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3 April 2017 Question Bank

 

3rd APRIL 2017 

QUESTION BANK 

(3 Questions)

Answer questions in NOT MORE than 200 words each. Content of the answer is more important than its length.

Links are provided for reference. You can also use the Internet fruitfully to further enhance and strengthen your answers.

 

GS III : ECONOMY

1.      The growth rate in India has been declining over the past few years. What are the causes for the same? How can India be put back on the upward growth trajectory?

http://www.thehindu.com/opinion/lead/sharpen-the-focus-on-growth/article17763234.ece

  • The Central Statistics Office's second advanced estimates indicate that the growth rate of GDP for 2016-17 will be 7.1% as against 7.9% in 2015-16.
  • The growth rate of gross value added at basic prices in 2016-17 will be 6.7% as against 7.8% in 2015-16.
  • The growth rates projected for 2016-17 do not capture the impact of demonetisation, which when taken into account may bring down the projected growth rate by around 0.5%.

Determinants of growth

  • The growth rate is determined by two factors - the investment rate and the efficiency in the use of capital.
  • As the Harrod-Domar equation puts it, the growth rate is equal to the investment rate divided by the incremental capital-output ratio.
  • The incremental capital-output ratio (ICOR) is the amount of capital required to produce one unit of output. The higher the ICOR, the less efficient we are in the use of capital.
  • ICOR is a catch-all expression which is determined by a variety of factors including technology, skill of manpower, managerial competence and also macroeconomic policies. Thus delays in the completion of projects, lack of complementary investments in related sectors and the non-availability of critical inputs can all lead to a rise in ICOR.
  • As we look at the Indian performance in the last five years, two facts stand out. One is a decline in the investment rate and the second is a rise in ICOR; both of which can only lead to a lower growth rate.

Stalled Projects:

  • The Economic Survey of 2014-15 reported that there were in all 746 stalled projects, with 161 in the public sector and 585 in the private sector of a total value of ?8.8 lakh crore.
  • As of 2015-16, there were still 404 stalled projects, 162 in the public sector and 242 in the private sector with a total value of ?5.5 lakh crore.
  • In the short run, the biggest gain in terms of growth will be by getting "stalled projects" moving.
  • Of course some of them may be unviable because of changed conditions. A periodic reporting by the government on the progress of stalled projects will be of great help.

Declining investment rate

  • India's investment rate reached a peak in 2007-08 at 38.0% of GDP.
  • With an ICOR of 4, it was not surprising that a high growth rate of close to 9.4% was achieved.
  • One sees a steady decline in the investment rate since then. The decline in the rate was small initially but has been more pronounced in the last two years.
  • According to the latest estimates, the gross fixed capital formation rate fell to as low as 26.9% in 2016-17. With this investment rate, it is simply impossible to achieve a growth rate in the range of 8 to 9%.
  • The growth rate of the advanced economies remained low and the recovery from the crisis of 2008 was tepid which had an adverse impact on exports.
  • For almost three years beginning 2010, India had to cope with a high level of inflation which also had an adverse impact on investment sentiment.
  • Once the growth rate starts to decline, it sets in motion a vicious cycle of decline in investment and lower growth. We need to break this chain in order to move on to a higher growth path.

Solutions

  • The standard prescription, whenever private investment is weak, is to raise public investment which can take a longer term view.
  • In the best of times, public investment has been 8% of GDP.
  • The Central government's capital expenditures even after some increase in the last two years, is only 1.8% of GDP. About 3 to 4% of GDP comes from public sector undertakings and the balance from State governments.
  • During the high growth phase, corporate investment reached the level of 14% of GDP. Since then it has fallen.
  • Three things need attention.

1.      First, reforms to simplify procedures, speed up the delivery system and enlarge competition must be pursued vigorously. Some significant steps have been taken in this regard in recent years such as moving forward on the GST Bill, passing of the Bankruptcy Act, and enlarging the scope of foreign direct investment.

2.      Second, all viable "stalled" projects must be brought to completion.

3.      Third, financial bottlenecks need to be cleared. The banking system is under stress. The non-performing loans of the system have risen and are rising. This has squeezed the profitability of banks with some showing loss. More distressing is the minimal flow of new credit. The problem is often referred to as the twin balance sheet problem. If corporate balance sheets are weak, automatically the banks' balance sheets also become weak.

 

GS II: SOCIAL - DISABLED

2. "As India catapults towards a digital economy, making ICT accessible to the disabled is a must." Comment.

http://www.thehindu.com/opinion/op-ed/digital-push-must-be-disability-inclusive/article17763248.ece

http://en.unesco.org/partnerships/partnering/icts-persons-living-disabilities

Disabled and ICT

  • Around 8-10% of India's population lives with disabilities, with an equal number constituting the aged.
  • Information and Communication Technologies (ICT) have the potential to significantly impact the lives of these groups, facilitating access of services available to them and allowing them to handle a wide range of activities independently, enhancing their social, cultural, political and economic participation.
  • Poor accessibility due to lack of focussed information and political will has led to social exclusion of people with disabilities, exacerbating the negative impact of the existing digital divide.
  • Exclusion of persons with disabilities from education, employment and participation on account of a hostile infrastructure and inaccessible technology has huge economic implications. UN agencies put this cost at around 7% of national GDP.
  • Care must be taken to ensure disability-inclusive development.
  • Making ICT accessible no longer remains an option but has become a necessity.

Provisions made:

  • Accessible India Campaign, the flagship campaign launched by the Prime Minister on World Disability Day aims at achieving universal accessibility for all citizens and creating an enabling and barrier-free environment.
  • India was one of the first countries to ratify the United Nations Convention on the Rights of Persons with Disabilities.
  • The recently passed Rights of Persons with Disabilities Act, 2016 mandates adherence to standards of accessibility for physical environment, transportation, information and communications, including appropriate technologies and systems, and other facilities and services provided to the public in urban and rural areas. These include government and private developments.
  • The Act also mandates incorporation of Universal Design principles while designing new infrastructure, electronic and digital media, consumer goods and services.
  • Most importantly, the Act sets timelines to ensure implementation of the above and punitive action in the event of non-compliance.
  • Accessibility therefore forms the common thread weaving together the Accessible India Campaign, the Rights of Persons with Disabilities Act, the Smart Cities Mission and the Digital India campaign to achieve the combined goal of creating an inclusive society that will allow for a better quality of life for all citizens, including persons with disabilities.
  • Beyond the social implications, accessibility makes for business and economic sense too. If principles of Universal Design are incorporated at the design stage, cost implications are negligible. Retrofitting, on the other hand, has huge cost implications.

Way Ahead:

  • As India catapults towards a cashless and digital economy and as human interface between service providers and end users gives way to digital, it becomes imperative to ensure accessibility for inclusion.
  • The government's procurement policy must mandate accessibility as a key criterion.
  • Adherence to the latest Web Content Accessibility Guidelines should be made mandatory while developing websites and mobile applications.

 

 

 

 



GS III: ENVIRONMENT

3.      In March 2017, U.S. President Donald Trump signed an executive order, ostensibly promoting U.S. energy independence and economic growth, but with potential collateral damage to global efforts to limit climate change. What exactly did he authorise, what are its implications, and what does it mean for India's strategic interests in energy and climate change?

http://www.thehindu.com/opinion/op-ed/india-must-reaffirm-its-paris-pledge/article17763322.ece

March 2017 U.S. Presidential order:

  • The March 2017, U.S. President Donald Trump's executive order defines America's interest narrowly in terms of developing the country's energy resources.
  • It establishes a time-bound process to review several Obama-era regulatory actions that might "burden" their development, and revokes certain actions.
  • A centrepiece is a review of the U.S. Clean Power Plan, which aims at reducing greenhouse gas emissions from the American electricity sector.
  • This was a key element in President Barack Obama's plans to meet America's climate pledge under the Paris Agreement.
  • Other actions lift a moratorium on leasing federal land for coal mining, and revisit rules to limit methane emissions.
  • Yet another withdraws estimates of the "social cost of carbon", an economic approach that sets a dollar value to the gains from reducing carbon, providing a basis for further regulatory action.
  • In brief, the aim is to invigorate domestic energy production but by setting the clock back to an era before any climate-focussed regulation, thereby giving a boost to coal, oil and gas production.
  • With this order, as a senior U.S. government official put it: "The U.S. is going to pursue its interests as it sees fit" based on "an America First energy policy."

Implications of the order:

  • Even without the Clean Power Plan, the falling price of wind and solar energy and the availability of cheap gas could signal the end of coal in the U.S.
  • But the same cannot be said for efforts to limit methane.
  • And the removal of the single agreed social cost of carbon as a basis for regulatory efforts hamstrings the effectiveness of other regulations.
  • The only question is how much, and whether America's Paris Agreement pledge is still within reach.
  • But the deeper significance of the order rests in the political signal it sends to the world, and the reactions it may elicit.
  • The Paris Agreement is, at the core, a confidence game. Each country is required to submit a national ‘pledge' to limit emissions growth, which is to be reviewed internationally, and updated and enhanced every five years.
  • The intent is to generate a virtuous cycle of enhanced actions over time, as countries gain confidence in each other's commitment to climate action.
  • Mr. Trump's order risks turning a fragile global virtuous cycle into a vicious one; with global confidence punctured, other countries may follow the U.S. lead and dilute their national actions too.
  • While the order is silent on America's formal commitment to the Paris Agreement for now, an explicit announcement on this is expected in May, when the G7 leaders are scheduled to meet. A formal withdrawal, though complex and time-consuming, could further dent appetite for collective action.
  • For veteran climate watchers, what makes this order particularly galling is that the Paris Agreement was, in substantial measure, written to accommodate the U.S. and enable its participation.
  • And this is not the first time the U.S. has pulled the rug out from under the global community. In the mid-1990s, it notably walked away from the Kyoto Protocol, which requires developed countries to take the lead.

India's interests:

  • India's interests are best served by buttressing the Paris Agreement, using its mechanisms to hold to account the developed world, and maintaining its own pledges.
  • India has a lot to gain from a virtuous cycle because it is extremely vulnerable to climate impacts.
  • While the ability of the Paris Agreement to slow warming may be more modest than is ideal, it will certainly have more effect than no agreement at all.
  • India's greenhouse gas limitation pledge is appropriately cautious and, in key areas such as renewable energy promotion, existing domestic policy targets are more ambitious than India's Paris pledge.
  • India importantly retains the right to meet its energy access needs and energy for development through fossil fuel use, particularly coal, if needed. The Paris Agreement does not constrain this approach, which is based on Indian interests.
  • India is emerging as a swing player in global climate politics. With the U.S. adopting the role of the leading naysayer, the Chinese have skilfully stepped into the role of climate champions, reaffirming their own commitment to the Paris Agreement.
  • As a large emerging country, whose yearly emissions follow only these two nations, India has enormous leverage as a deciding factor in the future of the Paris Agreement.
  • It should insist that Western countries maintain their obligations, including financial.
  • Indeed, the Trump order provides an opening to enhance India's global standing.

Conclusion:

  • History will likely judge the Trump order an own goal, born of the poisoned politics that prevails in the U.S. today.
  • It will likely hurt the interests of the U.S. in the long run because it postpones an inevitable but complex readjustment of energy systems around renewable energy, undermines confidence in the U.S. as a reliable global partner, and even revokes preparation for climate impacts meant to safeguard American citizens.
  • Fortunately, India is in a position to think and act more clearly.
  • It should do so by re-affirming its Paris pledge and placing its weight behind implementing the Paris Agreement.

 

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