com 6. The city authorities should closely monitor the effectiveness of the projects by annually charting the
Gender Sensitive Indicators; and based on the changes in the gender‐equality level, new schemes for areas that need improvement should be proposed.
7. Roads should be well lit; locating bus stops in mixed land‐use areas that draw crowds late into the night FERTILISER REFORMS Efficient and effective use of fertiliser is a key component of improved farm productivity. The prescribed ratio of nitrogen, phosphorus and potassium is 4:2:1 but, over years, we have seen this change to 6:2:1 or even higher, primarily driven by policies favouring nitrogen prices.
The nutrient‐based subsidy (NBS) regime, recently approved by the Cabinet, is supposed to be the first step towards fertiliser policy reforms.
The fixed subsidy on the nutrients is expected to ensure that the fertiliser use remains within the prescribed limit.
The increase in urea prices will also help reduce its overuse and, thus, improve effective nutrition of the soil. The NBS policy would bring the much desired gains to fertiliser companies but perhaps not to the farmers who need it.
The changed policy poses the risk of a rise in fertiliser prices. This is because fertiliser companies will now decide the retail prices. If fertiliser prices are left to market forces, it is likely that the prices would be higher than the present prices. In such a case, the cost of cultivation will increase for small farmers.
No doubt, this reform will attract investment in the sector and allow companies to offer innovative products. It will also reduce dependence on imports, lead to timely availability of fertilisers, and also reduce the government’s fertiliser subsidy bill. But the flip side is higher prices could impact small farmers. Even with this reform, fertiliser companies will get the subsidy directly.
It would have been far better if these subsidies were given directly to the farmer, as promised in the last two Budgets. Such a move would have increased the real income of the farmer and improved his purchasing power to buy fertilisers.
We also need to harmonise R&D as part of reforms as the fertiliser sector has failed to attract investment for over a decade. The nutritional requirement of soil is also increasing.
Small interventions such as addressing the need for micronutrients along with sulphur, fertiliser use efficiency and improvement in the response ratio of fertilisers will have to be part of the reforms.
These can contribute substantially towards raising the overall agricultural productivity.

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REFORMING OUR AGRICULTURE SECTOR The need to Reform
With only 100 million hectares of agricultural land, China produces 400 million tonnes of grain while India averages only 108 million tonnes of food from 146 million hectares of agricultural land.
The fact is that most farmers and cultivators cannot make the sort of investments needed. Yet, small farms produce 41% of the country’s total grain and over 50% of total fruit and vegetables.
India produces over 600 million tonnes of food products annually, is the second largest rice and wheat producer, and the largest producer of pulses and milk. However, only about 2% of India’s fruit and vegetable output is processed. Compare this with 70% in Brazil and 60‐70% in developed countries. In the foods segment, processed foods account for a mere 2% of the total production.
About 30% of farm produce is wasted every year for want of storage, transportation, cold chain and other infrastructure facilities.
In order to promote inclusive growth and enhance rural income, the Government has lined out a four pronged strategy in agricultural sector as part of the general budget 2010‐11.
The government intends to follow a four‐pronged strategy covering (a) agricultural production; (b) reduction in wastage of produce; (c) credit support to farmers; and (d) a thrust to the food processing sector. 1. The first element of the strategy is to extend the green revolution to the Eastern region of the country comprising Bihar, Chattisgarh, Jharkhand, Eastern UP, West Bengal and Orissa by providing Rs. 400 crore (approx. € 66 million) for this initiative during 2010‐11. It is also proposed to organize 60,000
‘Pulses and oil seed villages’ in rain‐fed areas for providing water harvesting, watershed management and enhance productivity of the dry land farming areas by allocating Rs.300 crore. An allocation of Rs.
200 crore has also been provided for sustaining the gains already made in the green revolution areas through conservation farming.
2. The second element of the strategy relates to reduction of significant wastage in storage as well as in the operations of the existing food supply chains in the country. The deficit in storage capacity is met through an ongoing scheme for private sector participation where the FCI has been hiring godowns from private parties for a guaranteed period of 5 years. This period is now being extended to seven years. 3. The third element of the strategy relates to improving the availability of credit to farmers. The banks have been consistently meeting the targets set for agriculture credit flow in the past few years. For the year 2010‐11, the target has been set at Rs. 3,75,000 crore (€ 62 billion).
4. The fourth element of the strategy aims at lending a further impetus to the development of food processing sector by providing state‐of‐the‐art infrastructure. In addition to the 10 mega food park projects already being set up, the government has decided to set up five more such parks.
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WHY BASE RATE REPLACED BPLR REGIME What ails the present system: large quantum of sub‐BPLR lending, lack of transparency, downward stickiness of BPLRs and perception of cross‐subsidisation in lending.
Reason for that: the RBI’s own mandate that all loans below Rs 2 lakh be made at the BPLR, regardless of the credit worthiness of the borrower. Once that requirement is scrapped, as it has been now, the BPLR will revert to what it was always meant to be — the rate at which a bank lends to its best or prime customer.
But instead of limiting itself to scrapping an archaic restriction the RBI has gone one step ahead and imposed an RBI‐mandated formula to determine the prime or base interest rate
The RBI now wants to tell banks how they should price their loans. The move, however well‐ intentioned, completely misses the point: in a deregulated competitive environment it is not for the RBI to tell banks how to calculate their base lending rate or any other rate. What it can, and must insist upon, is complete transparency.
At the same time it must ensure, through its periodic inspections, that wherever the safety of public deposits is jeopardised by banks lending at an unviable rate of interest — either too low or too high — the bank management is hauled.
Competition is the best way to keep a market in check, whether in banking or telecom. If telecom tariffs in India are the lowest in the world it is not because the department of telecom has fixed them but because competition has ensured that no player can charge more without being priced out of the market.
To the extent that banking involves public money and the health of a bank has implications for the system that go far beyond that of a telecom company the two sectors are not comparable.
Competition alone will not do the job; we need additional safeguards. But these safeguards must be in the form of competent regulation combined with transparency and financial literacy.
It is one thing to tell banks to be prudent and keep a wary eye open for any sign of imprudence and insist on transparency vis‐à‐vis their customers. It is quite another to interfere in what is a purely commercial decision.
The RBI should not tell banks how to fix their base lending rate in a deregulated, competitive environment. Its role must be limited to ensuring banks are properly regulated and the safety of depositors’ funds is not jeopardized.
Competition, transparency and financial literacy will take care of the rest

GOODS AND SERVICES TAX What is GST?
GST is a comprehensive value added tax levied on goods and services. In a GST regime, goods and services are not differentiated as they move through the supply chain.
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Issues for IIM PI Process http://www.essaysforIIM.com GST is typically levied on all transactions involving goods and services including import, supply of goods as well as provision of services. GST is levied on the value added at each stage of sale and purchase or supply with an inbuilt credit mechanism such that the tax is a pass through for businesses, and the tax burden is borne by the ultimate customer.
Being a destination based consumption tax, GST is usually levied on import of goods and services with export transactions being zero rated under the GST scheme.
What are the taxes GST is likely to replace in India?
The Discussion Paper proposes that the following indirect taxes would be subsumed:
Central Taxes

State Taxes

Central excise duty

Value Added Tax/ Sales tax

Additional excise duties

Entertainment tax (unless it is levied on local bodies) Service tax

Luxury tax

Excise duty under Medicinal & Toiletries Preparation Tax on lottery, betting and gambling
Act
Countervailing duties (on imports in lieu of excise duty) Entry tax not in lieu of Octroi
Additional duty of Customs (levied on imports in lieu of State surcharges and cesses in so far as they relate value added tax or central sales tax) to supply of goods and services
Surcharges and Cesses**

Impact of GST on business (Possible areas of impact/ Likely issues)
Procurement
Possible higher tax outgo on procurement of goods and services on account of increase in rate of tax;
Increased availability of credits across goods and services ‐ Manner of credit availment including possible restrictions;
Possible removal of exemptions on procurements;
Educating vendors on GST related documentation. Distribution
Tax efficiency of direct interstate sales vis a vis stock transfers;
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Issues for IIM PI Process http://www.essaysforIIM.com Possible change in taxable event: manufacture/ sale to supply of goods and services
Manner of computation of tax;
Replacement of area based exemption by refund schemes;
Taxability of stock transfers, inter office supplies, captive consumption and warranty supplies;
Determination of principles of classification and valuation of goods/ services/ composite contracts/ deemed sales/ non sale transactions.
Commercial
Impact of GST on pricing of goods and services on account of increase in rate of tax as well as increase in GST credits;
Review of tax clauses in contracts/ agreements and communication to customers.
Compliances
Redesigning IT systems;
Possible decentralized/ state‐wise registrations and compliances;
Possible interaction with State as well as Central GST authorities with respect to every transaction.
Others
Training of personnel;
Transitional issues – migration of registrations/ carry over of accumulated credits/ continuing contracts/ transition billing etc
Industry Specific Issues
Tax efficiency of Trading vis a vis Manufacturing;
Evaluating tax benefits to SEZ vis a vis STP/ EOU units;
Tax treatment of composite contracts such as AMCs and leases;
Decentralized compliances/ refunds – Possible discontinuance of LTU concept;
Abolition/ absorption of R&D Cess;
Identifying issues for lobbying. Other issues
A partial rollout of the goods and services tax (GST) is possible only if major states agree to a transition from the value added tax (VAT) regime to GST. This requires the states to be fully prepared in terms of the basic infrastructure to track transactions of all goods and services. However, it would be far more desirable to have a full rollout of GST.
There will be two distinct advantages when all states, major and minor, come on board. o Firstly, it will remove the cascading effect of multiple taxes at the central and state levels. o Secondly, it will enable a seamless flow of goods and services across the country.

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Issues for IIM PI Process http://www.essaysforIIM.com This will not be possible in a partial rollout that will also dilute the objective of having a unified common market. Besides, it will also hinder the movement of goods and services across state borders and checkposts, adversely impacting supply chains in the industry. Deliveries could be delayed and, hence, there won’t be a significant reduction in transaction costs. This, in turn, would mean that retail prices would not witness a steep decline.
A partial rollout of GST could also pose the danger of creating distortions for some businesses. Hence, it would be better to postpone the rollout rather than have a partial one. An ad‐hoc system will dilute the advantages of a full‐fledged GST over the existing VAT regime. GST will be a game‐changer when all states participate in the transition because it would be the most significant economic reform in recent times. A full‐fledged GST, when implemented, will radically alter the way tax is levied and this will have a positive impact on businesses and their operations. It will increase economic activity and bolster tax collections in the long run, improving the tax‐GDP ratio.
GST will be a win‐win situation for all stakeholders: businesses, government and consumers. All these will remain hypothetical in a partial rollout. In sum, a partial rollout will not be as beneficial as a full rollout and will, perhaps, lead to distortions and confusion for business and industry.

NEED FOR COORDINATION OF REGULATORS
There is a need to legislate a coordinating structure where regulators ensure that the action of one regulator is in consonance with that of others, and together leave no opportunity for regulatory arbitrage.
ONE of the common identified causes of the global economic crisis from which the world is yet limping out is the inefficacy of regulatory design — a permissive regulatory regime based on excessive reliance on the private sector, leading to ineffective oversight. Apparently, this permissive approach was prompted by a yearning to promote creativity. Ineffective oversight was, inter alia, rooted in the underpinning belief that markets are a better regulator, which was further compounded by the multiplicity of regulators and inefficacious coordination amongst them.
There is a rethink on the regulatory design. In fact, there is now a coordinated and concerted attempt among regulators in all geographical jurisdictions not only to revisit and reengineer but comprehensively revamp the regulatory approaches, frameworks and processes. Knee‐jerk reactions in some countries are also perceptible. Actually, some jurisdictions want to further burden already overburdened central banks with the responsibility of regulating financial institutions even beyond pure banking.
Even though unbridled creativity, which did prosper in quite a few geographies, has been one of the banes of the financial mess, shackling of creativity can torpedo and even choke the process of further economic development and growth. It is, hence, important that regulatory tightening does not suffocate the process of economic growth.
Regulations should be potent enough for orderly development of the market and prevention of misconduct. This is achieved by laying down ground rules, managing compliance, solving problems and controlling risks: structural, systemic and operational.
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Issues for IIM PI Process http://www.essaysforIIM.com Regulations should facilitate rather than be prejudicial to development.
Though each regulator eventually tends to tread on the turf of other regulators, he still leaves regulatory gaps with ample scope for misconduct in the absence of coordination among regulators.
This is being termed as regulatory arbitrage. Regulatory gaps have been an area of serious concern.
The financial services sector, as it has evolved, particularly during the last decade, often makes it difficult to decipher when the jurisdiction one regulator ends and that of the other begins. And this is more pronounced in the case of institutions that have become umbrella organizations and undertake various lines of business — banking, insurance, asset management, pension, broking‐equity (cash and future) and commodities trading (spot & future) — which are regulated by three or four different financial regulators. India visualized this issue some time towards the end of 2003 and the high‐level committee (HLC) ‐ an informal body comprising the RBI governor, SEBI chairman, IRDA chairman and the finance secretary ‐ was created as a sub‐efficient mechanism to monitor the functioning of such systemically important financial institutions. Even though the process continues, there is still enough room for improving the intensity and depth of coordination.
In various geographies, different forms of regulatory frameworks have been tried. These are separate regulator for each segment of the financial market, middle path where regulation of some of the segments is aggregated and that of others left to separate regulators, and a consolidated regulator like the Financial Services Authority (FSA) of the UK.
Yet another set of regulatory structures has been in the shape of driver of regulations: government, independent regulators and/or a mix of both. While the merits of each of the regulatory framework can be debated, the fact is that the global financial mess occurred under all regulatory frameworks.
The design of the next‐generation regulatory framework has been engaging the attention of G20.
However, there is near consensus that extraordinary tightening of regulation will impede economic growth and, hence, should not be pursued. The deeper coordination of regulation among different sets of regulators has, therefore, become eminently essential.
The current coordination among financial regulators in India is more informal than formal, and certainly not legislatively structured. There is an urgent need to legislate a coordinating structure where all the regulators formally sit to coordinate and ensure that the action of one regulator is in consonance with that of other regulators, and together leave no regulatory gaps or opportunities for regulatory arbitrage.
To be effective, the coordinating structure has to be outlined through legislation that must cover the role, responsibility and accountability of the regulators represented in the coordinating body. The legislation should also attempt to delineate the boundaries of each regulator and vest in the coordinating body the authority to decide the regulation of the disputed space in case of doubt.
The suggestions made above might appear to be for a unified regulator, but that is not the intention.
Whereas individual regulators will continue to regulate their respective jurisdictions, the coordinating body will make sure that the regulators function in tandem and do not work at cross‐purposes.
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Issues for IIM PI Process http://www.essaysforIIM.com The coordinating body can also be made to look at new initiatives to develop national markets, to achieve faster growth and emancipation of millions of Indians.

DEMAND FOR SMALLER STATES AFTER TELANGANA
The prospect of similar demands from other states ‐ notably Uttar Pradesh, West Bengal and
Maharashtra ‐where there have been simmering movements for separate statehood, means there’s hardly anybody who doesn’t have a view on this.
Given our size and diversity, a degree of decentralisation is not just desirable but essential if the fruits of development are to reach the common man. Having accepted that there is no gainsaying how many states is optimal.
Back in the 1956, the States Reorganisation Committee headed by Justice Fazal Ali recommended formation of 16 states and three centrally administered territories.
The government, however, opted for 14 states and six Union territories. Today, we have gone from
14 to 28 states. Would we have been better off had we stuck to the original 14? Unlikely!
So, to argue, as many have done, that there is some kind of sanctity about maintaining the present status quo: 28 states and seven Union territories is to assume that this is the optimal number.
Is there a basis for this? Unfortunately, international experience is not much use. Thus, if you have countries like the US with a population of just 308 million — against our 1.1 billion — with 50 states, you also have Canada with 10 provinces and three territories while Australia has six states and two territories. So, clearly, these are issues that countries or rather their people have to decide for themselves. But we don’t need to look abroad for answers. Whatever the merits and demerits of sub‐dividing states, if nationhood is about bettering the lives of people, the deciding factor must be whatever configuration is best able to deliver the fruits of development.
And on this, the evidence is unambiguous.
Barring the north‐east that has special problems, hard data suggests that, in general, smaller states have performed better once they were spun off.
This is true of Gujarat, Haryana and Himachal Pradesh ‐ all three have made rapid progress after they were freed from the embrace of their larger parents ‐ and is equally true of the most‐recent reorganisation in 2000 when Chhattisgarh, Jharkhand and Uttarakhand were carved out of Madhya
Pradesh, Bihar and Uttar Pradesh respectively.
Per‐capita GDP growth rate in all three cases has shot up after they were spun off. The case of
Chhattisgarh is most striking, in that not only did the per‐capita income growth rate go up almost five‐ old — from 3.4% prior to being spun off to over 15% in both 2006‐07 and 2007‐08 — the new state also grew faster than the parent state in both years. The picture is not very different in the Jharkhand and Uttarakhand either with both recording faster growth post the split.
Not surprisingly, human development indicators have also improved. Infant mortality and enrolment of girls ‐ both good proxies for any measure of human development ‐ are both vastly improved after

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Issues for IIM PI Process http://www.essaysforIIM.com division than before. The only aspect on which the results seem a bit ambiguous is on fiscal performance where division doesn’t seem to have made much difference.
Culture is often cited as a reason for communities wanting a separate identity. But if Hawaii is happy to be part of the US and Gibraltar is happy to be a self‐governing overseas British territory despite huge cultural differences, clearly it is economics that dominates. If people are able to benefit economically by being a part of a prosperous larger entity, then cultural differences take a back seat
‐ else, they come to the fore and form a nucleus around which other demands piggyback.
Does this mean we must keep dividing states, amoeba‐like? Not necessarily ‐ remember there are many states where there are no such demands. Also, even in states where there are demands, it is largely in pockets where people feel they are not part of the economic mainstream and do not share equally in the prosperity of the larger entity. If smaller states address that sense of economic alienation, there is no reason why emotion should be allowed to come in the way.
It’s time we stopped viewing reorganisation of states within the Union as anathema
Hard data suggests that, in general, smaller states have performed better after they were spun off
Decisions on redrawing state boundaries must be driven by logic and hard data, not emotion

A completely opposite view on Smaller states
The small‐is‐beautiful rationale does not, however, work for governance in the same way it does for ecology. The pedigree of the argument that small states make for better governance lies in the experience of Himachal Pradesh where, as recent research shows, it was a range of different factors that resulted in superior developmental outcomes.
If size was a determinant of governance, Uttarakhand and Jharkhand — both states created in 2000
— should not have had such disappointing records. Those who fought for their statehood, and for local non‐exploitative control over their natural resources, have been completely marginalised, as the idealism of the new experiment has been overtaken by the jaded practices of politics‐as‐usual.
Conversely, with the hiving off of these states from Uttar Pradesh and Bihar, respectively, we could have expected the latter states to become less flabby and, therefore, more administratively‐efficient and developmentally‐effective. It is clear that neither conclusion is warranted. When Paul Appleby
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Issues for IIM PI Process http://www.essaysforIIM.com reportedly certified these as two best‐administered states in the 1950s, both were larger than they are today. So, while it appears logical that smaller states would be more manageable, empirical evidence is unambiguous: size is irrelevant to the quality of governance and development.
The first exercise of delineating the boundaries of Indian states was based largely on linguistic criteria, in conformity with the organizational principle of the Indian National Congress since the 1920s. Other than the carving out of Himachal Pradesh and Gujarat, and, of course, the organization of the north‐ eastern states, the next major exercise was the grant of statehood to Uttarakhand, Jharkhand and
Chhattisgarh in 2000. The chief criterion here was developmental neglect, though hill and tribal identity also figured in these claims.
The new claims being heard today have much less substance. They are propelled by the same impulse to splinter that characterises our political parties. Sections of the political class that are unable to make a convincing play to capture power in an entire state will seek such forms of minor secession that provide them with smaller, more easily controllable pocket boroughs. Just as large political parties tend to spawn smaller parties — unsurprisingly organised as family firms — so also large states are seen as fair game for building smaller fiefdoms.
In a political context where cynical brinkmanship and cheap populism seem to determine consequential decisions, a Second States’ Reorganisation Commission would appear to be a plausible solution. Of course, such commissions have their own perils: they take years to determine criteria that may never actually be deployed by governments.
There is already a new commission on Centre‐state relations, whose ambit could arguably be expanded to include the question of the acceptable criteria for the creation of new states. The most lasting solution, of course, would be to create a political consensus — to which the Centre and the states are equally‐seriously committed — to concertedly address issues of regional backwardness and uneven development. This would hopefully reduce the incentives to make frivolous proposals for splitting states.

BLUE REVOLUTION – FULFILLING ENERGY NEEDS
It refers to the convergence of policy and action to execute a quantum jump in the generation of energy. Just as green revolution is to agriculture, blue revolution is to energy. This is a term coined by
Ravi Uppal, the MD of L&T Power.
Our per capita consumption of about 700 kWh gives us the unenviable distinction of being in the league of 40 LDCs.
The figures are revealing: global per capita consumption is about 2,600 kWh; developed nations enjoy a level between 10,000 and 20,000 kWh. China, whose total power generation capacity until mid‐’70s was comparable with India’s, now boasts the world’s second largest power generation capacity —
700,000 MW. Its per capita consumption is currently around 2,000 kWh — three times as much as
India’s, and set to surpass global averages by 2011.
Often government agencies claim that India’s peak time power shortage is about 12%.

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Issues for IIM PI Process http://www.essaysforIIM.com Simple arithmetic tells us that if India were to match US energy consumption levels, our power generation capacity would need to grow to 3.6 million MW from the present level of a mere 175,000
MW.
India’s present coal‐based generation is about 120,000 MW, which needs about 350 million tonnes of coal from its own mines. This capacity will need to go up at least three times, i.e., up to 1.2 billion tonnes to realise our target of about 400,000 MW from coal alone.
Germany and Spain draw over 25% of their generation capacity from wind alone.
Energy conservation if implemented can certainly contribute equivalent to about 150,000 MW of power. GDRS/ADRS REFORMS
Do Global Depository Receipts (GDRs) and American Depositary Receipts (ADRs) have voting rights?
GDRs and ADRs in themselves do not have voting rights, but the underlying equity shares do. These shares are held by a depository, which then issues the corresponding receipts (GDRs/ADRs) to investors looking to buy such instruments. So it is the depository that has the voting rights. Whether the holders of the
GDRs/ADRs can vote or not depends on the depository agreement between the company issuing the
GDRs/ADRs and the depository. During the initial years when GDRs and ADRs came into vogue, the agreement mandated depositories to vote on behalf of the management. But later, depository agreements were changed so as to allow GDR/ADR holders to instruct the depository to vote on their behalf. How do GDRs/ADRs work?
GDRs/ADRs are issued by companies looking to raise funds overseas. These instruments may represent one, multiple or a fraction of the underlying shares. For instance, if an Indian company wants to issue
ADRs, it will deliver the corresponding number of shares to the US depository bank. The depository will then issue receipts to investors. Depository receipts are transferable instruments, so they can be freely traded on the exchange on which they are listed. They are also fungible, which means the holder of ADRs can instruct the depository to convert them into underlying shares and offload them in the local market
(in this case India).
What has Sebi said about GDRs/ADRs?
Till now, purchases made through GDRs/ADRs did not trigger an open offer even if the 15% threshold was crossed so long as the depository receipts had not been converted into underlying shares. But on Tuesday, the regulator amended this rule. Anyone now holding GDRs/ADRs with voting rights will have to make an open offer to minority shareholders if his holding touches the 15% limit.
Why did Sebi carry out the amendment?
Securities lawyers and merchant bankers say the Takeover Regulations relating to GDRs/ADRs were drafted at a time when the depositories always voted on behalf of the management. Now that depository

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Issues for IIM PI Process http://www.essaysforIIM.com receipt holders have the right to vote, it makes little sense to keep GDR/ADR holdings outside the purview of the Takeover Regulations.

FISCAL CONSOLIDATION – A PRIMER
What is fiscal consolidation?
A conscious policy effort is needed by the government to live within its means and thereby bring down the fiscal deficit and public debt. It includes, among other things, efforts to raise revenues and bring down wasteful expenditure such as subsidies . As a larger mandate, it also involves the participation by state governments in the process. But the whole initiative is planned as a long‐term exercise by the government through a road map for fiscal reform rather than through a single Budget announcement. This is particularly true for a country like India where the government’s expenditure is way beyond its revenues, forcing it to borrow.
Why do rating agencies often express their concern about it?
Just as a borrower’s creditworthiness depends on her indebtedness, a country’s rating is often linked to its fiscal deficit. Fiscal consolidation efforts are looked at positively by sovereign‐rating agencies. This is because it gives them an indication of a country’s financial strength and hence, its ability and capacity to service the debt it raises. Many a time, even though an economy has grown well or its other indicators, such as external sector strength, are buoyant, it does not get a good rating only on the ground of poor efforts at fiscal consolidation.
How is India placed on fiscal consolidation ranking?
For many years, India ranked low on fiscal consolidation. However, from 2003 onwards, the government made conscious efforts to bring down its fiscal deficit and public debt after it passed the Fiscal
Responsibility and Budget Management (FRBM) Act. This enabled the government to pursue fiscal reforms aimed at committing to a pre‐decided level of deficit.
Though its efforts went off well in the initial years, government finances slipped in the last two years as it was forced to provide fiscal sops initially to tackle high inflation and then to contain the impact of the global financial crisis of 2008‐09 that hit the real economy hard. As a result, through its fiscal stimulus package, it had to announce several fiscal concessions and also increase expenditure on account of some sops. This ended in a further worsening of the country’s finances.
What is India going to do about it?
Although the government does not borrow overseas, it cannot ignore the taxes from companies as it is now a part of the global economy. The cost of borrowing for private corporates which raise money overseas, depends a lot on its home country’s sovereign ratings. The Thirteenth Finance Commission
(ThFC) rolled out a road map for fiscal consolidation, which includes unwinding of the fiscal stimulus.
Pranab Mukhejee in Union Budget 2010 announced that the fiscal deficit would be brought down from
6.9% to 5.5% of GDP.

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THIRTEENTH FINANCE COMMISSION Following the mandate under the Presidential Order indicating the terms of reference, which flow from the articles 270, 275 and 280 of the Indian Constitution, the FC‐XIII submitted its report on December 30,
2009. The FC‐XIII’s overall approach was to foster “inclusive and green growth promoting fiscal federalism”. Observing that as against the level of 75% targeted by the Twelfth Finance Commission, the combined debt‐GDP ratio was 82% in the terminal year (2009‐10), the FC‐XIII focused on anchoring the fiscal consolidation process in a medium‐term debt reduction framework. The FC‐XIII proposes reducing the combined debt‐GDP ratio to 68% by 2014‐15 with the Centre’s debt‐GDP ratio declining to 45%. It recommended a calibrated exit strategy from the expansionary fiscal stance of 2008‐09 and 2009‐10.
The FC‐XIII has recommended fiscal consolidation through the elimination of revenue deficit as the long‐ term target for both the Centre and States. Following a design similar to that adopted by the recent
Finance Commissions, the FC‐XIII indicated a normative discipline for both Centre and States; with equal treatment which entailed no automatic priority for any level of Government and a focus on equalization
(and not equity). The latter signalled the intent of the FC‐XIII to ensure that States and local bodies have the fiscal potential to provide comparable levels of public service at reasonably comparable levels of taxation. This principle does not guarantee uniformity in public services across the country; but it addresses the fiscal requirements of each jurisdiction to enable such uniformity. Terming the goods and services Tax (GST) as a game‐changing tax reform measure which will significantly contribute to the buoyancy of tax revenues and acceleration of growth as well as generate positive externalities, the FC‐XIII proposed a grand bargain. The six elements of the grand bargain for the GST included: 1. the design; 2. operational modalities; 3. binding agreement between the Centre and States with contingencies for change in rates and procedures; 4. disincentives for non‐compliance; 5. the implementation schedule and; 6. the procedure for States to claim compensation. For this purpose, the
FC‐XIII recommended the sanction of Rs 50,000 crore as compensation for revenue losses of States on account of the implementation of the GST. This amount would shrink to Rs 40, 000 crore were the implementation to take place on/after April 1, 2013 and further to Rs 30,000 crore were it to take place on/after April 1, 2014. The following are some of the key recommendations of the FC‐XIII: The share of States in net proceeds of shareable Central taxes shall be 32% every year for the period of the award.
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Issues for IIM PI Process http://www.essaysforIIM.com Revenue accruing to a State is to be protected to the levels that would have accrued to it had service tax been a part of the shareable Central taxes, if the 88th Amendment to Constitution is notified and followed up by a legislations enabling States to levy service tax.
Centre is to review the levy of cesses and surcharges with a view to reducing their share in its gross tax revenue.
The Medium Term Fiscal Plan (MTFP) should be a statement of commitment rather than intent.
New disclosures have been specified for the Budget/MTFP including on tax expenditure, public‐ private partnership liabilities and the details of variables underlying receipts and expenditure projections. The Fiscal Responsibility and Budget Management (FRBM) Act needs to specify the nature of shocks that would require relaxation of the targets thereunder.
States are expected to be able to get back to their fiscal correction path by 2011‐12 and amend their
FRBM Acts to the effect.
State Governments are to be eligible for the general performance and special area performance grants only if they comply with the prescribed stipulation in terms of grants to local bodies.

CAPITAL CONTROLS BASICS
What are capital controls?
Foreign capital inflows in the form of loans and equity that are allowed in a restricted form are said to be controlled. Many countries which had closed economies had imposed severe restrictions on foreign capital. However, as these economies started opening up in the 80s, capital controls were eased, facilitating free flow of capital and ensuring integration with global financial markets.
What are capital inflows?
From the perspective of balance of payments — a country’s external sector balance sheet — foreign currency inflows are broadly divided into current account and capital account flows. While current account flows arise out of transactions in goods and services and are permanent in nature, capital account flows are essential in various kinds of loans and equity investments, which can be reversed. That is why policy makers have to keep a close eye on capital flows.
What are the kind of capital inflows in India?
These would include inflows through foreign borrowings by Indian corporates and businesses, NRI deposits and portfolio flows from institutional investors into the stock markets Loans to government and short‐term trade credit are also included.
What has been the extent of dismantling of capital controls in India?
India had controls on both capital account transactions as well as on the current account with the local currency fixed by the central bank. However, since 1991, when structural changes to the Indian economy
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Issues for IIM PI Process http://www.essaysforIIM.com were carried out, the rupee was first made convertible on the current account. Subsequently, capital controls were eased. In 1994, a big shift took place with the government allowing foreign portfolio investments. Over a period of time, foreign direct investment norms and overseas borrowing norms were eased. Why are policy makers thinking of reimposing controls?
Though allowing foreign capital allows firms in a capital scarce economy to access cheaper resources to finance their growth plans, the flip side is that it presents risks to value of the country’s currency as well as managing local liquidity arising out of such inflows (as the central bank buys the foreign currency and pumps in local currency).
Dependence on foreign capital could leave a country vulnerable to risks, arising out of a abrupt reversal of flows. With many emerging economies remaining relatively unscathed after the global financial crisis, there has been a surge in such inflows, leading to an appreciation in their currencies, including in India.
But inflows beyond the absorptive capacity of an economy pose other challenges such as high demand side inflation.

UID SYSTEM The Unique Identification System is envisioned as a means for residents to easily establish their identity, anywhere in the country.
It will be an important step towards ensuring that residents in India can access the resources and benefits they are entitled to.
The resident will be able to enrol for a UID number by providing basic demographic as well as biometric details (which may include photograph, fingerprints and iris scan) to the enrolling agency.
The enrolling agency will transmit these details to a central UID server. The server will then perform a de‐duplication check using the resident’s key demographic and biometric fields against existing UID records in the database, to ensure that she does not already have a UID number. Once the check confirms that a duplicate record does not exist, the central system will issue a UID number to the resident. The resident can then use the number with different service providers, who can verify his or her identity online.
The agency has to transmit the UID number and information provided by the resident to the UID server, and the server immediately responds with a yes or a no.
The UID can have a significant impact on service delivery.
The existing patchwork of multiple agency databases in India gives individuals the incentive to provide different personal information to different agencies and also impersonate someone else.

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Issues for IIM PI Process http://www.essaysforIIM.com In the UID infrastructure, all resident records are stored in a central database, and each new entry is de‐duplicated‐‐ consequently, residents can only have one UID number, which is mobile and can be used anywhere in the country.
The lack of duplicates, and accuracy and mobility in identity verification, would reduce opportunities for fraud and enable agencies across the country to provide residents with targeted, effective services and benefits.

POLICY SUGGESTIONS FOR SERVICES SECTOR
FDI related
Opening some segments of the insurance sector like health insurance and removing the 10‐year disinvestment clause; and liberalizing FDI in the animation sector.
Making available FDI policy on the website in a user‐friendly way.
Credit and Finance related
Exempting ECBs from withholding tax for financing export‐related activities and overseas acquisition including of ships.
Encouraging venture capital in services.
Operationalizing offshore financial centres.
Other important measures
Increasing visibility of India in services through trade fairs, buyers‐sellers meets and setting up convention centres; facilitating services exports by setting up joint offices with common facilities; setting up a portal for services and devoting some SEZs exclusively to services.
Resolving the issue of precondition in most of the overseas tenders wherein equipment to be supplied by the contracting company should necessarily be sourced from an approved list of suppliers from developed countries.
Facilitating International accreditation for Indian health services.
Tapping outsourcing opportunities in niche areas like actuarial and accounting services.
Totalization agreements with target countries and necessary changes in domestic laws.(Read article on totalization agreements)
Revamping the system of teaching, research, etc. in universities/ institutions, phased introduction of education reforms, allowing foreign educational institutions in higher education with proper checks and balances, etc.
Skill certifying unskilled labour.

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COMMODITY FUTURES MARKETS A well‐developed and effective commodity futures market, unlike physical market, facilitates offsetting the transactions without impacting on physical goods until the expiry of a contract. Futures market attracts hedgers who minimise their risks, and encourages competition from other traders who possess market information and price judgment. While hedgers have long‐term perspective of the market, the traders, or arbitragers as they are often called, hold an immediate view of the market. A large number of different market players participate in buying and selling activities in the market based on diverse domestic and global information, such as price, demand and supply, climatic conditions and other market related information. All these factors put together result in efficient price discovery as a result of large number of buyers and sellers transacting in the futures market.
Futures market, as observed from the cross‐country experience of active commodity futures markets, helps in efficient price discovery of the respective commodities and does not impair the long‐run equilibrium price of commodities. At times, however, price behaviour of a commodity in the futures market might show some aberrations reacting to the element of speculation and ‘bandwagon effect’ inherent in any market, but it quickly reverts to long‐run equilibrium price, as information flows in, reflecting fundamentals of the respective commodity. In futures market, speculators play a role in providing liquidity to the markets and may sometimes benefit from price movements, but do not have a systematic causal influence on prices.
An effective architecture for regulation of trading and for ensuring transparency as well as timely flow of information to the market participants would enhance the utility of commodity exchanges in efficient price discovery and minimise price shocks triggered by unanticipated supply demand mismatches.

INITIATIVES TO CONTROL ENVIRONMENTAL POLLUTION Notification of general and source‐specific standards for emissions and effluents.
Regulating the siting of industries.
Regular monitoring for compliance to environmental standards.
Legal action for non‐compliance.
Setting up of clean technology mechanisms in polluting industries.
Setting up of Common Effluent Treatment Plants (CETPs) in industrial estates.
Establishing waste minimization circles (WMC) in clusters of small scale industries.
Implementing recommendations of Charter of Corporate Responsibility for Environmental Protection
(CREP) in 17 categories of highly polluting industries.
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Issues for IIM PI Process http://www.essaysforIIM.com Implementing an Eco‐mark scheme to encourage production/consumption of environment‐friendly products. Setting up of progressive emission norms at the manufacturing stage for controlling vehicular pollution and introduction of cleaner fuels like unleaded petrol, low sulphur diesel and compressed natural gas (CNG).
Setting up National Clean Development Mechanism Authority (CDM) as per Kyoto Protocol.
Promoting economic instruments to internalize the costs of pollution and fiscal incentives for pollution control equipments.

HIV/AIDS – SOCIAL PROBLEM
AIDS (Acquired Immuno‐Deficiency Syndrome) is a disease which is caused by a virus called human immuno‐deficiency virus or HIV. AIDS is the last stage of infection in the virus. It takes about eight to ten years between getting infected with HIV and developing AIDS. No vaccine has been invented till today as a cure for AIDS or for protecting people from HIV. Magnitude: At the end of 2001, WHO and UNAIDS estimated that 40 million people around the world were living with HIV; it was estimated that there were five million new HIV infections and three million deaths due to AIDS. Among the new infections, 800,000 occurred among children under 15 years and more than 2 million were among women. Since the first clinical evidence of AIDS reported in June 1981, some 25 million people have died of AIDS ‐‐‐ including 3.6 million children. High Risk Groups and Routes of Transmitting the Virus: HIV spreads mainly through four routes:
1) Sex with an infected partner ‐‐‐ heterosexual as well as homosexual ,
2) Transfusion of blood and blood products infected with HIV,
3) Injecting drugs with infected syringes or needles, and
4) Transmission from infected mother to her unborn child. In a study, it was found that 80 percent HIV cases were related to sexual promiscuity, 5 percent to blood transfusion and 4 percent to injecting drug with infected syringes. Thus, the most important sources of transmission of virus are:
1) Prostitutes: According to one estimate, the level of HIV infection escalated from one percent to thirty percent among prostitutes in Mumbai in just three years from 1989 to 1991.
2) Homosexuality: Homosexuality is no longer an offence under the Indian penal code and the risk of HIV infection through homosexuality is increasing.
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Issues for IIM PI Process http://www.essaysforIIM.com 3) Drug Addicts: Those who take drugs by injection carry the possibility of spreading the HIV infection through infected needles.
4) Blood Donors: There are some professional blood donors whose blood sometimes contains the HIV.
When there blood is transfused to patients without proper testing, the HIV is transmitted. Laboratories may similarly transmit the HIV when they supply blood without scientific testing.
5) Pregnant Women: Pregnant women who are HIV positive transmit the virus to their new born children.
6) Blades: Use of blade for shaving, particularly the one used by the barbers, is also a risk factor in spreading the HIV.
Implications: AIDS is not just a health problem; it is a problem with important social, cultural and economic implications. Caring for the Infected: The government recognized the serious impact of HIV/ AIDS and has responded to the epidemic. The government of India is currently implementing the second phase of the National
AIDS Control Programme (NACP III, 2006‐2011) Some steps that should be effectively implemented:
i.
ii. iii. iv.
v.

Targeted interventions for communities at highest risk,
Prevention of HIV transmission among the general population,
Provision of low cost care and support,
Strengthening institutional capacities, and
Inter‐ sectoral collaboration.

The key objectives of NACP III are to :
Prevent infections through saturation of coverage of high‐risk groups with targeted interventions
(TIs) and scaled up interventions in the general population.
Provide greater care, support and treatment to larger number of PLHA.
Strengthen the infrastructure, systems and human resources in prevention, care, support and treatment programmes at district, state and national levels.
Strengthen the nationwide Strategic Information Management System. The specific objective is to reduce the rate of incidence by 60% in the first year of the programme in high prevalence states to obtain the reversal of the epidemic, and by 40 percent in the vulnerable states to stabilise the epidemic.
Role of Voluntary Organisations: The voluntary organisations can provide information, services and other social support systems to people in danger of contracting the disease. Before contracting the infection, knowledge about the spread of HIV infection can be imparted by community based social workers. The voluntary organisations can make effort towards this support system. Besides helping the patients, the
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Issues for IIM PI Process http://www.essaysforIIM.com voluntary organisations can also help the HIV/AIDS affected or infected children, families and other dependents from becoming victims of isolation and discrimination.
Finding funds to fight AIDS is a serious problem in our country because the potential costs are staggering.

ENVIRONMENTAL DEGRADATION Environmental degradation can be broadly divided into two categories
(I) Extreme Events and Hazards: The events are caused either by natural processes or man‐made, which bring immediate changes in the environment and inflict damage and loss to the environment in which we live. It is further divided into:
i) Natural Hazards (caused by natural factors)
a) Territorial ‐Occurs on the land surface ‐‐Caused by endogenic factors ‐‐ E.g. volcanic eruption, earthquake, submergence, etc.
b) Atmospheric: cyclones, atmospheric lightening
c) Cumulative Atmospheric: They are caused due to the accumulation of effects of certain atmospheric phenomena for several years in continuation e.g. floods, drought.
2) Man Induced Hazard:
a) Physical Hazards ‐‐‐ landslides, forest fires
b) Chemical Hazards ‐‐‐ release of toxic gases, nuclear explosions.
c) Biological ‐‐‐ increase or decrease in the population of a species, explosion of human population. 3) Biological hazards not caused by man: E.g. Locusts swarms, epidemics (II)Pollution: Deterioration of environmental quality beyond a critical limit caused by human activities.
a) Land Pollution ‐‐‐ soil erosion, desertification, and salination.
b) Water Pollution ‐‐‐ pollution of sea water, pollution of rivers, and pollution of groundwater.
c) Air pollution ‐‐‐ depletion of ozone layer, concentration of greenhouse gases, suspended particles. Some of the important factors that cause environmental degradation are:

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Issues for IIM PI Process http://www.essaysforIIM.com 1) Deforestation: Accelerates soil erosion; increases sediments in the rivers; siltation of reservoir; increase in the frequency of drought and floods etc. Changes in the pattern and distribution of precipitation; intensification of greenhouse effects, increase in destructive forces of atmosphere storms etc.
2) Agricultural development: Increase in agricultural land and large scale deforestation. The need for increase in the productivity of agricultural land and thus intensive cultivation through application of insecticides, pesticides, fertilizers, irrigation etc. has led to problems like eutrophication, contamination of soils, salination (usarisation) of soils, pollution and depletion of groundwater etc.
3) Population growth: It leads to industrial expansion, agricultural development and urban growth.
Increased demands lead to rapid exploitation of natural resources, which causes lowering of environmental quality and ecological imbalance.
4) Industrial development: Though it has given rise to economic prosperity it resulted in environmental degradation through undesirable outcomes such as industrial wastes, polluted water, toxic gases, ashes, scarification of land through mining etc.
5) Increased urbanization: Increased urbanization means phenomenal increase in the concentration of human population in limited space. It results in increasing buildings, roads and streets, sewage and storm drains, factories and industrial wastes, urban wastes etc. which causes environmental degradation. 6) Modern Technology: Modern technologies are more destructive than the earlier ones. They aim at accelerated rate of exploitation of natural resources and produce outputs to raise the material standards of human beings. However, such processes run counter to ecological pattern of productive growth. For example, of fertilizers, pesticides and insecticides in agriculture. Use of nuclear technology, burning of fossil fuels etc. Conservation Measures
1) The most important factor, which causes environmental degradation, is growth of population. So, one of the important steps to check environmental degradation would be to check the population growth.
2) Development of pollution free technologies.
3) Reduction in the exploitation of natural resources.
4) Large scale effort to replenish the depleted forests through afforestation and reforestation.
5) To limit the use of chemical fertilizers, pesticides and insecticides and to increase the use of organic fertilizers. 6) To limit the use of those items (like refrigerators, air conditioners etc.) which release ozone depleting gases like Chlorofluro carbons (CFC).
7) To limit the use of hydrocarbons to reduce the release of greenhouse gases like (CO2)
8) To heal degraded land caused by erosion.
9) To stop the use of nuclear weapons.
10) To educate people about environment.

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The issue can be tackled by creating greater awareness about the ecological diversity and stability. There is also a need to realize the need for awareness about cooperation at international levels as these problems transcend the national boundaries and the current international efforts (Montreal Protocol,
Kyoto Protocol etc.) dealing with climates change, the concept of sustainable development, etc.

COMMUNALISM
Concept of communalism: Communalism is an ideology which states that society is divided into religious communities whose interest differ and are, at times, even opposed to each other. The antagonism practiced by the people of one community against the people of other community and religion can be termed as ‘communalism’. This antagonism goes to the extent of falsely accusing, harming and deliberately insulting a particular community and may extend to looting, burning down the homes and shops of the helpless and the weak, dishonoring women, and even homicide. The Genesis and Growth of Communalism in India
It is widely realized that communalism in India was born, nurtured and promoted by the British imperialism as a deliberate design to sow dissensions. It served the purpose of the colonial administration to divide and rule. Thus, the prevailing religious differences were first used to project the social and cultural variations and then to promote political divisions by treating Indians not as Indians but as members of different religious communities.
Growth of Communalism: Causes
Jawaharlal Nehru once described communalism as the Indian version of fascism. He said, while all communalism is bad, we must remember that minority communalism is born out of fear, while majority communalism takes the form of political reaction to assert dominance. But he added: ‘there could be no compromise on the issue of communalism, Hindu communalism or Muslim communalism, as it is a challenge to Indian nationhood and Indian nationalism.’ The main forces, which have encouraged the growth of communalism in contemporary India, are:
1) Economic backwardness of Muslims
2) Growth of communal parties and organisations
3) Electoral compulsions of political parties
4) Communal media, literature and text‐books
5) Separatism and isolation among Muslims

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Issues for IIM PI Process http://www.essaysforIIM.com Anatomy of Communal Riots: A probe into the major communal riots in the country during the last five decades reveals that:
Communal riots are more politically motivated than fuelled by religion.
Besides political interests, economic interests also play a vital role in fermenting communal clashes.
The probability of recurrence of communal riots in a town where communal riots have already taken place once or twice is stronger than in a town when such riots have never occurred.
Most communal riots take place on the occasion of religious festivals.
The use of deadly weapons in the riots is on the ascendancy. Prescriptive measures to deal with Communalism: Measures to meet the challenge of communalism and communal violence can be of two types: long‐term and short‐term.
The long‐term measures are:
1) In initiating the process of de‐communalising the people at all levels, say, by bringing home to them that communal assumptions are false, by explaining to them the socio‐economic and political roots of communalism.
2) Communalisation of the state and of the political elite has to be checked because it leads to inaction against communal violence and covert or overt political and ideological support to communalism by the state apparatus.
3) The communalisation of civil society also needs to be checked because it leads to riots that are more communal. People with communal ideas and ideologies pressurize the government to act in a manner, which is always against the principles of secularism.
4) The role of education, particularly emphasizing on value oriented education both in schools and colleges is important in preventing communal feelings.
5) The media can also prove to be significant in preventing communal feelings. Communal press can be banned and legal action can be taken against communal writers. Some immediate measures are imperative for containing communalism and communal riots: (Short term) 1) Peace committees can be set up in which individuals belonging to different religious communities can work together to spread goodwill and fellow feelings and remove feelings of fear and hatred in the riot affected areas.
2) The state has to plan and use new strategies in dealing with communal violence. Whenever strong and secular administrators have used or threatened the use of strong steps, riots either did not occur or were of short duration.

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Issues for IIM PI Process http://www.essaysforIIM.com 3) The role of media is immensely highlighted during the course of communal violence. The fear and hatred can be checked if the press, radio and TV report the events in a way conducive to soothing the frayed nerves of people instead of inflaming the temper further.
4) Lastly, the government in power has to treat the extremist communal outfits as its immediate targets and cripple their capacity to disrupt law and order. The secessionists in Kashmir, the militants in Punjab, the ISS now banned in Kerala and other extremist organisations of Hindu,
Muslim and Sikh communalism have to be dealt with by the state through its law and order machinery. The small insecure communities always look to government or move towards communal parties for protection. The Pundits in Kashmir, the innocent victims of communal riots in Mumbai, Uttar Pradesh,
Gujarat and other states, and the sufferers of violence of extremists in Bihar, Assam, look towards the secular state of India for the security of life and property.

YOUTH UNREST
Youth unrest may be defined as the “manifestation of collective frustration of the youth in the society.”
It is manifested when the existing norms in the society are perceived by the youth as ineffective or harmful to the extent that they feel so disillusioned and disgusted about them and recognize the need for changing these norms.
Characteristics of Youth Unrest On the basis of the above definition, it may be said that youth unrest is characterized by
i) Collective discontent, ii) Dysfunctional conditions, iii) Public concerns, and iv) The need for change in the existing norms. Youth Agitations: Youth agitation is the behaviour of the youth whose goal is social protest. Its aim is neither to injure a person nor cause destruction of public property. Various forms of youth agitations are: demonstrations, slogan shouting, strikes, hunger strikes, road blocks, gheraos, and boycott of examinations. The preconditions of youth agitations are:
i) Structural strain, ii) Identifying the source of strain, iii) Precipitating factor in initiative action, and iv) Mobilization of force for action by a leader.
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The important functions of youth agitations are:
a) To create collective consciousness and group solidarity,
b) To organise the youth to work for new programmes and new plans, and
c) To provide opportunities to young individuals to express their feelings and make some impact on the course of social change.
Students’ agitations form an important dimension of youth agitation – Students’ agitations may be classified as: i) Student‐oriented agitations, and ii) Society‐oriented agitations.
The former include agitations pertaining to problems at college/university level and at national level while the latter refer to students’ interest in state/country’s politics and programmes. Student oriented agitations are generally discontinuous and problem‐oriented rather than value‐oriented. Process of Growth of Agitation due to Youth Unrest Many youth agitations follow a life‐cycle, which comprises the following stages:
The discontent stage, which is the stage of dissatisfaction and growing confusion with the existing conditions; The initiation stage, in which a leader emerges, the causes of discontent are identified, excitement increases and proposals for action are debated;
The formalization stage, in which programmes are developed, alliances are forged, and support is sought from outside actors;
The public support stage, in which youth trouble is transferred into public trouble. Controlling Youth Agitations The adult world has to accept the fact that youth problems cannot be solved for them but with them. Therefore, cooperation of students/youths needs to be sought by parents, teachers and administrators. Youth/students, parents, teachers and educational administrators, politicians and political parties should cooperate in understanding problems/griveances of the youth and in giving them logical guidelines. It is high time that the vast youth power, which hitherto has been neglected and ignored, is harnessed for development, achievement of social justice and national goals.

CORRUPTION
Corruption can be described as “the use of public power for private gain in a way that constitutes a breach of law or a deviation from the norms of society”.

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Issues for IIM PI Process http://www.essaysforIIM.com Corruption is present in the society in several forms. Of these the major ones are: bribery (money offered in cash or kind or gift as inducement to procure illegal or dishonest action in favour of the giver), nepotism
(undue favour from holder of patronage to relatives), misappropriation (using others money for one’s own use), patronage (wrong support/ encouragement given by patron and thus misusing the position), and favouritism (unduly preferring one to other). The Preparatory Committee for Alternative Economic Policies has done some research in the kickbacks. It estimated that the kickbacks shot up from Rs. 3,036 crores in 1980‐81 to an astounding Rs. 19,414 crores in 1990‐91, i.e. the amount involved increased by more than six times in one decade. The registered number of cases of corruption in India under the Prevention of Corruption Act, 1947 varied from 300 to 500 between 1981 and 1987. However, after the enforcement of 1988 Act, the number now varies between 1,800 and 2000 per year. The number of corruption cases registered in 1988 were 1,295, in 1993 it was 1,895 and in 1994 it went up to 1,911. Of the total registered cases, 70 to 75 percent were chargesheeted. About 2, 104 new cases were already pending in courts. Out of 1,423 persons tried in
1994, only 13.9 percent were convicted. These figures give a picture of the situation of corruption in the country and how the situation is dealt with. Causes of Corruption:A number of factors have been pointed out as causing corruption.
The emergence of political elite who believe in interest‐oriented rather than nationoriented programmes and policies.
Recent scandals have been in areas where either purchase policies or prices are controlled by the government. Corruption is caused by scarcity of goods.
Corruption is caused as well as increased because of the change in the value system and ethics of men who administer.
Corruption can be traced to ineffective administration. Lack of vigilance, enormous powers to the bureaucracy, lack of accountability, defective information system, etc. These conditions give scope to officials not only to become corrupt but remains unaffected even after following corrupt practices. Impact of Corruption:It is important to recognize that corruption has affected our society in several ways: 1. It has retarded economic development of the country.
2. It has created violence and lawlessness in the society since the corrupt have the money power to influence the executor of law to serve him.
3. It has resulted in the deterioration of morals and destroyed the individual character.
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Issues for IIM PI Process http://www.essaysforIIM.com 4. It has increased inefficiency, nepotism, and lethargy and has created indiscipline in all fields of administration. 5. It has increased black money in the country.
6. It has led to adulteration of eatables, spurious drugs and shortage of many consumer items. The Legislation:The Prevention of Corruption Act came into force in September 1988. It consolidated the provisions of the Prevention of Corruption Act, 1947, some sections of the Indian Penal Code, the Criminal
Procedure Code, and the Criminal Law Act, 1952. The sole idea was to bring all relevant provisions under a single Act. Further the 1988 Act enlarged the scope of the term ‘public servant’ and included a large number of employees within its ambit. Measures Taken to Contain Corruption:The Government of India appointed a committee on Prevention of Corruption in 1960 under the chairmanship of K.Santhanam. The recommendations covered various aspects of corruption. It was on the basis of the recommendations of this committee that the Central
Vigilance Commission was set up in 1964 for looking into the cases of corruption against the Central
Government and other employees. The Central Government has set up the following four departments as anti‐corruption measures:
i) Administrative Vigilance Division (AVD) in the Department of Personnel and Training, ii) Central Bureau of Investigation (CBI), iii) Domestic vigilance units in the Ministries/departments/public undertakings/ nationalized banks, and iv) Central Vigilance Commission. Yet other effective method of containing corruption could be to introduce a method which will enable political parties to secure electoral funds in a bonafide manner, or the central government to finance elections through an election fund. This system is being followed in Germany, Norway and Sweden and in some advanced countries of Europe.

MIGRATION AND DISPLACEMENT
According to the Demographic Dictionary, “migration is a form of geographical mobility or spatial mobility between one geographical unit and another, generally involving a change in residence from the place of origin or place of departure to the place of destination or place of arrival.” Such migration is called permanent migration, and should be distinguished from other forms of movement, which do not involve a permanent change of residence.

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Issues for IIM PI Process http://www.essaysforIIM.com Forms of Migration Internal Migration refers to migration from one place to another within a country, while external migration or international migration refers to migration from one country to another. In India, the migrants are classified into four streams, namely,
a) Rural to rural,
b) Rural to urban,
c) Urban to urban, and
d) Urban to rural.
Another typology based on time classifies migration into long ‐ range migration and short or seasonal migration. Apart from these two important types, migration could be voluntary or involuntary or forced, brain drain (migration of young skilled persons) and migration of refugees and displaced persons.
Characteristics: An important characteristic is the age selectivity of the migrants. Most migration studies, have found that rural‐urban migrants are predominantly young adults and relatively better educated than those who remain at their place of origin.
Another important characteristic is that the migrants have a tendency to move to those places where they have contacts and where the previous migrants serve as link for the new migrants. In some cases, the migrants not only tend to have the same destination but also tend to have the same occupation. For example, research reveals that in certain hotels in Jaipur almost all the workers belong to one particular sub‐region of Kumaon. The agricultural labourers in Punjab and Haryana are mainly from Eastern Uttar
Pradesh.
Reasons for Migration: The important factors, which cause migration, may broadly be classified into four categories: economic factors, demographic factors, socio‐cultural factors, and political factors.
Economic: The major reason for voluntary migration is economic. In most of the developing countries low agricultural income, agricultural unemployment and underemployment are the major factors pushing the migrants towards areas with greater job opportunities. Even the pressure of population resulting in a high man‐land ratio is widely recognized as one of the important causes of poverty and rural‐urban migration.
The most important economic factors that motivate migration may be termed as “push factors” and “pull factors”. Push Factors: An ILO study reveals that the main push factor causing the worker to leave agriculture is the lower levels of income. The non‐availability of alternative sources of income in the rural area is also another factor for migration. Even sub‐division of land holdings leads to migration.
Pull Factors: These refer to those factors which attract the migrants to an area, such as, opportunities for better employment, higher wages, better working conditions and better amenities of life, etc. In recent years, the high rate of movement of people from India as well as from other developing

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Issues for IIM PI Process http://www.essaysforIIM.com countries to the USA, Canada and now to the Middle‐East is due to the better employment opportunities, and possibility of attaining higher standards of living. Push Back Factors: In India, another important factor which plays a crucial role on migration is ‘push‐ back factor’. In India, the urban labour force is sizeable, and the urban unemployment rates are high. There also exist pools of underemployed persons. All these factors act in combination as deterrents to the fresh flow of migration from the rural to urban areas. He calls this as a “push back factor”.
Socio‐Cultural and Political Factors
In addition to these push and pull factors, social and cultural factors also play an important role in migration. Improved communication facilities, such as, transportation, impact of radio and television, cinema, urban‐oriented education and resultant change in attitudes and values promote migration.
Sometimes family conflicts also cause migration. Infact, even political factors also may encourage or discourage migration. For instance, in our country, the adoption of jobs for “sons of the soil policy” by the
State government will certainly affect migration from other states. Consequences of Migration: The consequences of migration are diverse. They are:
1) Economic: Migration from a region characterized by labour surplus helps to increase the average productivity of labour in that region, as this encourages labour saving devices and/or greater work participation by the remaining family workers. On the other hand, there is a view that migration negatively affects the emigration region i.e., the region from where people move out, and favours the immigrating region, i.e., the region to where people go. Similarly it was argued that migration would widen the development disparity between the regions, in view of the drain of the resourceful persons from the relatively underdeveloped region to the more developed region. However, the labour sending regions may gain economically by the money brought in by the emigrants.
2) Demographic: Migration has a direct impact on age, sex and occupational composition of the sending and receiving regions. Migration of the unmarried males of young working age results in imbalances in sex ratio. This tends to reduce the birth rate in the rural areas.
3) Social and psychological: Urban life usually brings about certain social changes in the migrants. Those migrants who return occasionally or remain in direct contact with the households of their origin are also likely to transmit some new ideas back to the areas of origin. On the other hand, migration, which results in the absence of the adult males for long periods, may cause dislocation of the family. Under such circumstances, women and children often have to take over more and different types of work and other more important roles in household decision‐making. Studies have revealed very disturbing effects of the male migration from Kerala. Neurosis, hysteria and depression are said to be on the increase among the emigrant workers’ wives in Kerala.
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PROBLEM OF SUICIDES
We need to get the suicide statistics right. With barely 20% deaths medically certified in the country, the task is difficult.
We need to humanise and decriminalize suicide by deleting Section 309 of Indian Penal Code. The Law
Commission in its 210th report recommended deletion and found it as the stumbling block for prevention of suicide and improving the access of medical care to survivors. There is a case to emulate
UK Suicide Act, 1961 which abrogated the law which made attempt to suicide a crime but enhanced punishment for complicity in another s suicide to 14 years.
With mental illness being prime contributor to suicide, there is urgent need to set up a standing empowered National Commission for Mental Health to work as nodal agency for all the policy and action for prevention, early detection, treatment and rehabilitation of mentally ill.
A paradigm shift is needed at government, school, workplace and family level to accept that suicide is preventable. Education and awareness of all including health professionals, is central to such an approach. Outlay and utilisation of budget for mental health and suicide prevention needs exponential augmentation the economic and financial return of the same will be high as most who commit suicide are in productive age group.
Non‐governmental efforts require mainstreaming and working in tandem with government, sufferers and carers.
Media has collateral responsibility in dissemination of information, education, creating awareness and self regulation for humane portrayal of suicide.

SUBSTANCE ABUSE Drug addiction can be defined as a “state of periodic or chronic intoxication, detrimental to the individual and the society, produced by repeated consumption of drugs (natural or synthetic).
Its characteristics include:
1) An overpowering desire or need (compulsion) to continue taking the drug and to obtain it by any means;
2) A tendency to increase the dose;
3) A psychic (psychological) and sometimes, a physical dependence on the effects of the drug.

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Issues for IIM PI Process http://www.essaysforIIM.com India has about 3 million (about 0.3% of total population) estimated victims of different kinds of drug usage, excluding alcohol dependents. Such population comes from diverse socio‐economic, cultural, religious and linguistic backgrounds.
India is the biggest supplier of illicit demand for opium required primarily for medicinal purposes. Besides this, India is located close to the major poppy growing areas of the world, with “Golden Crescent” on the
Northwest and “Golden Triangle” on the North‐East. These two regions make India vulnerable to drug abuse particularly in poppy growing areas and along the transit routes.
Over the years, drug addiction is becoming an area of concern as traditional moorings, social taboos, emphasis on self‐restraint and control of the joint family and community are eroding.
The processes of industrialization and urbanization have led to the loosening of the traditional modes of social control thus rendering an individual vulnerable to the stresses and strains of modern life. The fast changing social milieu, among other factors, is mainly contributing to the spread of drug abuse, both of traditional and of new psychoactive substances.
The introduction of synthetic drugs and intravenous drug use leading to HIV/AIDS has added a new dimension to the problem, especially in the North‐East states of the country.
Various surveys indicate a high concentration of drug addiction in certain social strata and high‐risk groups, such as, commercial sex workers, transport workers, and street children and in the north‐eastern states/border areas and opium growing regions of the country.
A three‐pronged strategy for demand reduction of drugs is:
i.
ii. iii. Building awareness and educating people about the ill effects of drug abuse.
Dealing with the addicts through programme of motivational counselling, treatment, follow‐up and social‐reintegration.
To impart drug abuse prevention/rehabilitation training to volunteers with a view to develop an educated cadre of service providers.

Thus, the overall objective of the strategy is to empower the society and the community to deal with the problem of drug abuse.
The Government has established a National Centre for Drug Abuse Prevention (NC‐DAP) under the aegis of the National Institute of Social Defence, New Delhi, to serve as the apex body in the country in the field of training, research and documentation relating to drug abuse prevention.
While all round efforts are being made for prevention and containment of drug abuse in our society, much needs to be done to achieve a satisfactory impact. The causes of problem are transnational and drug abuse prevention shall require Herculean efforts on the part of all the institutions. The empowerment of society through sensitization and awareness appears to be the only solution to strengthen the efforts of enforcement agencies in containing the proliferation of drug trafficking and drug abuse.

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POLITICAL RESERVATIONS FOR WOMEN
The Union Cabinet has approved the much‐delayed Women’s Reservation Bill providing 33% reservation to women in Lok Sabha and State Legislative Assemblies.
The controversial Bill has been delayed for past 12 years as some of the opposition parties like the
Samajwadi Party and Janata Dal (United) had been demanding a sub‐quota for OBC women.
International Experiences
Unfortunately developed countries and fast developing countries have low women representation in their respective legislatures. In the most powerful and most advanced nation of the world the United States, women constitute only 17 percent of legislature .The scientifically advanced nation like Japan cannot atleast claim to be at the top in providing women due share in political power .
In the world’s largest democracy of the world, India, women’s representation is meagre ten percent.
But in a country like Mozambique, a nation ravaged and pillaged by unending civil war and unabated famine like conditions, women constitute more than 30 percent of the legislature.
In South Africa too, the country which was under brutal racist regime, women has more than 30 percent representation. These international experiences reveal that industrial development, economic prosperity and scientific progress do not automatically lead to political empowerment of women.
BACKGROUNDER
Against this background, India has seen a consistent struggle for a constitutional amendment to reserve one third of seats for women in parliament and state legislatures.
It is rather surprising that in the parliamentary history of India women’s reservation bill is the only bill that failed to become an act despite a clear parliamentary majority for it.
The flimsy reasons given by the successive governments reveal the lack of political will. The successive governments have been arguing that this bill could not be enacted due to lack of political consensus.
Nowhere is it written in the Constitution or in the law that a bill can be enacted only if there is a political consensus. In fact, many Acts were made despite strongest opposition to them in parliament. The controversial POTA Act, the Insurance Regulatory and Development Authority Act, the Patent Amendment
Act, etc are only few examples. Why should the rule of political consensus be applicable only to the women’s reservation bill. Though the political parties are publicly expressing support to the bill, there is a strong resistance within the major political parties. The patriarchal political value system is the only hindrance in achieving political empowerment of women.
Major Arguments against the bill
What difference does it make if more number of women are in parliament or state legislatures. Will it alter the nature of governance? This question can be countered in two ways.

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Issues for IIM PI Process http://www.essaysforIIM.com First, democracy is the most representative form of political organization the human civilization has heralded so far. There is no meaning of democracy when women who constitute nearly half of the population, have only eight percent representation. Due representation for women shall deepen the democratic process.
Second, several studies have revealed that women in general are more responsive to issues of human development. According to the UNDP Human Development Report, India ranks 127 among
177 countries. Women suffer more than men due to lack of education, health, hygiene, sanitation, drinking water, nutrition etc. As a result, women are generally more concerned about these issues. Greater representation for women shall ensure a shift in the focus of development agenda towards human development and social development.
Women’s reservations will help those coming from influential political families. The ordinary women folk cannot avail this facility. This argument is partly true. But one should keep in mind the simple truth that law alone cannot change the society. But a conducive legislative atmosphere is essential for a progressive social change. It is true that influential people would utilize these reservations at the beginning. But in due course political leadership will emerge. This is also the experience with scheduled caste and scheduled tribe reservations. At the initial stage landlords have fielded their henchmen and enjoyed power by proxy.
But the things have changed substantially over a period of time.
If we closely look at Indian politics, we would notice two discernible trends.
First, women who have entered politics might have used their family background at the beginning.
But during the course of their political career they have emerged as political leaders on their own.
Indira Gandhi was a shining example of such a trend. Her critics also accept that she was a leader with great political skills. In fact there are women political leaders who have grown in their political career without any influential family background. Uma Bharati, Mamata Banerjee are examples of such a trend. Therefore it is wrong to oppose women’s reservations on the ground that it will lead to didi, biwi, beti syndrome (sister, wife or daughters of influential political leaders getting benefited by these reservations). The most important reason for stalling this bill is on the ground that these reservations would alter the social composition of parliament and legislatures.
Some political parties like Rashtriya Janata Dal (RJD), Samajwadi Party, etc are opposing the bill in its present form that it would benefit upper caste women.
As a result, the composition of backward castes, minorities would be adversely affected.
Such a possibility cannot be ruled out. However, opposing on this ground is uncalled for. No law is final. Every law is evolved over a period of time.
Women as social category suffer discrimination cutting across caste, class, religion in our society. We can begin with women’s reservations and in case the experience reveals that upper caste women are getting disproportionately higher share, the law can be suitably amended.
In fact, the backward castes constitute nearly one fourth of Indian parliament. This is a result of social churning process underway in Indian polity and society. In Indian politics, caste is an important
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Issues for IIM PI Process http://www.essaysforIIM.com criterion for selection of candidates. If a particular constituency is reserved for women, a backward caste woman shall replace a backward caste man as a candidate.
SOME ALTERNATE MEASURES BEING SUGGESTED
The most important among them is to amend the Proportional Representation Act to mandate every political party to field women in at least one third of the constituencies. This seems to be an intelligent solution. But a closer scrutiny of the proposal reveals its true character. If this proposal is implemented as an alternative, political parties driven by patriarchal values, would field women in the constituencies they know they would loose in all probability. As a result, there will be one third of women contestants, but not one third of women in parliament and legislatures.
But an amendment is suggested to prevent such a misuse. According to this amendment, every political party has to field women in at least in one third of seats in every state in parliamentary elections.
Similarly, every political party has to field women candidates in at least one third of seats in every district in case of assembly elections. But, this amendment is not a complete solution to the possibility of misuse.
Every political party can easily identify weaker seats and field women in those seats. It is in fact difficult to implement such a proposal in the era of coalitions, as all political parties do not contest all the seats.
ALTERNATE PROPOSALS
Instead of one third, we can begin with 10 or 15 percent and subsequently increase it. Those who propose this alternative are questioning whether there is any sanctity for demanding one third. But such a proposal would defeat the aspirations of women’s movement. There may not be any arithmetical sanctity for the demand, but reserving one third of seats would mean a substantial increase from the present level of representation and shall be more closer to the women’s share in the population. Any attempt to dilute this proportion is absolutely undemocratic. The other proposals are also equally undemocratic.
The often quoted argument for not fielding sufficient number of women candidates is the winnability factor. This argument lacks conviction given the fact that women constitute around 12 percent of Rajya
Sabha seats. The low level of women’s representation in the Rajya Sabha provides an ample reflection of abysmal lack of commitment of our political system to the goal of political empowerment of women.
Therefore, the only alternative is to implement the commitment to enact women’s reservation bill. The act can be amended accordingly based on the experiences. In several countries of the world including that of advanced nations too, women have to struggle to get even voting right. But in India women got the right to vote as democratic India granted universal adult franchise with the dawn of independence itself.
Let the Indian democracy create history once again by providing women the constitutional guarantee to adequate political representation.

INDIA’S HIGHLY POLLUTED RIVERS
The pollution load on rivers has increased over the years due to rapid urbanisation and industrialization.
Present Position
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Issues for IIM PI Process http://www.essaysforIIM.com Water quality monitoring carried out by reputed institutions such as, IIT, Kanpur, BHEL, etc. indicates that, water quality of the river Ganga conforms to the prescribed standards in terms of key indicators, namely, Bio‐chemical Oxygen Demand (BOD) and Dissolved Oxygen (DO) at most of the locations, except in the stretch between Kannauj and Varanasi in Uttar Pradesh.
However, the levels of fecal coliforms are reported to be exceeding the maximum permissible limit at a number of monitoring stations along the river Ganga.
The water quality in the stretch of the river Yamuna from Tajewala to Palla in Haryana is found to be within the prescribed limits. However, the stretch of the river in the vicinity of Delhi (downstream of
Wazirabad barrage to upstream of Okhla barrage) and in parts of Uttar Pradesh does not meet the standards in terms of Bio‐chemical Oxygen Demand.
The water quality of Yamuna has not shown the desired improvement owing to large gap between the demand and availability of sewage treatment capacity and lack of fresh water in the river.
Action Taken by Government
The Central Government has constituted the National Ganga River Basin Authority (NGRBA) under the
Environment (Protection) Act, 1986 on 20th February, 2009 as an empowered planning, financing, monitoring and coordinating authority for conservation of the Ganga River.
States have been requested to explore the possibilities of setting up Special Purpose Vehicles (SPVs) and other innovative modes for financing and implementation of schemes for conservation of rivers and operation and maintenance of assets.
Conservation of rivers is an ongoing and collective effort of the Central and State Governments.
Under National River Conservation Plan (NRCP), States contribute 30% share of the capital costs.
In the first meeting of the NGRBA held on 5th October, 2009, it was decided to ensure that by the year 2020 no untreated municipal sewage and industrial effluents flow into Ganga.
Investments required to create the necessary treatment and sewerage infrastructure over next 10 years would be suitably shared between Centre and the States.

NATIONAL GANGA RIVER BASIN AUTHORITY (NGRBA)
Backgrounder
The Central Government set up NGRBA in 2009 as an empowered planning, financing, monitoring and coordinating authority for the Ganga river, in exercise of the powers conferred under the
Environment (Protection) Act,1986.
The Prime Minister is ex‐officio Chairperson of the Authority, and it has as its members, the Union
Ministers Concerned and the Chief Ministers of states through which Ganga flows, viz.,
Uttarakhand, Uttar Pradesh, Bihar, Jharkhand and West Bengal, among others.
The objective of the Authority is to ensure effective abatement of pollution and conservation of the river Ganga by adopting a holistic approach with the river basin as the unit of planning.

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Issues for IIM PI Process http://www.essaysforIIM.com The functions of the Authority include all measures necessary for planning and execution of programmes for abatement of pollution in the Ganga in keeping with sustainable development needs Key Features River basin will be the unit of planning and management. This is an internationally accepted strategy for integrated management of rivers.
Accordingly, a new institutional mechanism in the form of National Ganga River Basin Authority
(NGRBA) will spearhead river conservation efforts at the national level. Implementation will be by the
State Agencies and Urban Local Bodies
The new strategy will take into account the competing demands on water and will seek to ensure minimum ecological flows.
The minimum ecological flows or the entire Ganga will be determined through modelling exercises.
NGRBA will take appropriate measures to regulate water abstraction for maintaining ecological flows in the river.
Functions of NGRBA
The NGRBA would be responsible for addressing the problem of pollution in Ganga in a holistic and comprehensive manner. This will include water quality, minimum ecological flows, sustainable access and other issues relevant to river ecology and management.
The NGRBA will not only be regulatory body but will also have developmental role in terms of planning
& monitoring of the river conservation activities and ensuring that necessary resources are available.
The NRGBA would work for maintaining the water quality of the river Ganga upto acceptable standards. The pollution abatement activities will be taken through the existing implementation mechanisms in the State and also through special Purpose Vehicles at the pollution hotspots.
The NGRBA will ensure minimum ecological flow in the Ganga by regulating water abstraction and by promoting water storage projects.

NOISE POLLUTION
Noise pollution levels in most cities is beyond the permissible levels Sporadic noise monitoring in urban areas, mainly during festivals such as Deepawali by the Central Pollution Control Board (CPCB) and the
State Pollution Control Boards (SPCBs)/ Pollution Control Committees (PCCs) reveals this fact. As per available data, the laid down noise norms for respective zones (Industrial, Commercial, Residential or
Silence) are exceeded at many locations. However, a definite trend cannot be ascertained since data is available only for a limited period.
The Supreme Court, in one of its judgment directed to put complete ban on bursting of sound emitting fire crackers during night time (between 10 pm and 6 am).

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Issues for IIM PI Process http://www.essaysforIIM.com Besides this, ban on use of sound emitting instrument or any sound amplifier at night time except in public emergency and use of horn at night time except in exceptional circumstance have been ordered. The Supreme Court also suggested to organise public awareness campaigns during festival seasons.
State Government have been advised to make provision for seizure and confiscation of loud‐speakers, amplifier and other equipments which are found to create noise level beyond permissible limits.
The Central Government has undertaken the task to create a national ambient noise monitoring network for urban areas and reporting the data therein, in accordance with the National Environment
Policy‐2006.
The various steps undertaken by the Government to control noise pollution include the following:‐
I.
II.
III.

Implementation of the provisions of The Factory Act, 1948, the Air (Prevention and control of
Pollution) Act, 1981 and the Noise Pollution (Regulation and Control) Rules, 2000;
Implementation of noise standards at the manufacturing stage for generator sets, motor vehicles, select domestic appliances and firecrackers; and
Restriction on the blowing of horns, bursting of sound emitted fire crackers, operation of sound emitting construction equipments, and playing of bands, etc during night time (10.00 pm to 6.00 am) DISINVESTMENT: STRATEGIES & ISSUES
The issues relating to disinvestment turn around three questions ‐ why, how and how much. The origins of public sector enterprises are manifold. The objectives range from building infrastructure for economic development to generating investible resources for development by earning suitable returns. Thus, the motivation extends from the theory of commanding heights to the provision of consumption goods at subsidised rates. Eventually, public sector enterprises are now spread over from coal, steel and oil at one end to hotel and breadmaking at another. The time has come to critically assess the sectors in which public enterprises must function. This is particularly important in the context that the resources available for the centre and states are limited and are needed for extending in a bigger way the social infrastructure
The public sector should make investment only in those areas where investment is mainly infrastructural in nature and where private sector participants are not likely to come forth to an adequate extent within a reasonable time perspective;
The public sector must withdraw from the areas where no public purpose is served by its presence; and
The principle of market economy should be accepted as the main operative principle by all public sector enterprises unless the commodities and services produced and distributed are specifically for protecting the poorest in the society.
The reform of the public sector in general and that of the loss‐making units in particular has assumed importance in the context of the financial strain under which all governments, both at the centre and the state, are now operating. The issue of how to handle loss making enterprise needs to be faced squarely.
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Issues for IIM PI Process http://www.essaysforIIM.com Current profit and or current loss need not necessarily be the appropriate criterion for disinvestment.
Merely because a unit is profitable, it does not qualify to continue to be publicly owned, unless it meets a well‐defined felt need. Loss making units need not be excluded from disinvestment, if there are buyers who can make it profitable.
Privatisation implies a change in ownership resulting in a change in management.
Disinvestment in that sense is a wider term extending from dilution of the stake of the government to a level where there is no change in control to dilution that results in the transfer of management. If in fact in a particular enterprise there is dilution of government ownership beyond 51%, this can result effectively in a transfer of ownership. The extent of dilution needs to be determined as part of the policy of disinvestment. Why Disinvestment
Broadly speaking, there are two major reasons adduced for disinvestment.
One is to provide fiscal support and the other is to improve the efficiency of the enterprise.
The fiscal support argument has to be given due weightage. The demands on the governments, both at the centre and the states are increasing. There is a compelling need to expand the activities of the state in areas such as education, health and medicine. It is therefore legitimate that a part of the additional resources needed for supporting these activities comes out of the sale of shares built up earlier by the government out of its resources.
It is sometimes argued that the resources raised through disinvestment must be utilised for retiring past debts and thereby bringing down the interest burden of the government. So long as government is a net borrower of a fairly large magnitude year after year, it does not make any material difference whether the resources are utilised to retire past debts or simply utilised as part of the receipts. In the latter case, it only results in a lower borrowing requirement.
The second important argument in favour of disinvestment is the contribution that it can make to improving the efficiency of the working of the enterprise. Leaving aside the extreme case where the dilution results in the transfer of ownership, even in the case of disinvestment where the dilution is of lesser order and where the government control is still retained, the induction of public ownership can have a salutory effect on the functioning of an enterprise. It increases the accountability of those in charge of the enterprise.
The shareholders would require to be compensated and this will in turn compel the enterprise to run more efficiently and earn more profits. This must be regarded as part of the reform and restructuring of public enterprise. Flexibility in ownership can in effect impart efficiency. In fact, the induction of the public into the ownership structure can also create conditions in which there could be greater autonomy for the functioning of the public sector enterprise. Disinvestment can therefore be regarded as a tool for enhancing economic efficiency.
How much of disinvestment
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Issues for IIM PI Process http://www.essaysforIIM.com The second important issue with respect to disinvestment relates to the extent of disinvestment to be made in an enterprise. Obviously the level of disinvestment in an enterprise in any year should be derived from the target level of government ownership in that enterprise over the medium term.
The target levels of ownership could be 0; 26% to ensure limited control over special resolutions brought in the general body meetings of the enterprise; 51% to have effective control and 100% for full ownership.
The target level of disinvestment should be derived from the desirable level of public ownership in an activity or unit consistent with Industrial Policy.
How to disinvest
The last issue that arises with respect to disinvestment relates to the process to be adopted for disinvestment. This in turn revolves around appropriate valuation of the shares and the modalities to be adopted for sale.
In general, three methods for valuation of shares are adopted ‐ net asset value method, profit earning capacity value method and discounted cash flow method.
While the NAV would indicate the value of the asset, it would not be in a position to indicate the profitability or income to the investors.
The profit earning capacity is generally based on the profit actually earned or anticipated.
The discounted cash flow is a far more comprehensive method of reflecting the expected income flows to the investors.
Of these three methods, the discounted cash flow method has the greatest relevance though it is the most difficult. Valuation is a difficult exercise whether in the private or public sectors ‐ in India or elsewhere. This is all the more so when the different valuation methods give different results. It has also to be noted that while the different valuation methods can provide a bench mark for the price, the price at which a share can be sold is determined more by investor perception rather than any mechanical measure of intrinsic worth. There is therefore the need for full disclosure to generate credibility and investor interest. Rise or fall in share value of an enterprise soon after disinvestment does not by itself indicate that shares were underpriced or overpriced at the time of disinvestment.
On the modalities of disinvestment, there are two acceptable and transparent processes available.
Offering shares of public sector enterprises at a fixed price through a general prospectus. The offer is made to the general public through the medium of recognised market intermediaries.
Sale of equity through auction of shares amongst predetermined clientele whose number can be as large as necessary or practicable. The reserve price for the public sector enterprises' equity can be determined with the assistance of merchant bankers.
Both these methods have their own merits and demerits.

In the first alternative of `offer for sale', difficulties may be encountered in estimating and determining the `fixed' price if it is offered for the first time and the shares have not actually been trading in the stock exchange. On the other hand, this method has the advantage of spreading the ownership widely
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Issues for IIM PI Process http://www.essaysforIIM.com amongst the general public and in a transparent manner. In the case of those PEs for which the first sale of equity is yet to be made, or those where the track record of trading in shares is yet to be established, the tender system would be advantageous. Once a reasonable market price is established in a normal trading atmosphere over a reasonable period of time and a public enterprise completes the preparatory work, the fixed price method would be appropriate.
Yet another issue in relation to modalities is with respect to restructuring. In the case of some enterprises, some restructuring can result in increasing the proceeds of disinvestment. However, whether the shares should be sold as‐is‐where‐is or whether some restructuring should be undertaken before sale should depend upon the time, energy and resources to be devoted for such restructuring. There has to be a balance of costs and benefits.
Disinvestment does not necessarily benefit the enterprises in terms of immediate accrual of resources. The proceeds of disinvestment goes to government. In order to sustain the interest of the enterprises in the process of disinvestment, it may be useful to set aside a certain percentage of the profits ‐ say 10 percent as recommended by the Committee on Disinvestments, to be given to the enterprises themselves for their own expansion.
The process of disinvestment has also to take into account the conditions in the capital market.
Disinvestment should not result in `crowding out' resources available for the private sector. In order to avoid the situation many countries have also chosen to sell a part of the shares set aside for disinvestment abroad.
Disinvestments even where it does not lead to transfer of ownership can have a salutary effect on management. There will be a new sense of accountability which goes beyond being responsible only to the government. Reform of the public sector enterprises is in some ways related to the process of disinvestments but has a distinct importance by itself.
There will be a very large number of public enterprises still operating in the core and strategic sectors where the control will be with the government. To make them more efficient, productive and financially strong is a task that must be addressed independent of the exercise relating to disinvestment. © EssaysforIIM.com 2014‐15

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INCLUSIVE GROWTH
Introduction: “Inclusive growth” is not a new or a novel idea. Defined in the Eleventh Plan as a “growth process which yields broad‐based benefits and ensures equality of opportunity for all”, it stands for
“equitable development” or “growth with social justice”, which have always been the watchwords of development planning in India. Yet, since “inclusive growth” is so widely used these days by the reputed multilateral institutions as well as the policymakers in India, one wonders whether this usage acquires a special significance in the present context. The belief that there is a significant “tradeoff” between growth and equity does not seem to be as widespread now as before. There is now a genuine and widespread recognition about the adverse social consequences of rising inequalities in the recent high growth phase, which do not seem to be mitigated through the so‐called “trickle‐down” mechanism.
For about three decades from the early 1950s to the early 1980s, when the country was experiencing a slow, or the so‐called “Hindu” rate of growth, the concern for accelerating GDP growth itself was uppermost, apart from ensuring equity. Inequalities did arise in the wake of growth then, but were not as prominent as in the recent phase of accelerated growth. With the GDP growth rate rising to 7 to 8%, rural‐ urban divide, regional divide and rich‐poor divide became glaring, which brought “inclusive growth” high on the policy agenda.
Recent Initiatives and Impact: Notwithstanding the impact of the global economic meltdown on the domestic economy in the recent days, the present United Progressive Alliance (UPA) government can legitimately take credit for sustained high GDP growth, with strong recovery of manufacturing sector.
This particular configuration has brought about a boom in tax revenues for the government, led by the revenues from direct taxes, especially from the corporate sector.
The tax‐GDP ratio registered a significant rise recovering and even exceeding pre‐reform levels both for the centre and the states.
This has enabled governments to step up public investment in infrastructure and other expenditures on agriculture and social sectors.
High GDP growth, through improvement in revenues, can facilitate inclusive growth by enabling the governments to undertake the necessary investments and other expenditures.
For a resource‐constrained economy, high GDP growth is a necessary, though not sufficient, condition for achieving inclusive growth.
Agricultural Growth
Public investment in agriculture which had declined from 5% of agriculture GDP in the early 1980s to below 2% in 2002‐03 has now been stepped up to 3%, with the target of raising it further to 4% by the close of the Eleventh Plan.
Together with private investment, the overall capital formation in agriculture is now 12% of agriculture GDP which is the highest in the last 25 years (Planning Commission 2008). By the end of the Eleventh Plan, this is expected to go up to 16% – necessary for sustaining 4% annual growth
(targeted of 11th Plan) in agriculture GDP
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Issues for IIM PI Process http://www.essaysforIIM.com The target of doubling the supply of institutional credit to agriculture in three years has been exceeded. There have been concerted policy interventions such as launching of the National Food
Security Mission and the Rashtriya Krishi Vikas Yojana.
As a result, there is a clear upturn in agriculture, the growth rate of agriculture GDP rising to nearly
4%, on an average, in the last four years with comfortable stocks of foodgrains – almost comparable to that achieved when the green revolution was in full swing.
Improvement Needed: Towards strengthening the agricultural research system, regenerating dry land farming, and providing institutional support like credit and extension services to small and marginal farmers and women farmers.
Rural Employment Guarantee
The National Rural Employment Guarantee Scheme has now been extended throughout the country.
Most evaluations – official as well as non‐official – show that the implementation of this scheme has been far more effective than any of its predecessor schemes in the country.
In particular, the leakages have been reduced significantly in many places in respect of the number of days a worker is employed as well as wages paid.
This is attributed mainly to the adoption of innovative methods like opening post office and bank accounts for payment of wages to workers and the use of information technology, apart from social auditing. The encouraging experience is by no means uniform, nor is there any limit to the ingenuity for circumventing the new rules and practices.
In particular, planning and execution of works under the scheme needs considerable improvement by enhancing the technical and institutional capacity at the grass roots.
But, coming against the backdrop of rural distress for over a decade, the scheme was successful in providing much needed relief to the rural poor, apart from raising their awareness and bargaining power. Further, the recent experience shows that the Right to Information Act being implemented in the country holds a great promise for improving the effectiveness of this and similar schemes designed to improve the lot of the poor.

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CHALLENGES TO ENABLE INCLUSIVE GROWTH
Infrastructure and the Regional Divide
The Commission on Growth and Development, constituted by the World Bank, came out with the assessment that “no country has sustained rapid growth without also keeping up impressive rates of public investment in infrastructure, education and health.” (World Bank 2008).
The Commission notes that public investment in infrastructure constitutes 5 to 7% of GDP in fast growing
Asia. Implying, presumably, that there is no sanctity to a particular number in this regard, the commission specifically observes about India that “now the government is trying to do more, making up for years of underinvestment in public infrastructure”.
The performance of certain infrastructure industries has been far from satisfactory. For example, a basic input like electricity which had registered an annual growth rate of 8 to 10% in the 1980s, showed a steady decline in its growth rate in the post‐reform period reaching a low of about 3% in 2002‐ 03. Since then it has been recovering, its annual growth rate rising to a little over 7% in 2006‐07 (RBI 2008).
The Eleventh Plan, therefore, envisages a significant rise in public investment in infrastructure from a little over 4% of GDP in the base year to over 6% at the end of the Plan. Together with private investment, it is expected to rise from 5% of GDP to 9% over this period.
The Eleventh Plan claims to outline “a comprehensive programme for development of infrastructure, especially in rural areas, and in the remote and backward parts of the country consistent with the requirements of inclusive growth at 9% per year… what this plan seeks to do is to target the slower growing regions, and the backward areas within these states, for higher levels of public investment that will enable the backlog in physical and social infrastructure to be addressed” (Planning Commission 2008).
Social Structure and Social Policy
It has not been possible to evolve a comprehensive and active social policy for providing safety nets to cope with the adverse consequences of non‐inclusive growth under the prevailing iniquitous social structure. A comprehensive social policy at this stage should have four major elements, viz, land policy, rehabilitation and resettlement policy, social security for the unorganised sections of labour and financial inclusion
(covered in detail in a separate essay, as it is the most quoted and latest buzzword)
Land
“Land to the tiller” was the overarching principle of land policy in the early postindependence period.
While this policy continues to be relevant, especially for tribal areas, half a century of development has brought some new concerns to the forefront.
With growing industrialisation and urbanisation, the rising demand for land for industrial purposes, including special economic zones (SEZs), and for housing in expanding urban areas is posing an inevitable threat of a reverse movement of land from tillers.
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Issues for IIM PI Process http://www.essaysforIIM.com While raising agricultural productivity is a must to cope with the shrinkage of agricultural land, the very slow growth of non‐farm opportunities for employment and livelihoods and lack of social security for small holders argue for a careful and calibrated approach for land acquisition.
Land alienation continues to be a serious problem in tribal areas. The enactment of Scheduled Tribes and Other Traditional Forest Dwellers (Recognition of Forest Rights) Act, 2006, is a major step towards protecting the rights of scheduled tribes and other traditional forest dwellers. However, past experience suggests that the implementation of this Act is going to be extremely challenging.
A pre‐requisite for effective implementation is improvement in land administration in tribal areas by putting in place field machinery with adequate staff, and effective monitoring and review, backed by necessary political will to counter the pressures from the vested interests. Some spade work in this respect seems to be in progress But the efforts on the ground so far do not seem to match the challenges involved.
Rehabilitation and Resettlement
Willingness to part with land by the farmers for development projects has to be the guiding principle for making the sale transaction just and humane.
Government and industry should, therefore, supplement the principle of fixed “compensation” at a point of time with mechanisms for assuring original landowners adequate stake, on a secure footing, in the new establishments.
This is essential because, in the present context of rising land values and high input‐intensity of farming with increasing uncertainty, traditional norms for compensation and forms of rehabilitation and resettlement (R&R) of displaced persons are proving to be unviable.
Therefore, while the R&R policy should give a primacy of place to land‐for‐land, it should also address the alternative of ensuring adequate stake in the new projects and enterprises, including those in
SEZs, for the displaced persons. Such a course of action would be fully justified by the high profitability of new ventures.
Social Security
As in the previous plans, the Eleventh Plan proposes targeted livelihood support programmes aimed at increasing productivity and incomes of the poor in several low income occupations, such as small and micro enterprises, weavers, artisans, craftsmen, etc. But the lack of concern at the state and the lower levels for the plight of these unorganised sections renders many of these programmes infructuous. The recent spate of suicides of weavers in certain parts of the country reflects this lack of concern. In this context, the recommendations on social security made by the National Commission for Enterprises in the Unorganised Sector (NCEUS 2006) assume significance.
The UPA Government has introduced schemes to provide social security coverage through life cover, health insurance and extension of old age pension on the lines recommended by NCEUS but by restricting coverage to sections of below the poverty line (BPL) households.

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MARKET ECONOMY STATUS China had asked India for ‘Market Economy Status’.
What is a ‘market economy’ status?
When a country accords market economy status to another country, it recognises that free market forces of demand and supply are operating there. It accepts that economic variables such as prices and exchange rates are not determined by the state. When a country recognises another as a market economy, it will have to accept information on prices supplied by that country while contesting anti‐dumping cases.
Why is India refusing to give the status?
India believes that China’s corporate governance and accounting systems are not transparent and the country is not following global best practices in its financial & banking systems and stock markets. It had recently sent a questionnaire to China seeking information on key issues such as land laws, accounting practices, minimum wages and electricity rates, which was the first step towards granting the status.
China, however, dismissed the move labelling the entire issue as a political one.
Is the issue economic or political?
The issue is both economic and political. China has the maximum cases of dumping ‐‐ exporting goods at prices lower than those prevailing in its domestic market ‐‐ against it. India does not want to give the market economy status to China as it would then have to accept all information on local prices supplied by China while framing its dumping cases.
At present, India fights anti‐dumping cases against China on the basis of prices prevailing in third countries exporting the same product to India. Refusing to recognise China as a market economy also suits India politically at the moment because of the renewed tension on the border. A few years back when political relations with China were better, the ministry of external affairs was trying to convince the commerce department to grant the status to the country.
Is India breaking multilateral trade rules?
Not at all. As per China’s accession contract with the World Trade Organisation (WTO), members are not obligated to recognise China as a market economy till 2016. Only about 60 countries have given China the status. These countries include members of the 10‐member Asean, which has a free trade agreement with
China.

BENCHMARK RBI RATES – A PRIMER
What is Cash Reserve ratio?
Cash reserve Ratio (CRR) is the amount of funds that banks have to park with RBI. If RBI decides to increase the cash reserve ratio, the available amount with banks would reduce. The bank increases CRR to impound surplus liquidity. CRR serves two purposes: One, it ensures that a portion of bank deposits are always
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Issues for IIM PI Process http://www.essaysforIIM.com available to meet withdrawal demand, and secondly, it enables that RBI control liquidity in the system, and thereby, inflation by tying their hands in lending money. The current CRR is 6%. (As of Dec 23rd)
What is SLR? (Statutory Liquidity Ratio)
Apart from keeping a portion of deposits with RBI as cash, banks are also required to maintain a minimum percentage of deposits with them at the end of every business day, in the form of gold, cash, government bonds or other approved securities. This minimum percentage is called Statutory Liquidity Ratio. The current SLR is 24% (As of Dec 23rd). In times of high growth, an increase in SLR requirement reduces lendable resources of banks and pushes up interest rates.
What is the bank rate?
Unlike other policy rates, the bank rate is purely a signalling rate and most interest rates are delinked from the bank rate. Also, the bank rate is the indicative rate at which RBI lends money to other banks (or financial institutions) The bank rate signals the central bank’s long‐term outlook on interest rates. If the bank rate moves up, long‐term interest rates also tend to move up, and vice‐versa.
What is base rate?
It is the minimum lending rate that banks can charge their customers from July 1, 2010. So far, all lending rates were pegged to a bank’s prime lending rate (PLR). Under the existing system, banks charge customers interest rate either above the PLR or below PLR. Thus PLR worked as an anchor rate. From July
1, the base rate will not only replace the PLR as the benchmark, but it will also be the new floor rate below which no bank can lend. India’s largest bank, the State Bank of India, has indicated that it plans to peg its base rate in the range of 7.5‐8%.
What is repo rate?
Repo rate, or repurchase rate, is the rate at which RBI lends to banks for short periods. This is done by RBI buying government bonds from banks with an agreement to sell them back at a fixed rate. If the RBI wants to make it more expensive for banks to borrow money, it increases the repo rate. Similarly, if it wants to make it cheaper for banks to borrow money, it reduces the repo rate. The current repo rate is 6.25%. (As of Dec 23rd)
What is reverse repo rate?
Reverse repo rate is the rate of interest at which the RBI borrows funds from other banks in the short term. Like the repo, this is done by RBI selling government bonds to banks with the commitment to buy them back at a future date. The banks use the reverse repo facility to deposit their short‐term excess funds with the RBI and earn interest on it. RBI can reduce liquidity in the banking system by increasing the rate at which it borrows from banks. Hiking the repo and reverse repo rate ends up reducing the liquidity and pushes up interest rates. The current reverse repo rate is 5.25% (As of Dec 23rd)
What is an interest rate corridor?
Interest rate corridor refers to the window between the repo rate and the reverse repo rate wherein the reverse repo rate acts as a floor and the repo as the ceiling. Ideally, rates in the overnight interbank call
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Issues for IIM PI Process http://www.essaysforIIM.com money market, where lending and borrowing is unsecured, should move within this corridor. However, when banks are short of funds and the overnight call money rates are high and above the repo rate, banks approach the RBI to borrow under the repo window.
Therefore, the repo rate becomes an effective policy tool as it would help bring down the rates in the overnight market . The reverse hap‐pens when money market rates fall below the reverse repo rate. Banks then park surplus funds with the RBI through a reverse repo trans‐action. As a result, when there is excess liquidity in the system, the reverse repo is more effective. When liquidity is tight and banks need short‐ term funds from the RBI to manage mismatches, then the repo rate emerges as the effective policy rate.
But if liquidity returns to the system the reverse repo would become the operative policy rate as the RBI would be draining out funds from the system.
Why is a narrow rate corridor desirable?
A narrow rate corridor means that short‐term interest rates in the call money market will move within that band. This band was earlier 150 basis points, which has now been lowered to 100 basis points.
Effectively, the narrower rate corridor will mean there will be less volatility in short term rates.
Do other central banks also have rate corridors?
Many developing countries have the rate corridors but central banks in developed and deeper financial markets have a single rate. In the US, for instance, the Fed Fund rate is the key interest rate. Short term funds are available at this rate to the eligible borrowers

WORLD TRADE Despite the recent crisis, world exports were 30% higher in 2012 than in 2000 — and 150 % higher than in 1990.
Not all sectors are expanding at the same pace: manufactured exports are surging; raw material exports are growing steadily; and agriculture exports are largely static.
And with the exception of East Asia, trade between regions is growing faster than trade within regions.
Never before has the world economy been as inter‐linked by trade as it is today. rapid shift in economic power East and South, as developing countries harness globalization to “catch‐ up” to the industrialized West.
Developing countries' share of world trade has grown from a third to over half in just fifteen years
China‐passed Japan as the world's second biggest national economy, and Germany as the world's top exporter. In 1990, less than 1/3 of developing‐country trade was with other developing; today over ½ trade is
South‐South.

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Issues for IIM PI Process http://www.essaysforIIM.com Spread of globally‐integrated production chains ‐ expanding trade links with emerging economies are mirrored by expanding FDI links — as trade growth fuels investment and investment growth fuels trade Even with the major changes to the WTO in recent years — its new Members, expanded scope, and more effective dispute settlement — there is a palpable need to factor in new realities.
The US, the EU and Japan remain key players but they are no longer dominant. Fast‐emerging powers, like China, India and Brazil, play a role that was unimaginable
As recently as 1997 some four‐fifths of WTO disputes were initiated by industrialized countries; Now almost two‐thirds were initiated by developing countries.
For anti‐dumping alone, developing countries initiated almost 70% of actions since 1995 — and three quarter of these were directed at other developing countries, further underlining their increasing use of, and reliance on, the system
What is at stake is more than the economic benefits that would flow from a successful Doha deal. The real issue is the relevance of the multilateral trading system itself. With its global Membership, comprehensive rules, and “world trade court”, the WTO is more central than ever to international economic relations. But this also means that the costs of failure are higher — with ramifications that could be felt more widely. Bringing the Doha Round to a successful conclusion would send the strongest possible signal that the WTO is relevant to today's new world economy, that it remains the focal point for global trade negotiations, and that it will be a key forum for international economic cooperation into the future. But if Doha stumbles, then doubts will grow, not just about the WTO, but about the future of multilateralism in trade.
In many ways, the Doha Round marks a transition from the old governance of the old trade order to the new governance of a new trade order. Covering classic trade issues such as the reduction of import tariffs and subsidies, as well as innovative new chapters on trade facilitation and fisheries subsidies, the Doha Round is a turning point for the system.

ANTI‐COUNTERFEITING TRADE AGREEMENT (ACTA)
India is striving to forge a united front against an anti‐counterfeiting agreement being negotiated by some developed countries, which could threaten exports of genuine off‐patent drugs, information technology and other products from emerging markets.
The anti‐counterfeiting trade agreement (ACTA) proposed between the EU, the US, Australia, Canada,
Japan, Korea, New Zealand and Switzerland seeks to widen the scope of protection and sets higher standards for enforcement of intellectual property rights beyond the provisions of the existing multilateral
Trips agreement. Apart from affecting the exports from emerging markets, the agreement may also give member countries power to seize and destroy exports while in transit to third countries.
Similarly, under the draft ACTA, data exclusivity could be invoked by a transit country's customs authorities as a basis for seizing pharmaceutical products in transit, even if there is no data exclusivity in the exporting and importing countries. This would obviously act as a significant constraint on exporting countries such as India. This has serious implications for India. Most of India's pharmaceutical exports to
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Issues for IIM PI Process http://www.essaysforIIM.com Africa have to transit through the waters of European countries. These provisions would mean that the
European countries would be able to seize India's pharmaceuticals even though Africa does not support this IPR regime. Since Africa is a huge market for Indian goods, this can have a substantial detrimental effect on Indian businesses.
A Ficci paper quotes an EU study on ACTA, which says there would be an infringement if a medicine or product is made for which a company holds a patent in any country, no matter how unclear in scope and validity of the patent is. Similarly, production of spare parts may violate an unexamined design right with unclear scope and validity may also be considered an infringement. The stringent norms being proposed will extend to import, export, in‐transit and other situations when goods are under customs supervision.
This means the problem of wrongful seizures being currently faced by Indian generic drug exporters to
Latin America and Africa at European airports will only get compounded as the proposed agreement covers all products and a larger number of countries.
India has complained at the WTO against an EU customs legislation that allows officials to seize consignments of medicines which are off patent in both India and the countries where they are being exported to if there are companies holding patents to it in the EU. The countries working out the ACTA are trying to scuttle the World Trade Organisation (WTO) and World Intellectual Property Organisation
(WIPO) processes. Such measures can be contested in WTO only after they are implemented. At present,
India has to try to group up with other developing countries and create a lot of pressure to stop the agreement from being implemented.

WTO BASICS ‐ PRIMER The World Trade Organization (WTO) is the only international organization dealing with the global rules of trade between nations. Its main function is to ensure that trade flows as smoothly, predictably, fairly and freely as possible.
It does this by:
Administering trade agreements
Acting as a forum for trade negotiations
Settling trade disputes
Reviewing national trade policies
Assisting developing countries in trade policy issues, through technical assistance and training programmes Cooperating with other international organizations
Structure
GATT was just a treaty, but the WTO is an international organisation with higher empowerment. Also, it is endowed with a legal status. The main objective of WTO is to make international trade as fair and free as possible. To achieve such an objective the WTO sets certain rules of trading. These rules are a result of
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Issues for IIM PI Process http://www.essaysforIIM.com negotiations among the member countries. Currently, WTO has 153 member countries. The WTO’s top level decision‐making body ‘Ministerial Conference’ meets at least in every two years. The rounds of negotiations are introduced in these meets and with the consensus of all member countries rules of trade/ schedules are created. These schedules become the basis for trade in:
Goods, known as GATT that has 30 schedules. This comes under Goods Council.
Services, known as General Agreement on Trade in Services (GATS). This comes under Services
Council.
Ideas and creativity, known as Trade Related Aspects of Intellectual Property Rights (TRIPS). This comes under Intellectual Property Council.
These Councils report to the General Council which comes at second position in the decision making ladder, i.e., after the Ministerial Conference. Numerous specialised committees, working groups and working parties deal with individual agreements and other areas such as environment, development, membership applications and regional trade agreements.
The WTO agreements
The WTO’s rules — the agreements — are the result of negotiations between the members. The current set were the outcome of the 1986–94 Uruguay Round negotiations which included a major revision of the original General Agreement on Tariffs and Trade (GATT).
GATT is now the WTO’s principal rule‐book for trade in goods. The Uruguay Round also created new rules for dealing with trade in services, relevant aspects of intellectual property, dispute settlement, and trade policy reviews. The complete set runs to some 30,000 pages consisting of about 30 agreements and separate commitments (called schedules) made by individual members in specific areas such as lower customs duty rates and services market‐opening.
Through these agreements, WTO members operate a non‐discriminatory trading system that spells out their rights and their obligations. Each country receives guarantees that its exports will be treated fairly and consistently in other countries’ markets. Each promises to do the same for imports into its own market. The system also gives developing countries some flexibility in implementing their commitments.
Goods
From 1947 to 1994, GATT was the forum for negotiating lower customs duty rates and other trade barriers; the text of the General Agreement spelt out important rules, particularly non‐discrimination.
Since 1995, the updated GATT has become the WTO’s umbrella agreement for trade in goods. It has annexes dealing with specific sectors such as agriculture and textiles, and with specific issues such as state trading, product standards, subsidies and actions taken against dumping.
The Agriculture Agreement
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Issues for IIM PI Process http://www.essaysforIIM.com The new rules and commitments apply to: market access — various trade restrictions confronting imports domestic support — subsidies and other programmes, including those that raise or guarantee farmgate prices and farmers’ incomes export subsidies and other methods used to make exports artificially competitive.
The agreement does allow governments to support their rural economies, but preferably through policies that cause less distortion to trade. It also allows some flexibility in the way commitments are implemented. Developing countries do not have to cut their subsidies or lower their tariffs as much as developed countries, and they are given extra time to complete their obligations. Least‐developed countries don’t have to do this at all. Special provisions deal with the interests of countries that rely on imports for their food supplies, and the concerns of least‐developed economies.
Domestic support
The main complaint about policies which support domestic prices, or subsidize production in some other way, is that they encourage over‐production. This squeezes out imports or leads to export subsidies and low‐priced dumping on world markets. The Agriculture Agreement distinguishes between support programmes that stimulate production directly, and those that are considered to have no direct effect.
Domestic policies that do have a direct effect on production and trade have to be cut back. WTO members calculated how much support of this kind they were providing per year for the agricultural sector (using calculations known as “total aggregate measurement of support” or “Total AMS”) in the base years of 1986‐88. Developed countries agreed to reduce these figures by 20% over six years starting in 1995. Developing countries agreed to make 13% cuts over 10 years. Least‐developed countries do not need to make any cuts. (This category of domestic support is sometimes called the
“amber box”, a reference to the amber colour of traffic lights, which means “slow down”.) Measures with minimal impact on trade can be used freely — they are in a “green box” (“green” as in traffic lights). They include government services such as research, disease control, infrastructure and food security. They also include payments made directly to farmers that do not stimulate production, such as certain forms of direct income support, assistance to help farmers restructure agriculture, and direct payments under environmental and regional assistance programmes.
Also permitted, are certain direct payments to farmers where the farmers are required to limit production (sometimes called “blue box” measures), certain government assistance programmes to encourage agricultural and rural development in developing countries, and other support on a small scale (“de minimis”) when compared with the total value of the product or products supported (5% or less in the case of developed countries and 10% or less for developing countries).
Services

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Issues for IIM PI Process http://www.essaysforIIM.com Banks, insurance firms, telecommunications companies, tour operators, hotel chains and transport companies looking to do business abroad can now enjoy the same principles of freer and fairer trade that originally only applied to trade in goods.
These principles appear in the new General Agreement on Trade in Services (GATS). WTO members have also made individual commitments under GATS stating which of their services sectors they are willing to open to foreign competition, and how open those markets are.
Total coverage: The agreement covers all internationally‐traded services — for example, banking, telecommunications, tourism, professional services, etc. It also defines four ways (or “modes”) of trading services: services supplied from one country to another (e.g. international telephone calls), officially known as
“cross‐border supply” ( “mode 1”) consumers or firms making use of a service in another country (e.g. tourism), officially “consumption abroad” (“mode 2”) a foreign company setting up subsidiaries or branches to provide services in another country (e.g. foreign banks setting up operations in a country), officially “commercial presence” (“mode 3”) individuals travelling from their own country to supply services in another (e.g. fashion models or consultants), officially “presence of natural persons” (“mode 4”)
India’s interests lie mainly in Mode 4 and Mode 1.
Intellectual property
The WTO’s intellectual property agreement amounts to rules for trade and investment in ideas and creativity. The rules state how copyrights, patents, trademarks, geographical names used to identify products, industrial designs, integrated circuit layout‐designs and undisclosed information such as trade secrets — “intellectual property” — should be protected when trade is involved.
The areas covered by the TRIPS Agreement
Copyright and related rights
Trademarks, including service marks
Geographical indications
Industrial designs
Patents
Layout‐designs (topographies) of integrated circuits
Undisclosed information, including trade secrets
Dispute settlement
The WTO’s procedure for resolving trade quarrels under the Dispute Settlement Understanding is vital for enforcing the rules and therefore for ensuring that trade flows smoothly. Countries bring disputes to the
WTO if they think their rights under the agreements are being infringed. Judgements by specially‐

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Issues for IIM PI Process http://www.essaysforIIM.com appointed independent experts are based on interpretations of the agreements and individual countries’ commitments. The system encourages countries to settle their differences through consultation. Failing that, they can follow a carefully mapped out, stage‐by‐stage procedure that includes the possibility of a ruling by a panel of experts, and the chance to appeal the ruling on legal grounds. Confidence in the system is borne out by the number of cases brought to the WTO — around 300 cases in eight years compared to the 300 disputes dealt with during the entire life of GATT (1947–94).
ISSUES
Agriculture
It is the most debated issue in Doha trade negotiations. The developed countries feel that the developing countries, particularly India, have delayed the talks on agriculture. On the other hand, the developing countries’ view point is that the developed countries are not adhering to free and fair trade by providing protection to their agriculture sector through high subsidies. The differences are arising on two major issues, viz., agricultural subsidies and SSM.
Subsidies: The provision of subsidies maintained by developed countries is itself against the principle of free trade on which WTO is based. At the same time, there is no social requirement for the same in developed countries as highlighted by various studies/findings. despite sound economic condition of the farmers, 30 per cent in OECD and 18 per cent in the US of their total farm income comprises production support. Nearly 90 per cent of all subsidies in developed countries go to growers of just five crops, viz., wheat, cotton, corn, soyabeans, and rice, in the production of which developing countries have comparative advantage. Subsidies, by their very nature of affecting market price, create inefficiencies.
Subsidies have a long term effect of raising global food prices as high subsidies lead to over production, environmental degradation and higher land prices. Therefore, the basic objective of the WTO of creating a free and fair trade environment requires such distortions to be removed.
For moving ahead on negotiations, the developed countries are required to reduce their agricultural subsidies so that the distortions in production can be removed and international prices can be aligned with the actual production cost. With the corrections in world prices, the developing countries will be able to export those commodities in the production of which they have a comparative advantage.
Special Safeguard Mechanism (SSM): Refers to specific situations when import tariffs can be increased by countries. The remedies still remain restrictive as the low level of extra duty allowed is regarded as insufficient to address the problem of import surge or declining import prices. Also, the additional conditions, imposed for invoking the SSM, limit the effective use of SSM for developing countries. At the
World Economic Forum, January 2009 India expressed the view that due to the precarious condition of
India’s agriculture sector, SSM is necessary to insulate Indian farmers from the sudden decline in international prices or surge in import volumes of agricultural commodities. India’s agriculture sector accounts for around 18 per cent of its GDP and 56 per cent of its workforce. Most of the members of this workforce are subsistence farmers, working on land holdings of less than 2 acres, many are not even
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Issues for IIM PI Process http://www.essaysforIIM.com landowners, and mere sharecroppers. Even an incremental surge in agricultural imports could affect the lives of millions of these farmers.
However, it should be remembered that all types of special measures are actually trade distorting as they create misallocation of resources by making some production activities more attractive. Therefore, the focus should be on the cause of the import surge or import price decline, as it may have resulted from some technological innovation in rest of the world and the solution should be to imitate or import such new technology.
Trade facilitation is another major issue of concern for developing countries, in particular, for India’s exports growth. The transaction cost amounts to around 5‐8 per cent of total production costs in India.
There is a need to introduce procedural simplifications for reducing high transaction costs. India should focus on services sector exports as it has a comparative advantage in it and as it is already following more liberalised trade regime for this sector, it can demand for liberalisation in services trade at WTO level
TRIPS
India has pointed out that the horizontal commitments under mode 4 are subject to many kinds of limitations. Also, the immigration and labour market policies of the member countries are restricting the movement of natural persons.
The temporary movement of labour is not separated from permanent movement of labour and therefore it comes under the purview of immigration legislation and labour conditions.
There exists major entry barriers in the form of Economic Needs Tests (ENT), Local Market Tests and
Management Needs Tests to ascertain the need for entry as well as the number to be allowed to enter. Moreover, there is lack of recognition of professional qualifications and licensing requirements.
Also, the developing countries’ professionals are being subjected to payment of social security contributions in the host country even though they are not eligible to get the benefits from such contributions since their period of stay under GATS is invariably lower than the minimum period required for such benefits to flow to them. We are trying to sign totalisation agreements to overcome this. All such kind of limitations raise the entry and operational costs of service providers and reduce the scope for technology and skill transfer and thus encourage substitution of domestic with foreign service personnel. Also, the existing commitments in mode 4 are largely linked to commercial presence (mode 3) and this linkage is restricting the movement of independent professionals and other persons in which developing countries are more interested.
India’s objectives under GATS negotiations are to achieve efficient market access in modes 1, 2 and 4. In the presence of above limitations and restrictions on services exports it is required on the part of India to remain more attentive while negotiating in services sector liberalisation. It has to demand more liberal policies to be adopted regarding movement of natural persons.
IMPORTANT TERMINOLOGY
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Issues for IIM PI Process http://www.essaysforIIM.com Most‐favoured‐nation (MFN) treatment: Favour one, favour all. MFN means treating one’s trading partners equally on the principle of non‐discrimination.
National treatment : The principle of giving others the same treatment as one’s own nationals. GATT
Article 3 requires that imports be treated no less favourably than the same or similar domestically‐ produced goods once they have passed customs. GATS Article 17 and TRIPS Article 3 also deal with national treatment for services and intellectual property protection.
Non‐tariff barriers: such as quotas, import licensing systems, sanitary regulations, prohibitions, etc.
Dumping: Occurs when goods are exported at a price less than their normal value, generally meaning they are exported for less than they are sold in the domestic market or third‐country markets, or at less than production cost
Anti‐dumping duties: GATT’s Article 6 allows anti‐dumping duties to be imposed on goods that are deemed to be dumped and causing injury to producers of competing products in the importing country.
These duties are equal to the difference between the goods’ export price and their normal value, if dumping causes injury.
Compulsory licensing: For patents: when the authorities license companies or individuals other than the patent owner to use the rights of the patent — to make, use, sell or import a product under patent (i.e. a patented product or a product made by a patented process) — without the permission of the patent owner. It is allowed under the WTO’s TRIPS (intellectual property) Agreement provided certain procedures and conditions are fulfilled.

WTO ‐ INDIA’S STAND ON VARIOUS ISSUES Agriculture
Overall tariff reductions on bound rates for developing countries of not more than 36%.
Thresholds of the four band tariff formula with linear cuts to be adequately higher for developing countries to take into account their ceiling bindings.
Self‐designation of an appropriate number of special products (SP) guided by indicators based on the three fundamental and agreed criteria of food security, livelihood security and rural development needs. The G‐33 has proposed 20% agricultural tariff lines as special products, of which 40% must be exempted from any tariff cut. India cannot accept TRQ commitments on SPs since it would entail necessarily going below current applied rates on the most sensitive products, viz. SPs.
An operational and effective Special Safeguard Mechanism (SSM) to check against global price dips and import surges, which is more flexible than the existing safeguard mechanism available mainly to developed countries. The G‐33 and India remain firm that a priori exclusion of any product, particularly SPs from the ambit of the SSM cannot be justified or accepted.

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Issues for IIM PI Process http://www.essaysforIIM.com Substantial and effective cuts in overall trade‐distorting domestic support by the United States (70‐
75% cut) and by the European Union (75‐80% cut), including resolving the issue of product specific caps on Aggregate Measurement of Support (AMS) and in the new Blue Box. Non‐agricultural market access
Choice of Swiss coefficients that ensures less than full reciprocity (LTFR) in percentage reduction commitments from bound rates. The current numbers in the chairman’s draft modalities, namely coefficients of 19‐23 for developing countries and 8‐9 for developed countries does not meet LTFR.
A fair markup on the unbound tariff lines.
Flexibilities that are adequate and appropriate to address the sensitivities of developing countries. Services
Commitments by the developed countries on substantial openings for India’s contractual service suppliers (CSS) and independent professionals (IPs) in Mode 4 relating to movement of natural persons. Development of disciplines in Domestic Regulations in Mode 4 involving qualifications and licensing requirements and procedures Rules
Strengthening of disciplines in anti‐dumping include mandatory application of lesser duty rule prohibition of zeroing, stronger rules on reviews, including sunset review.
Against the enlargement of the scope of the Agreement on Subsidies and Countervailing Measures
(ASCM) and/or limit existing flexibilities for the developing countries.
Effective special and differential (S&D) treatment in any new disciplines on fisheries subsidies, particularly in the light of employment and livelihood concerns for small, artisanal fishing communities and for retaining sufficient “policy space”.

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INDIA'S DEMOGRAPHIC DIVIDEND
In the year 2004 India had a population of 1,080 million, of whom 672 million people were in the age‐ group 15 to 64 years. This is usually treated as the "working age population". Since outside of this age group very few people work, it is reasonable to think of the remainder, that is, 408 million people, as the
"dependent population". A nation's "dependency ratio" is the ratio of the dependent population to the working‐age population. In the case of India this turns out to be 0.6. On this score India does not look too different from many other developing countries. Bangladesh's dependency ratio is 0.7, Pakistan's 0.8,
Brazil's 0.5. What is different about India is the prediction that it will see a sharp decline in this ratio over the next 30 years or so. This is what constitutes the demographic dividend for India. India's fertility rate ‐ that is, the average number of children a woman expects to have in her life time ‐ used to be 3.8 in 1990. This has fallen to 2.9 and is expected to fall further. Since women had high fertility earlier we now have a sizeable number of people in the age‐group 0‐15 years.
Benefits of demography
But since fertility is falling, some 10 or 15 years down the road, this bulge of young people would have moved into the working‐age category. And, since, at that time, the relative number of children will be small (thanks to the lowered fertility), India's dependency ratio would be lower.
It is expected that, in 2020, the average age of an Indian will be 29 years, compared to 37 for China and
48 for Japan; and, by 2030, India's dependency ratio should be just over 0.4.
This can confer many benefits.
First is the direct benefit of there being a rise in the relative number of bread‐winners.
Moreover, with fewer children being born, more women will now join the work force; so this can give a further fillip to the bread‐winner ratio.
A more indirect but vital benefit for the economy is the effect this can have on savings. Human beings save most during the working years of their lives. When they are children, they clearly consume more than they earn, and the situation is the same during old age. Hence, a decline in the nation's dependency ratio is usually associated with a rise in the average savings rate.
India's savings rate as a % of GDP has been rising since 2003. It now stands at 34% which is comparable to the Asian super‐performers, all of whom save at above 30%, with China saving at an astonishing above 50% rate.This savings growth is driven by improvements in the government's fiscal health and a sharp rise in corporate savings.
But even if these factors disappear, the decline in the dependency ratio should enable India to hold its savings and investment rate above the 30% mark for the next 25 years.
This theory of demographic advantage has been challenged by some as just that ‐ theory. One way of evaluating this in reality is to look at the actual experience of other nations. The most striking example of economic growth being spurred by demography is the case of Ireland.
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Issues for IIM PI Process http://www.essaysforIIM.com Ireland's legalisation of contraception in 1979 caused a decline in the birth rate, from 22 (per 1000 population) in 1980 to 13 in 1994. This caused a rapid decline in the dependency ratio. The phenomenal economic boom in Ireland thereafter, earning it the sobriquet "Celtic Tiger", is very likely founded in this fertility decline. (Though Ireland is currently facing a crisis
India's fertility rate has fallen and one has seen a similar sequence of changes in demographics and the economy in Japan in the 1950s and China in the 1980s.But even if this happened in some places, will it happen in India? Our expectation is that India will get benefit from higher savings and investment rates and this will continue to fire India's high growth rate.
Beyond that much will depend on how the nation performs on primary and secondary education (to make sure that the larger working‐age population conferred by the demographic dividend are an educated lot) and the manufacturing sector (which is needed to create job opportunities for the larger labour force).
What is important to remember is that the demographic dividend is a population bulge in the working‐ age category.
Like a kill in a python's stomach it will eventually move up, causing a rise in the old‐age dependency ratio some three to four decades from now. That is, every demographic dividend comes with an accompanying
"demographic echo".It is in the nation's interest to reap as much as possible from the dividend so that it is robust enough not stymied later by the echo.

MULTILATERALISM VS BILATERALISM By now, most of the world has no major expectations of World Trade Organisation (WTO) Ministerial
Conferences. They have become regular exercises where various blocs haggle over issues important to them without being willing to make any major concession to bring the discussions to a close.
Even as these multilateral trade negotiations flounder, free trade agreements (FTAs) are flourishing, especially across Asia. Over the last four years, Asian countries have signed over a dozen FTAs. Close to another two dozen are either currently being negotiated or under study. The inability of multilateral forums, like WTO, to rapidly and decisively bring about consensus is certainly one of the key factors contributing to this phenomenon.
Given the lumbering pace of the WTO, Asian countries were anxious not to jeopardise their access to foreign markets. FTAs offered the perfect alternative. The case for FTAs was also attractive because their scope can go beyond trade liberalisation to encompass foreign direct investment (FDI) liberalisation and facilitation of economic and technical assistance. FTAs also promote deregulation and structural reform but within a limited framework.
Various regional rivalries also accentuate the tendency for countries to get into RTAs/FTAs. The geo‐ political and geo‐economic compulsions are driving many such agreements today. The China vs Japan rivalry and their efforts to form various alliances is a case in point. Similarly Asean has also targeted

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Asia and also countering the growing economic might of China.
India’s haste in signing the FTA with ASEAN was as much a result of economic imperatives resulting from similar arrangements of ASEAN with China. So much so, that India agreed to leave out ‘services’ from the purview of the discussions, to ensure that the agreement goes through. (Even though that issue is very important to India and it is currently negotiating vigorously to sign an agreement on Services on similar lines) Another important point is that countries can be selective about who they want to get into an RTA with.
If India has concerns about the booming agricultural sector of Brazil, it would either leave out Brazil as a partner in FTAs or leave out primary goods from such agreements.
Despite this FTA signing frenzy that has gripped Asia, some experts have pointed out that there is cause for concern. In some cases the external reform process is outpacing internal reforms, thereby endangering local manufacturers. Purely bilateral negotiations also run the risk of excluding smaller countries with less bargaining power but who do have a voice in a multilateral forum. Also, the skewed trade structure resulting from such agreements leads to flouting of rules and undue profiteering. For instance, Indian textile manufacturers can fraudulently take advantage of Bangladesh’s FTA with a third country bypassing the rules of origin embedded in the agreement. This would result in losses to the Bangladeshi manufacturers. Multilateralism is not dead. It certainly has its place in the world order but unless the mechanisms and institutions that enforce it can keep up with the rapidly changing economic needs and priorities of the global economy, these organisations will soon be reduced to mere anachronisms.

FOREIGN DIRECT INVESTMENT Contribute in Growth by bringing Technology, Finance, R&D, Human Capital, Crowding‐in domestic investment, Eases FX constraint by bringing foreign capital, Increase exports
Problematic due to: Can crowd‐out domestic entrepreneurship, Create monopolies and oligopolies due to huge size, Repatriation of profits leading to outflow of FX, Mainly domestic market seeking and do not increase exports that much, Lower level technology is transferred not the high‐end
Capital flows in the form of FDI have been widely believed to be an important source of growth in recent years.
Growth impulses originating from FDI are primarily ascribed to superior technology and greater competition that generally accompany FDI.
Local firms of many developing host countries also do not invest enough on R&D to offer and sustain competition with Transnational Corporations (TNCs). Investment on R&D by TNCs in foreign affiliates is, however, found to be low, accounting for as little as 1 per cent of the total R&D investment even though TNCs are generally viewed as R&D intensive (UNCTAD, 1999).

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Issues for IIM PI Process http://www.essaysforIIM.com Despite the usual concerns that inappropriate technology is generally transferred to the foreign affiliates, empirical assessments suggest that technology ‐ both public and private ‐ that accompany
FDI are complementary and inter‐firm collaboration helps in augmenting growth.
The public knowledge component of technology can be transferred to the host country depending on the speed at which it is imitated and adapted by other local firms for development of local skills.
Since trade is an important vehicle for growth, FDI could also contribute to growth by promoting exports. FDI can crowd‐out or crowd‐in domestic investment. FDI can potentially displace domestic producers by preempting their investment opportunities. It is possible, however, that the adverse growth effect emanating from crowding‐out could be more than offset by the increase in productivity resulting from advanced technology that often accompanies FDI.

FOREIGN INSTITUTIONAL INVESTMENT Good for: Enhance efficiency and liquidity of capital market, easing money constraint by investing in IPOs,
Finance current account gap by bringing foreign money
Problematic due to: Sudden reversal creates panic(Hot money‐easy to take out), Asset bubble created;
Increase volatility in markets; Upward pressure on exchange rate leading to decreased export competitiveness; No real investment in most cases
Positives
Portfolio capital has emerged as the key channel for integrating capital markets worldwide.
Portfolio capital flows can ease the constraint on growth imposed by illiquid and small sized capital markets in the early and intermediate stages of the growth process. Countries that reduced barriers to portfolio flows exhibit significant improvements in the functioning of their stock markets
Greater liquidity in the capital market makes it possible to take up investment projects in developing countries that require lumpy and long‐term capital.
At the macro level, portfolio flows finance the current account gap when alternative forms of foreign capital prove inadequate.
Otherwise, it is only by enhancing the efficiency and liquidity of capital markets that portfolio flows can propel growth.
Negatives
Surges in portfolio flows can, however, adversely affect growth.
Sudden inflows and outflows amplify the volatility in the market. Excess volatility in the stock market may hinder investment.
Bubbles can be created in the secondary markets which when burst cause panic and fear among investors for the long‐term
Portfolio flows can hinder export promotion by exerting upward pressures on the exchange rate and also sustain an import‐cum investment boom to overheat the economy.
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CURRENT ACCOUNT DEFICIT PROBLEM Current Account deficit is the difference between export earnings and import spending. So in effect we need more dollars to buy foreign goods. Where do we get these dollars? This is currently being financed by FII flows. FII flows being liquid in nature and of a “hot money” character can dry up or there could be a massive outflow due to risk aversion from emerging markets. This could pose problems from India as how would be finance this CAD then. We do have FX reserves which would come handy and save us from a BoP crisis as the one that happened in 1991. But still, a large CAD of around 3‐4% is not sustainable in the long‐term
High GDP growth can and does cause inflation, which is bad; but it also brings in money from abroad as foreign investors see an opportunity to make money, which is good. Thus, according to the Reserve
Bank of India, foreign institutional investors (FIIs) are estimated to have brought in $37 billion in the first nine months of the current fiscal.
This money is helping partly finance the current account deficit (CAD).But the big question is what will happen if this inflow dries up and/or is accompanied by a massive outflow? It could happen for any number of reasons. Indeed, it happened to India in 1990, leading to its biggest balance of payments crisis in 1991.
India's CAD is now almost 4 per cent. In 2009‐10 it was 2.9 per cent, capital flows as a percentage of
GDP stood at 4.1 per cent.
Some economy watchers believe that it will go to 4 per cent in 2010‐11. But the former RBI Governor,
Dr Y.V. Reddy, maintains that the CAD situation does not pose signals of serious warning, though careful watching is required. To the extent that the surge in capital flows has not caused a sharp appreciation of the rupee, it only reflects the growing strengths of the economy and its capacity to absorb investment, according to the Finance Ministry.
Meanwhile, the World Bank has in its latest Global Economic Prospects report highlighted that India's
CAD rose to 3.7 per cent of GDP in 2010, up from 2 per cent in 2009. It also noted that the pace of growth of ICT‐exports (internet, communication and technology) has decelerated markedly, compared with the vibrant growth rates posted in the past. This has been largely attributed to a tepid recovery in external demand in the key export markets of the United States, United Kingdom and
Europe, which comprise about 85 per cent of Indian software and services exports.
On an overall basis, the World Bank report predicts that the pace of growth of imports in South Asia is expected to continue to outpace exports over the next few years. Net exports are projected to continue to subtract from growth, albeit modestly, the report has said. Whether domestic demand growth will moderate in coming months and merchandise exports performance will continue to shine,

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Issues for IIM PI Process http://www.essaysforIIM.com only time will tell. Many economists are keeping their fingers crossed. No country has tackled the problem of an unsustainable CAD without bringing down its growth ambitions!

INDIA’S TRADE DATA COMPOSITION OF EXPORTS (2013‐14)
Primary Products

15.60%

a) Agri & Allied Products

14.00%

b) Ores and Minerals

2.00%

Manufactured Goods

63.70%

a) Engineering Goods

19.80%

b) Gems & Jewellery

13.10%

c) Textiles

d) Chemicals and Related Products

9.70%
13.20%

Petroleum, Crude & Products

20.10%

Source: Economic Survey, 2013‐14

COMPOSITION OF IMPORTS (2013‐14)
Food and Allied Products

3.20%

a) Edible Oils

2.10%

b) Pulses

0.40%

11.90%

Capital Goods

a) Machinery except Elec

5.20%

b) Electrical Machinery

1.00%

c) Transport Equipment

3.30%

Fertilizers

1.40%

Fuel

40.40%

Others

38.4%

a) Chemicals

5.7%

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b) Pearls, Precious stones

c) Gold & Silver

7.4%

d) Electronic Goods

6.9%

Source: Economic Survey, 2013‐14

5.3%

EXPORTS & IMPORTS
EXPORTS(including re‐exports)

(million $)

2009‐2010

176,574

2010‐2011

246,000

2011‐2012

303,700

2012‐2013

300,600

2013‐2014

312,600

IMPORTS

2009‐2010

278,681

2010‐2011

351,000

2011‐2012

489,310

2012‐2013

491,480

2013‐2014s

450,100

TRADE BALANCE

2009‐2010

(102,106)

2010‐2011

(105,000)

2011‐2012

(183,400)

2012‐2013

(190,910)

2013‐2014

(137,500)

The sharp fall in imports and moderate export growth in 2013‐14 resulted in a sharp fall in India’s trade deficit by 27.8 per cent.
In absolute terms, trade deficit fell to US$ 137.5 billion during 2013‐14. However, there was not much change in the Oil (POL) deficit which was hovering at around US$100 billion in the last two years.
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Issues for IIM PI Process http://www.essaysforIIM.com With the fall in imports of both gold and capital goods, non‐POL deficit fell sharply to US$ 35 billion in
2013‐14 from US$ 87.2 billion in 2012‐13.
Direction of trade
The share of the top 15 trading partners of India in India’s trade at 58 per cent in 2013‐14 was more or less the same as in earlier years.
The top three trading partners of India are China, the USA, and the UAE, with the top slot shifting between the three.
Export‐import ratios reflecting bilateral trade balance (Table 7.7) show that among its top 15 trading partners, India had bilateral trade surplus with four countries, namely the USA, UAE, Singapore, and
Hong Kong, in 2013‐14 with high increase in the export‐import ratio with the USA.
India’s bilateral trade deficit with Switzerland declined sharply from US$ 31.1 billion in 2012‐13 to US$
17.6 billion in 2013‐14 owing to a fall in gold imports.
India has high and rising bilateral trade deficit with China, which however fell by 6.6 per cent in 2013‐
14. Given the growing importance of these two Asian giants, India needs to formulate a comprehensive trade strategy for China keeping in view India’s export potential in China

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REORGANISATION OF UP There is an administrative case for the creation of smaller states out of behemoths but Uttar Pradesh (UP) ex‐Chief Minister Mayawati’s initiative to split India’s biggest state into four is not a new one. It was first made in the mid‐1990s when she was in power for a brief while and then again in 2009 after the centre’s half‐decision to create Telangana. (The proposal in 2009 was to split UP into three, not four, separate states.) However, the resolution calling for a four‐part division into Paschim Pradesh, Awadh,
Bundelkhand and Purvanchal strangely has no regional demand backing it up apart from a near dormant demand for Harit Pradesh. Unlike what drove the creation of Jharkhand, Uttarakhand and Chhattisgarh or the current movement for Telangana, Darjeeling and even Vidarbha, there is virtually no significant sociopolitical movement or demand in UP for its break‐up into three or four small states.
Whatever Mayawati’s reasons, the logic of carving out smaller states from UP has some merit. As early as
1955, States Reorganisation Commission (SRC) member K M Panikkar wrote a dissent note to the commission’s report arguing for the division of the state as its size would hinder administrative efficiency and development. He had also warned that a large UP would have an undue influence in national politics.
Both warnings seem to have been prophetic. Regions in the east and south of UP continue to be underdeveloped as compared to the relatively well‐off west, and the state as a whole has fallen far behind most of the others. At the same time, UP’s politicians have had a major role in national politics that has been based on numbers rather than the strength of their ideology. The aphorism “Whoever delivers UP in the national elections rules India” held true until the early 1990s though this is no longer the case. The
85 Members of Parliament in the Lok Sabha from the pre‐Uttarakhand state of UP formed a strong bloc for the Congress Party for close to four decades and then briefly provided the Bharatiya Janata Party with its core representation as well. The Samajwadi Party now opposes a split for precisely this reason – it believes this would reduce the state’s standing in national politics.
The need for better administrative efficiency to address chronic underdevelopment seems to be the most compelling reason for the break‐up of UP. However, the formation of new and smaller states has not necessarily meant better administration or efficiency of governance, even if it has brought in a sociopolitical coherence and representation in decision‐making bodies for the hitherto marginalised such as the Garhwalis of Uttarakhand and adivasis of Jharkhand. There is a consensus though that state reorganisation should be based on size, linguistic‐cultural cohesion, economic viability and indeed the presence of a legitimate demand for such a new entity. And that the final decision must depend on the merits of each case.

HUNGAMA REPORT
The HUNGaMA (Hunger and Malnutrition) Survey conducted across 112 rural districts of India in 2011 provides reliable estimates of child nutrition covering nearly 20% of Indian children. Of the 112 districts surveyed, 100 were selected from the bottom of a child development district index developed for UNICEF
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Issues for IIM PI Process http://www.essaysforIIM.com India in 2009, referred to as the 100 Focus Districts in this report. These 100 districts are located in 6 states. The HUNGaMA Survey shows that positive change for child nutrition in India is happening, including in the
100 Focus Districts. However rates of child malnutrition are still unacceptably high particularly in these
Focus Districts where over 40 per cent of children are underweight and almost 60 per cent are stunted, meaning their height is much lower than the median height‐for‐age of the reference population.
The 100 Focus Districts are located across Bihar, Jharkhand, Madhya Pradesh, Orissa, Rajasthan and Uttar
Pradesh – states which perform the worst on child nutrition.
The survey notes that the prevalence of malnutrition is significantly higher among children from low‐ income families. It found that children from Muslim or SC/ST households generally had worse nutrition indicators. Birth weight is an important risk‐factor for child malnutrition. The prevalence of underweight in children born with a weight below 2.5 kg is 50 per cent, while that among children born with a weight above 2.5 kg is 34 per cent.
The survey further found that awareness among mothers about nutrition is low — “92 per cent mothers had never heard the word malnutrition.”
Highlighting the negligence shown towards girl children even in their early childhood, the report says the nutrition advantage girls have over boys in the first months of life seems to be reversed over time as they grow older.
Anganwadi Centres are widespread but not always efficient: There is an Anganwadi Centre in 96 per cent of the villages, 61 per cent of them in pucca buildings; the Anganwadi service accessed by the largest proportion of mothers (86 per cent) is immunization; 61 per cent of Anganwadi Centres had dried rations available and 50 per cent provided food on the day of survey; only 19 per cent of the mothers reported that the Anganwadi Centre provides nutrition counseling to parents.

INDEPENDENT DIRECTORS
Independent directors are expected to improve corporate governance. The government expects independent directors to bring an independent judgment to bear on the Board's deliberations especially on issues of strategy, performance, risk management, resources, key appointments and standards of conduct; and to bring an objective view in the evaluation of the performance of board and management.
The new company’s bill has some major clauses pertaining to independent directors.
Their responsibility is to safeguard the interest of stakeholders, particularly minority shareholders and to balance conflicting interests of stakeholders. However, this is difficult to do. The companies should try to maximize shareholder value while behaving responsibly to all stakeholders.
Independent directors cannot monitor the executive management. At best they provide checks and balances and enrich boardroom deliberations.
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Issues for IIM PI Process http://www.essaysforIIM.com For example, Mr. Keshub Mahindra, the highly respected industrialist, could not prevent the Bhopal disaster caused by negligence of the executive management, while he was the nonexecutive chairman of
UCIL. Similarly, in case of Satyam, illustrious independent directors could not prevent fraud perpetrated by the management. J M Financial founder and investment banker Nimesh Kampani could not prevent the Nagarjuna Finance scam.
In the above scenario, independent directors should not be held responsible for the misdeeds of the company, provided they have applied due diligence in carrying out their responsibilities. The public rage against directors in the cases of AMRI and UCIL reflects that there is a huge expectation gap ‐ the gap between what independent directors can do and what stakeholders expect them to do.

ENERGY SECURITY IN INDIA
With the growing GDP of 8%, India is moving parallel to China in terms of development, but the energy consumption is catching up as well. But the country is finding it increasingly difficult to source all the oil, natural gas, and electricity it needs to run its booming factories, fuel its cars, and light up its homes.
According to a report by IEA (International Energy Agency), India needs to invest a total of 800 billion dollars in various stages by 2030 to meet its energy demand. India accounts to around 2.4% of the annual world energy production, but on the other hand consumes 3.3% of the annual world energy supply. And this imbalance is estimated to surpass Japan and Russia by 2030 placing India into the third position in terms of annual energy consumption
Energy Security
According to the Integrated Energy Policy 2006, energy security of India is quoted as below:
“We are energy secure when we can supply lifeline energy to all our citizens irrespective of their ability to pay for it as well as meet their effective demand for safe and convenient energy to satisfy their various needs at competitive prices, at all times and with a prescribed confidence level considering shocks and disruptions that can be reasonably expected”.
Issues of Energy Security
a) Import of Fossil Fuels
The energy requirements of Indian economy are estimated to increase substantially in the .next two decades. According to Integrated Energy Policy, for a 9% growth over a sustained period, imports of crude oil in 2031‐32 may be between 362‐520 million tonnes with import dependence of 91%‐94%. For natural gas, it may be 25‐135 (Mtoe), which means an import dependence of 20%‐57% of supply. Coal imports may be between 300‐ 736 (Mtoe), which may be an import dependence of 34%‐57%. Total import dependence may be 58%‐67%, as against the current level of 25%.
b) Lack of Exploration and Production

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Issues for IIM PI Process http://www.essaysforIIM.com In India, there was hardly any investments in the activities of exploration and production in past two decades. The Cairn‐Vedanta case is a live example leading to the barrier in the oil field exploration and production. c) Shortage in the Storage Facilities
e) Transmission and Distribution Losses
Our country is already suffering from electricity deficit and fuelling this concern is the hurdle of T & D losses. India has an installed capacity of approximately 167200 MW, but during transmission it suffers around 30% of the losses. This has also laid to higher tariffs that are to be faced by the local consumers.
f) Unutilised renewable resources
India is been gifted with diversified renewable potential, but it has not been successful in utilising its resources at the optimum levels. The nation has a potential of around 45000 MW from Wind Power, close to 15000 MW from Small Hydro, 16000 MW from Biomass and can produce 20 MW/sq km of Solar Power.
But out of the above numbers, only 30% of the renewable potential have been utilised.
g) Energy Efficiency and Energy Conservation
The concept of efficiency can be applied in energy extraction, transportation, conversion, as well as in consumption. Further, the same level of service can be provided by alternate means that require less energy. The major areas where it can make a substantial impact are mining, electricity generation, electricity transmission, electricity distribution, transport equipment pumping water, industrial production and processes, mass transport, building design, construction, lighting and household appliances, heating ventilation and air conditioning. According to the recent statistics by TERI, there is a wastage of 30% of the power that is been supplied. There are lack of energy auditors and energy managers. Only 500 energy managers are certified by BEE (Bureau of Energy Efficiency) annually.
Policies for meeting India’s Energy Security
Acquiring Assets
(i) Oil and Gas Sector: OVL has been leading this initiative. As a result of this, it has invested $ 11 billion abroad. In addition, a number of other investors, both public sector undertakings and private players, have also invested in 50 other projects in 19 countries. The total production from these is 9.36 million tonnes of oil and gas, of which OVL’s share is 8.78 million tonnes. To get natural gas, LNG terminals have been set up at Dahej and Ratnagiri and a new one is under implementation at Kochi. These initiatives need further expansion. The OVL oil equity so far accounts for only 9% of India's current oil import requirements. If these assets were to meet only 10% of the requirements in 2031‐32, the investments will have to be multiplied six times, if the success rate continues to be as at present.
(ii) Coal Sector:‐ The import requirements of coal at this juncture are limited but are slated to expand rapidly. Both US and China have large domestic coal reserves. India, however, will have to import in the coming years large quantities of coal. A number of private players have invested in mines in Indonesia and
Australia. There is a need to give a very strong push to the mining investments abroad. India's power
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Issues for IIM PI Process http://www.essaysforIIM.com requirements by 2031‐32 are expected at more than 950,000 MW. Around 70% of this will be from coal.
It will be, therefore, most crucial to step up investments and develop coal mining resources abroad in the next two decades.
(iii) Nuclear Energy:‐ Similar arrangements for investments can be worked out for uranium mining. France and Japan have 60%‐70% of their power from uranium. They have developed mining sources from different countries like Kazakhstan, South Africa, Australia and Niger. The investment in these provides security for uninterrupted operations.
Diversifying Sources
To strengthen energy security of imports, the second policy initiative required is diversification of energy import sources. In respect of oil, for example, we can tap markets in Venezuela, Columbia, Brazil, Africa, countries of the Middle East and South America.
Similarly, sourcing of natural gas and LNG needs to be from a host of sources. This may include Qatar,
Australia, Middle East, Iran, Kazakhstan and Turkmenistan. Some of the pipelines from Iran and
Turkmenistan may pass via Afghanistan and Pakistan. We will have to find innovative ways to meet our security concerns. These could be in the form of energy pipelines being owned by large international conglomerates backed by major world economies or funded by international financial organizations.
The activities in the exploration of shale gas in India also needs to undertaken as it is turning out to be a vital source of energy. Shale gas blocks acquisition have already been started by the large PSU’s like IOC,
BPCL and OVL. Reliance is the only private in India that has acquired the shale gas blocks in US and in
Australia.
Maximizing Domestic Reserves
(i) Oil & Gas Sector:‐ In the oil sector, India has adopted an aggressive policy to expand domestic production by developing a transparent regime for award of oil blocks. So far, 234 blocks have been awarded after 8 rounds of NELP. Exploration of oil and gas are long term investments. So far there have been major finds by Reliance, ONGC, Gujarat State Petroleum Corporation and Cairn Energy.
(ii) Coal Sector:‐ To augment coal production, 203 coal blocks were awarded to private players, with more than 50 billion tonnes of coal reserves. There is, however, lethargy on the part of some of the private players. Most of them have been moving slowly in getting these blocks explored expeditiously. There have also been problems with environmental clearances. These issues will need to be addressed.
(iii) Nuclear Energy:‐ The domestic exploration of uranium mines has been confined, so far, primarily to
Jharkhand and Andhra Pradesh. The quality of uranium has been poor and the domestic production has not picked up significantly. Exploration on this so far has not led to discovery of any major deposits. While deposits were discovered in Meghalaya, there have been other issues which have clouded the development of mines. A more aggressive policy for discovering more uranium and mining it will be necessary to augment our resources. India has the second largest reserves of thorium in the world. Part of the requirements of energy may be met by developing these.
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Issues for IIM PI Process http://www.essaysforIIM.com The present approach for development of atomic energy is a 3‐stage development. In the first stage, we are developing the present atomic power plants. As part of the second stage, we will have to develop the fast breeder reactors. After a large number of fast breeder reactors have been set up and nearly 40,000
MW capacities are created, the thorium, along with spent fuel will be used to further develop and sustain the nuclear plants.

REGIONAL PARTIES
Right from the mid‐1960s, when regional parties emerged as a significant political presence in many
States, these parties and their leaderships have overwhelmingly displayed two characteristics.
They have, on the one hand, built on and represented deep‐rooted social and regional aspirations that had not found adequate space in mainstream polity.
On the other, the leaderships of most of these parties have consistently shown rank opportunism.
Hence, they and their parties, while being known to broadly represent the interests of the underprivileged sections of society, are seen as suffering from a colossal deficiency in the “principles quotient”. Both these characteristics have been quite prominent since the early 1990s when regional parties, strengthened by the assertive politics of Dalits and Other Backward Classes, started increasingly challenging the monopoly of the Congress on political power. It was felt that if the trend continued, then stronger regional players would turn out to be pivotal agencies in the evolution of a multifaceted and diverse democracy. The parties continue to play this role, but these have been periodically overshadowed by the “principles quotient deficiency” of their leaderships. By any yardstick, a number of regional parties have fallen to their worst in this regard in the last couple of months.
The majority of the regional parties which are supporting the Union government, such as the SP, BSP,
DMK have displayed this deficiency. Over the last couple of months, these parties have repeatedly engaged in a kind of cynical bargaining for Central assistance to the States they represent and sought leniency in cases relating to corruption and disproportionate accumulation of wealth. Issues such as poor governance, price rise and corruption have been largely left unaddressed, causing widespread public disillusionment in their own social and political constituencies. Many observers feel that this could reverse the contribution these parties have made to the country’s democratic process and entrench new forms of the old “Congress system”. Regional parties in the principal opposition group, NDA, such as the
Shiromani Akali Dal (SAD) and the Shiv Sena, have also remained conspicuous by their silence in matters concerning the common people and have chosen to remain under the political cover provided by the BJP in the national arena.
A case in point would be the responses of these parties in the recent political imbroglio over foreign direct investment (FDI) in the retail sector. Most of the parties now supporting the United Progressive Alliance
(UPA) government had earlier taken “principled” positions against it as they felt FDI in the retail sector would directly impact common people, especially traders and farmers, in the States where they are
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Issues for IIM PI Process http://www.essaysforIIM.com powerful. Both the S.P. and the BSP repeatedly said in the past one year that they would oppose the move to introduce FDI in multi‐brand retail. However, when the proposal was tabled in Parliament, their responses changed. The S.P. came to the government’s rescue after the Left withdrew support to it. After much suspense, it decided to vote against FDI in retail in the Rajya Sabha even while letting it pass in the
Lok Sabha.
The BSP, which suffered a huge defeat in the last Assembly elections, seemed to be ready for some bargaining. Its chief, Mayawati, stated that her party would not support communal forces like the BJP on any issue. “Two issues are clear. First, the BSP will not align with the communal forces in opposing FDI.
Second, we welcome the ‘big plus’ of the FDI policy, allowing the States to decide whether or not to permit
FDI entry,” she told a press conference. Common platforms of various political parties to debate economic policy issues have always been scuttled in the last decade in the name of defending secular politics. So the BSP’s stand was hardly a surprise.
Corruption, a deciding factor
The issue of corruption is the deciding factor in these machinations. Leaders of both the S.P. and the BSP have grave charges of corruption levelled against them. Political analysts point out that while the BSP appears worried about the issue of reservation for Scheduled Castes and Scheduled Tribes in promotions in government jobs. So there may just be the possibility of a political barter: support for the Centre at this juncture could mean concessions on that front later.
For a politically weak BSP, supporting the Congress could guarantee the much‐needed immunity. For the
S.P., too, it could be chance to make important gains.
Coalition governments and greater regionalisation of politics had been envisioned as developments that would lead to effective articulation of regional interests and strike at the system of patronage practised at the Centre. However, in the last two decades regional powers have used their presence in coalition governments at the Centre to extend their own brands of patronage in their respective States. The S.P., the BSP, the DMK, the All India Dravida Munnetra Kazhagam (AIADMK), the SAD, the Shiv Sena and the
Telugu Desam Party have all shown this tendency, with single families calling the shots.
The biggest disillusionment has been the emergence of what is understood as crony capitalism. The regional players have been its biggest practitioners. The S.P. and the BSP have allegedly hedged out lucrative projects to their favourite corporate groups. It is common knowledge that the Sahara group landed the largest number of contracts under the last S.P. government, and so did the Jaypee group during the last BSP regime. In many cases, such as in the case of the DMK and the SAD, the families that run the party have entered big businesses. Illegal use of money and muscle power during elections has become a practice in the States where regional political parties have been dominant. DMK politics has successfully manifested this practice through what political analysts have termed the “Thirumangalam model”. From industries to cable TV networks, from news channels to educational institutions, from transport companies to lucrative contracts, all have gone to people who enjoy political privileges in these States.
These parties have successfully managed to create a potent mixture where big business and sectarian politics not just coexist but also complement each other.
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Issues for IIM PI Process http://www.essaysforIIM.com The absence of viable alternatives allows these parties to remain forces to reckon with. The rise to power of the Trinamool Congress is a case in point. It projected itself as a pro‐people party, and as a former ally of the UPA government, it showed token resistance to its policies from time to time. The party has faced criticism for its autocratic functioning. Any form of dissent in West Bengal against Mamata Banerjee’s government in the recent past has been brutally crushed. The party has also been severely criticised for displaying impulsive political action rather than coming out with a political strategy. An example is the way it went about bringing a no‐confidence motion against the Union government on the issue of FDI.
Without consulting other parties, it unilaterally moved the motion, failing to register a minimum support of 50 members. It thus virtually handed a reprieve to the government as constitutional provisions do not allow another no‐confidence motion for six months after one has failed.
Clearly, the tactics of these regional groupings are often self‐defeating. Unless these parties develop into a credible and viable political alternatives, with defined goals both in terms of immediate concerns and medium‐term goals, they will fail their own core support bases. At a larger level, these regional parties, which were supposed to articulate local interests, are continuously showing themselves as organisations dictated and run by regional elites, alienated from the concerns of the poor.
NUCLEAR TRIAD
India moves closer to nuclear triad by successfully test‐fires ballistic missile from underwater platform India moved a step closer to integrate a nuclear missile with INS Arihant ‐ its nuclear‐powered indigenous submarine, which is all set for final sea trials. Once done, it will complete the crucial third leg of India’s nuclear triad ‐ the ability to fire nuclear weapons from land, air and sea.
A medium‐range ballistic missile, K‐15 was successfully test‐fired from an underwater platform in the
Bay of Bengal. The missile is now ready for induction. It was the 12th trial of the 10‐metre long K‐15, whose length is in tandem with the missile tubes on board the INS Arihant. As many as 12 nuclear‐ tipped missiles, each weighing six tones, will be integrated with Arihant, which is powered by an 80MW
(thermal) reactor that uses enriched uranium as fuel and light water as coolant and moderator.
During the test, the K‐15 rose to an altitude of 20 km before descending to strike the target 700 km away. An underwater canister set on a pontoon was used to mimic a submarine launch from a depth of
50 m in the Bay of Bengal.
“The missile was tested for its full range and met all the mission objectives. All parameters of the vehicle were monitored by radars right through the trajectory and terminal events have taken place exactly as expected,” said a DRDO release. DRDO chief V K Saraswat said that the development phase of the K‐15 missile was over and it was now ready for deployment on various platforms, including the indigenous nuclear submarine INS Arihant.

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Issues for IIM PI Process http://www.essaysforIIM.com India will become the sixth country to have such technology after the United States, Russia, the UK,
France and China. New Delhi has already announced that the INS Arihant will go on deterrent patrol aimed at providing the ability of a retaliatory “second strike” in case of a nuclear attack.
The submarine will carry its full load of nuclear‐tipped missiles that can be launched from under the sea.
It deters a nation from launching a first N‐strike as the submarines can then launch the retaliatory strike within minutes.
During the Cold War, “deterrent patrol” was a norm adopted by the US and the erstwhile USSR when their submarines trawled under sea for days.
INDIA’S NUCLEAR POLICY
Though initially formulated in 1998, a more formal document was issued in 2003, which basically accepted India’s “No First Use” pledge and promised “non‐use of nuclear weapons against non‐ nuclear states” i.e. negative security assurances.
In 2011, former External Affairs Minister Jaswant Singh had called on the government to re‐examine its doctrine of no‐first‐use (NFU).
Sceptics question the efficacy of the NFU policy, on the ground that it has little relevance as a strategic tool against Pakistan. It is considered to be a merely declaratory policy. Hence, it has no binding legitimacy. Pakistan’s military establishment views India’s NFU doctrine as a paper policy that cannot be depended upon in a situation where the stakes are high. Since India’s nuclear doctrine is a unilateral decision, it can be revoked anytime if the situation so demands. The
Pakistanis believe that there is no way of making the NFU policy incapable of first use. This disparagement is difficult to ignore, but it can be argued that militarily India need not depend upon nuclear weapons against Pakistan and China. India’s strategic culture clearly demonstrates that it is a status quo power devoid of any aggressive intention. Besides, India’s conventional strength is adequate for defence against Pakistan. This conventional advantage is further reinforced by India’s offensive policy of ‘Cold Start’, which seeks to circumvent a nuclear response from Pakistan. The
Cold Start doctrine is independent of the NFU pledge and, hence, India can use it to neutralise any conventional aggression by Pakistan.
China’s expansionist policies cannot be deterred by revising the NFU. Besides, it would not be prudent to abandon the NFU and send a deliberate signal of provocation to China. This can offset
India’s declared stand on a minimum credible nuclear policy and project it as an aggressive power.
Further, abrogating the NFU policy would signal a first use posture by India, thus reducing the space for conventional warfare below the nuclear threshold. This could also severely corrode India’s ability to limit Pakistan’s offensive tactics and policies at the conventional level. Instead, India must gradually revise its posture of ‘active deterrence’ to ‘dissuasive deterrence’ by building up its infrastructure along the border and improving the surveillance and warning capabilities, the mobility of land‐based missiles, survivability of the airborne retaliatory force, and increased force levels.
Withdrawing the NFU policy and making a declaration to that effect makes little strategic sense, since it will damage India’s status as a responsible nuclear power.

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Issues for IIM PI Process http://www.essaysforIIM.com Such a step will abrogate India’s commitment to the universal goal of nuclear disarmament and upset the regional balance in the sub‐continent.
The NFU policy is a sound pillar of India’s nuclear doctrine. It facilitates a restrained nuclear weapons programme without tactical weapons and a complicated command and control system. It forswears brinkmanship by avoiding the deployment of weapons on hair‐trigger alert and keeping an arms‐race in check.
In conclusion, the no‐first‐use policy is premised upon an assured second strike capability, that is survive a first strike and retain sufficient warheads to launch massive retaliation upon the adversary.
As long as this second strike capability is not degraded there is no reason to abandon the NFU posture. COLD START DOCTRINE
The strategy of the Indian Army that envisages rapid deployment of troops on the western border to escalate to a full blown war within days. It involves moving forces quickly into unpredictable locations and making decisions faster than one’s opponent. The doctrine permits attacking first and mobilising later, thus increasing the possibility of a sudden spiral of escalation in hostilities.
While the US has been assured that no such doctrine exists, the Army has now come on record to say that 'Cold Start' is not part of its doctrine. Army Chief General V K Singh had told that India's basic military posture remains defensive. "There is nothing called 'Cold Start'. As part of our overall strategy we have a number of contingencies and options, depending on what the aggressor does. In the recent years, we have been improving our systems with respect to mobilisation, but our basic military posture is defensive," the Army Chief told.
The 'Cold Start' doctrine has been doing the rounds since the conclusion of Op Parakram in 2002 when the Indian Army was asked to mobilise on the Pakistani border after the attack on Parliament.
It took the Army almost two months to fully deploy troops. Defence strategists have been talking about the new doctrine of the Indian Army that would enable it to deploy a full strength invasion force within a few days notice, unlike several weeks of preparation that were required earlier.
"We are not aggressors; however active defence is part of our defensive strategy. India is a peace loving nation and does not covet any territory," Army Chief said.

FREEDOM OF SPEECH
Article 19(1)(a) of the Constitution provides for right to freedom of speech and expression subject to reasonable restrictions imposed as per Article 19(2).
Article 19 in The Constitution Of India
19. Protection of certain rights regarding freedom of speech etc
(1) All citizens shall have the right
(a) to freedom of speech and expression;
(b) to assemble peaceably and without arms;
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Issues for IIM PI Process http://www.essaysforIIM.com (c) to form associations or unions;
(d) to move freely throughout the territory of India;
(e) to reside and settle in any part of the territory of India; and
(f) omitted
(g) to practise any profession, or to carry on any occupation, trade or business
(2) Nothing in sub clause (a) of clause ( 1 ) shall affect the operation of any existing law, or prevent the State from making any law, in so far as such law imposes reasonable restrictions on the exercise of the right conferred by the said sub clause in the interests of the sovereignty and integrity of India, the security of the State, friendly relations with foreign States, public order, decency or morality or in relation to contempt of court, defamation or incitement to an offence

JUVENILE CRIME
The juvenile justice board ruled that one of the six accused in the December 16 gang rape and murder case of a 23‐year‐old girl was a juvenile at the time of the attack.
The Juvenile Justice Act clearly mentions that a juvenile in conflict with law (who is alleged to have committed an offence and has not completed 18 years of age as on the date of commission of such offence) must be sent to an observation home and not to jail and he should be tried separately by the
Juvenile Justice Board.
Data compiled by the National Crime Records Bureau (NCRB) shows that the number of juveniles apprehended on charges of committing rape exceed those held for murder.[ 1,168 as against 1,231]
The report further reveals that an overwhelming majority of the juveniles apprehended were in the
16‐18 age group.
These figures call for a review of the definition of adolescence. The report submitted by the Justice
Verma Committee has wriggled out of the adolescence debate. The committee should also have had psychologists to throw light on the mental health of juveniles apprehended for rape which would add weight to the debate on whether the age of trial should be lowered form 18 years to 16 years,
The figures also show that most juveniles apprehended for offences under the penal code were above the age of 16. This assumes relevance as the age for juvenile was raised from 16 years to 18 years under the new juvenile justice law enacted in 2000.
According to the report, about 20,000 of the 30,766 juveniles apprehended in 2011 for various offences under the Indian Penal Code were in the 16‐18 years age group.
Another crucial figure pertained to the ratio between boys and girls found on the wrong side of law.
Of the 30,766 juveniles apprehended, 29,234 were boys and merely 1,532 girls.

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Issues for IIM PI Process http://www.essaysforIIM.com DIFFERENT AGE TESTING METHODS
Bone ossification is the standard test to measure age. Ossification is the process by which softer cartilaginous bones fuse together into hard, adult bones. Different bones fuse at different times, some at 16, some at 18, most by 20. As cartilages do not show up on X‐ray, we determine approximate age of a person by patterns of bone growth.
BCCI has instituted the Tanner‐Whitehouse 3 bone test to check age fraud in junior cricket. It works out skeletal maturity from hand and wrist bones. But the test has not been given a green signal by the International Cricket Council. age tests based on chromosomes are being tried in some parts of the world.

HOW INDIA HAS CHANGED
The refrain, "society has to change", has to be accompanied by another one: "society has changed". It's the classic "everything you say about India, the opposite is also true". The protesters in Delhi are a more pronounced segment of a larger culture class of young Indians born after liberalisation, and who exhibit the trait of far lower "power distance" than we have seen before in India. Power distance is one of six dimensions developed by researcher Geert Hofstede to describe a culture; people in societies with high power distance accept a hierarchical order in which everybody has a place and which needs no further justification. We need to add the refrain, "government has to change", in the way it deals with this India, which will only increase in numbers as the years go by.
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Issues for IIM PI Process http://www.essaysforIIM.com The generation and cultural gap has become ever more pronounced, as was evident from the home minister's statements on television, on the anti‐rape protests at India Gate by these liberalisation children. Woefully out of date with today's world, he said that such scenes should not go outside of
India and hurt the country's image and must stop immediately, lest they made a bad impression on visiting Russian President Vladimir Putin. Someone must tell him that pictures, including those not shown on TV but uploaded on YouTube, were instantly transmitted to the world and were already available to the international media. Also that many of the young protesters were probably pre‐ schoolers at the time of the dissolution of the USSR, and have grown up without the baggage of being an irrelevant third world country, and unlikely to be impressed with the visitor they have been told to be on their best behaviour for.
In any case, they were more concerned with weighty issues like being allowed to protest peacefully without being beaten, getting quick sentencing for the rapists who assaulted the young woman, more stringent rape laws, and for the government to do its job to enable women to be free of fear in public spaces. The home minister's appeal is quite irrelevant to them. It takes more than "I have three daughters, too" to forge a connection with this new India. For a generation raised with shoddy history books, even weaker civics education and a "country as an economy, not a society" focus, the idea of a judicial commission and what it really means is hazy; all they know is that it is something that takes for ever. This is also the instant "click a button and it is done" generation. A young person born in the 1980s, whose knowledge and study of the freedom movement is based on badly written textbooks and the film
Gandhi, asked, "Isn't that what the British did? Prevented protests, beat up protesters? Why is our government doing that to us?" Another comment from Twitter: "Peaceful protests lathicharged. Rang de
Basanti it can happen in a democracy". We can sigh exasperatedly at this ignorance, but this is the way it is in their minds.
This episode is more than just another incident; it is not to be seen, as Maharashtra's home minister infamously said after the terror attack on Mumbai, as a small incident in a big city. This is the age of national television and YouTube, and repetitive media visuals and images of police in helmets hitting a young girl forcefully with a lathi are being imprinted on GenNext's consciousness. These images will live on in cyberspace, even if you censor the internet. The confused messaging on TV from a Congress spokesperson saluting the courage of the protesters, to the police commissioner saying enough is enough and that the protesters had become violent, adds to the damage.
Fear for safety and anger at a malfunctioning police force are about psychological needs, and it is hard to see a police force that cannot make the city safe for women, but does a thorough job of evicting protesters from the India Gate area. It is also hard to see senior politicians show enthusiasm to speak to the national media on the Gujarat election results, but not speak to our angry and anguished children.
How we wish that the minister of state for home realised the irony of what he said on TV — that he was willing to "go anywhere you want me to", provided the protesters guaranteed no violent behaviour, when in fact protesters against rape were asking him and his senior colleagues for the same assurance on the streets.

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Issues for IIM PI Process http://www.essaysforIIM.com This event also plays a role in shaping yet another generation of Indian girls who will be raised in fear, crippled and stunted from realising their potential, discouraged by parents and family — and police and chief ministers too — from working in professions that demand late nights or from wearing the clothes of their choice. It shapes yet another set of employers who won't want to hire women because they are a problem. Perhaps this will also shape a new generation of women who will not accept the diktats of a patriarchal society, family and establishment any more, and will fight for their rights.
The coveted figure of GDP growth, the assumed panacea for all evils, will happen faster if women participate in greater numbers in the workplace. Women comprise almost half the entry‐level workforce in many sectors. That is why corporate India must lobby for measures to improve women's safety as much as it lobbies for FDI and GST. Most families will not be able to realise their EMI‐driven dreams without the woman going out to work. That's why they need to come out and fight rather than telling their girls to stay home. India cannot build a 21st century economy with an 18th century society — insular homes, fearful parents, shackled women, a callous state and a gender‐biased police.

QUOTATIONS ON INDIA
The most forthright articulation of the view that India’s rise as a modern power is contingent upon its economic performance was made by Prime Minister Manmohan Singh in his very first union budget speech of July 1991, when he said, quoting Victor Hugo, “No power on Earth can stop an idea whose time has come. I suggest to this august House that the emergence of India as a major economic power in the world happens to be one such idea.”
Extending Nehru’s vision, the prime minister said, in February 2006, at the foundation stone ceremony for Jawaharlal Nehru Bhavan, a new home of the ministry of external affairs,
The foreign policy we pursue must reflect our national priorities and concerns. There cannot be a disconnect between domestic capabilities, national aspirations, and external policies. Our foreign policy must help create an international environment conducive to India’s rapid social and economic development. A few months earlier he told the annual Combined Commanders’ Conference:
Our strategy has to be based on three broad pillars: First, to strengthen ourselves economically and technologically; second, to acquire adequate defence capability to counter and rebut threats to our security; and, third, to seek partnerships, both on the strategic front and on the economic and technological front, that widen our policy and developmental options.
This way of looking at foreign policy, what international relations scholars call realism or, more accurately “liberal realism”, we owe to Kautilya, who clearly identified national interest as the defining principle of international relations
It is not often recognised in Indian political discourse that even during Nehru’s time and during the cold war era, India pursued a realist liberal strategy of giving primacy to its national interest. As
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Issues for IIM PI Process http://www.essaysforIIM.com Subrahmanyam used to say, even the “policy” strategic affairs analyst K of “non‐alignment” was never either a “principle” or a “strategy”, but a “tactical” response to the extant global environment.
What are the long‐term factors that contribute to a country’s geoeconomic power and in what way do they shape a nation’s relations with the world? Elsewhere, I have identified four factors – knowledge power; agrarian transformation; the social institutions that empower the middle classes and create a knowledge‐based economy; and a state that has the fiscal capacity to ensure national well‐being and security.
Agrarian transformation, urbanisation, the emergence of a middle class, and the creation of a modern economy lay the foundations of progress and power.
But India also stands for something more, as it always has. It has its civilisational message for the world encapsulated in that ancient saying, Vasudhaiva Kutumbakam, or the Whole World is One
Family. India’s syncretic world view and pluralism and secularism draw on this tradition. As a modern republic, India is a symbol of the possibility of development in a postcolonial nation within the framework of a plural and secular democracy. India’s inclusive economic growth process is a precondition for the success of this unique experiment.
If there is an “idea of India” by which India should be defined, it is the idea of an inclusive, open, multicultural, multiethnic, multilingual society.
"India," Winston Churchill once barked, "is merely a geographical expression. It is no more a single country than the Equator."
"India," wrote the British historian EP Thompson, "is perhaps the most important country for the future of the world. All the convergent influences of the world run through this society.... There is not a thought that is being thought in the West or East that is not active in some Indian mind."
Pluralism is a reality that emerges from the very nature of the country; it is a choice made inevitable by India's geography and reaffirmed by its history.
To stand Michael Ignatieff's famous phrase on its head, we are a land of belonging rather than of blood. So the "idea of India", to use Tagore's famous phrase, is of one land embracing many. It is the idea that a nation may endure differences of caste, creed, colour, culture, cuisine, conviction, costume and custom, and still rally around a democratic consensus.
The notion of majority and minority, as I have suggested, is fundamentally un‐Indian and fails to reflect the real nature of our society.
INDIAN ECONOMY – IMPORTANT INDICATORS CLARIFICATIONS
NATIONAL INCOME
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Domestic saving rate has declined to 30.4% in 2011/12 [Savings rate is important as it plays an important role in GDP growth, there is an equation called the Harrod domar equation according to which growth = savings rate/ICOR where ICOR is incremental capital‐output ratio which is a measure of efficiency. In India ICOR is around 4.1 and hence when total savings was around 37% ‐ growth had become >9% ..now with lowered savings rate , growth is bound to be lowered]
CAD ‐4.2% of GDP; merchandise trade deficit at ~10% of GDP; capital flows: 3.7% of GDP [CAD is current account deficit which is a sum of trade deficit and invisibles( includes services export); In
India due to large goods imports vis‐à‐vis exports trade deficit is very high; Services, remittances etc are net foreign exchange earners, bringing overall CAD to ~4%, Now this CAD has to be financed from somewhere, Capital flows is one component while the rest is financed through decrease in foreign exchange reserves ]
Current account has 4 components: goods, services, income and current transfers i.e.remittances, donations, aids and grants etc
For details you can also visit: o http://epp.eurostat.ec.europa.eu/statistics_explained/index.php/Balance_of_payment_stat istics#Current_account_2 Fiscal deficit for the Centre was 5.89% of GDP in RE 2011/12; Consolidated: 8.2 per cent of GDP
Employment elasticity falling from 0.43(99‐04) to projected 0.25 in 2011‐16[Employment elasticity refers to %age increase in employment with 1% increase in GDP..With falling EE, it implies less number of jobs are being created despite increase in GDP, this could be happening due to more capital‐intensive production methods being used now]

AGRICULTURE
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GDP share: 30% in 90‐91 to Volatile – 6x than GDP overall[CV is coefficient of variation which is one measure of how volatile a number is. GDP agri is found to be very volatile]
BRICS experience that 1% growth in agriculture is 2‐3 times more effective in reducing poverty than non‐agri growth;
GCF agri: Reversal in trend from 9th plan ‐ increase in GCF to 13.9% in 10th – 18.7% in 1st 3 yrs of
11th. [GCF is gross capital formation in agriculture; Capital formation is needed to propel growth as it implies amount of investment that has been made into the sector. The impact of investment comes with a lag; Investment can be in terms of building canals, R&D, machinery etc and is a sum of public investment i.e. done by government and private investment i.e. done by farmers themselves] OVERALL QUOTATIONS OR INCIDENTS WHICH CAN BE USED IN THE ESSAY
a) Chanakya is supposed to have said in the Arthashastra that there are 40 different methods by which public officials can indulge in corruption. "The Mahamatras are like fish. Does one know, when the fish is drinking water?" he is supposed to have said.
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Issues for IIM PI Process http://www.essaysforIIM.com b) Indira Gandhi, when asked a question about corruption, passed it off with a comment that it was a global phenomenon.
c) Rajiv Gandhi remarked that only 15 paise out of every rupee meant for the anti‐poverty programme reaches the beneficiaries.
d) The degree of corruption in any organisation or society depends on three factors. The first is the individual sense of values. The second is the values cherished by society and the third, of course, is the system of governance
e) Sarvepalli Radhakrishnan sounded the alarm bells when he warned that when ambition and power outstrip a country's abilities and sense of values, catastrophe is the surest end
f) If governance is by men who are derelict, the governed will suffer. We have to keep in mind Plato’s injunction: “The punishment suffered by the wise who refuse to take part in government, is to suffer under the government of bad men”
g) As Gladstone so aptly said, “The purpose of a government is to make it easy for people to do good and difficult to do evil”. h) Perhaps nothing crystallizes the Indian feel for rationalism and scientific temper better than poem 35 of Tagore's Gitanjali:
Where the clear stream of reason has not lost its way, into the dreary desert sand of dead habit, where the mind is led forward by thee into ever widening thought and action, into that heaven of freedom, my father, let my country awake.
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Sen argues: "That task, momentous as it is, is made easier by the long history and consummate strength of our argumentative tradition, which we have reason to celebrate and defend".
j) India is an immensely diverse country with many distinct pursuits, vastly disparate convictions, widely divergent customs and a veritable feast of viewpoints.
k) “It is science alone that can solve the problems of hunger and poverty, of insanitation and illiteracy, of superstition and deadening custom and tradition, of vast resources running to waste, or a rich country inhabited by starving people... Who indeed could afford to ignore science today? At every turn we have to seek its aid... The future belongs to science and those who make friends with science.”― Jawaharlal Nehru
l) Culture is the widening of the mind and of the spirit.”― Jawaharlal Nehru
m) “Long years ago, we made a tryst with destiny, and now the time comes when we shall redeem our pledge, not wholly or in full measure, but very substantially. At the stroke of the midnight hour, when the world sleeps, India will awake to life and freedom. A moment comes, which comes but rarely in history, when we step out from the old to the new, when an age ends, and when the soul of a nation, long suppressed, finds u erance”― Jawaharlal Nehru
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Issues for IIM PI Process http://www.essaysforIIM.com n) "Fine, go to those Bangalore Infosys centers, but just for the hell of it go three miles aside and go look at the guy living with no toilet, no running water ... The world is not flat and PCs are not, in the hierarchy of human needs, in the first five rungs." – Bill Gates
o) "The market does not drive the scientists, the communicators, the thinkers, the government to do the right things. And only by paying attention to these things, and having brilliant people who care and draw other people in, can we make as much progress as we need to."‐ Bill Gates
p) If you’re in the luckiest 1 percent of humanity, you owe it to the rest of humanity to think about the other 99 percent. – Warren Buffett
q) “India shaped my mind, anchored my identity, influenced my beliefs, and made me who I am. ... India matters to me and I would like to ma er to India.”― Shashi Tharoor

BEST OF LUCK!!

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