12
This document has been created by ForumIAS Academy, 19, IAPL House, PUSA Road, Karol Bagh, New Delhi-110005 MGP 2022 (Cohort 2) Half Length Test #10 - Solution

MGP 2022 (Cohort 2

  • Upload
    others

  • View
    6

  • Download
    0

Embed Size (px)

Citation preview

Page 1: MGP 2022 (Cohort 2

This document has been created by ForumIAS Academy, 19, IAPL House, PUSA Road, Karol Bagh, New Delhi-110005

MGP 2022 (Cohort 2) Half Length Test #10 - Solution

Page 2: MGP 2022 (Cohort 2

This document has been created by ForumIAS Academy, 19, IAPL House, PUSA Road,Karol Bagh 110005, New Delhi.

Instruction to Students

Answers provided in this booklet exceed the word limit so as to also act as source of good notes on the topic. Candidates must focus on the keywords mentioned in the answers and build answers around them. Elaborate answers are given with the purpose that candidates understand the topic better. We have also adopted a grey box approach to provide context wherever necessary, which is not to be considered a part of the answer. For any feedback please write to us at [email protected]

Page 3: MGP 2022 (Cohort 2

This document has been created by ForumIAS Academy, 19, IAPL House, PUSA Road, Karol Bagh, New Delhi-110005.

Q.1) What explains the dichotomy of depressed economic growth existing with booming stock markets and rising

foreign investments?

Approach: Introduce with the current trend of depressed economic growth and give reasons for the same. Analyze

how there is a dichotomy by discussing the boom of stock markets and the FDI and reasons behind the same.

Conclude with a summary statement of how these trends are interrelated.

According to NSO, the COVID-induced lockdown caused Indian economy to shrink by 7.5% (Q3 2020), causing

the worst situation in last 70 years. Now the economy is out of contraction zone and yet, the growth is still just at 0.4%.

Reasons causing a depressed growth-

1. Global slowdown- “World economy is facing its worst recession since WW-II"- Global Economic

Prospects. Similar effects were observed in India.

2. Effects of lockdown:

a. Unsold Goods: The goods of firms of all sizes and sectors remained unsold.

b. No earning: Many families remained unemployed as firms closed.

c. Low Recovery of Loans: The Financial institutions were unable to collect their loans.

d. Reduction in tax revenues: The government tax revenue was reduced as most sectors remained

closed.

3. Sector-specific depression- Certain sectors reported maximum losses due to complete shutdown. E.g.

According to WTTC, tourism sector became redundant due to travel restrictions.

Economic depression thus left dents in the form of an all-time high unemployment, casualization of workforce and

even dearth of food for millions.

The impact of this shock was also observed on the stock market, which dipped to a low of ~8000 (March-April 2020).

But within a month, the market started booming in a bull cycle as-

1. A discount- Market watchers note that one of the best times to invest is when GDP growth is low.

2. Future perspective- COVID induced slowdown was only for a time-being and the economy would certainly

boom. E.g., IMF forecasted a 9.5% growth for Indian GDP in 2022.

3. Cash to stock ratio- In a long term, stocks are more preferable during an economic dip.

Page 1 of 10

Page 4: MGP 2022 (Cohort 2

This document has been created by ForumIAS Academy, 19, IAPL House, PUSA Road, Karol Bagh, New Delhi-110005.

4. Market analysis- Due to lack of work, people are home, looking for options to earn money by studying the

market.

5. Inflation- Due to demand-supply mismatch and volatility of oil prices, the rising inflation causes cash to lose

its value making stocks lucrative.

Further, an upward trend is also witnessed with FDI in India. Reasons for this include-

1. Global slowdown has caused investors to look for booming markets like India.

2. Favorable Government Policies like liberalization of multiple sectors permitting 100% FDI and allowing

greater investment under the automatic route. E.g., 74% automatic route for Defence, Consolidated FDI

Policy, 2020, etc.

3. Anti-China sentiments in the World community due to the COVID-origin theory. E.g., Apple is moving

its production from China to India and Vietnam.

4. Increasing EoDB, easily available labor etc. is also working in India’s favor.

There seems to be a diverging trend between the GDP and the market & FDI, but in reality, the GDP would closely

follow these upward trends, it is only in a time-lag. (442 words)

Q.2) Inflation in an economy is related to high demand and low supply. However, Indian economy is facing a

unique problem of high inflation, low demand and high supply. Why?

Approach: Introduce by mentioning what is inflation and its types. In main body discuss various reasons for inflation

in India such as supply chain disruption, despite low demand and high supply. Conclude by mentioning need of

strengthening fundamentals of Indian economy.

Inflation refers to a sustained or continuous rise in the general prices of goods and services in an economy over a

period. It occurs when- aggregate demand for goods and services rise and exceeds aggregate supply (demand-pull

inflation) or when aggregate supply of goods and services decreases (due to rise in cost of production) while

aggregate demand remains constant (cost-push inflation).

In 2020-21, Indian economy is witnessing high inflation and it is peculiar case as it is happening with low demand and

high supply in the economy. Following are the reasons for this:

1. Supply chain disruption: During COVID-19 crisis, supply chains are disrupted which have resulted in

supply bottlenecks and pushed up costs for manufacturers and retailers, which led to price rise. Due to

this, core inflation has been higher than usual.

2. Food inflation: Food inflation has been other major cause behind the rapid rise in inflation since 2019.

Government efforts to double farmers income with high MSP, loan waiver and artificial scarcity of some

food crops in the backdrop of pandemic has led to increase in general price of food.

3. High tariffs: Government has levied high tariffs on some imported commodities and on petrol and diesel,

which has also led to rise in prices.

4. Increase in cost of production: Due to lack of low-wage workers during Covid-19, shift towards working

from home, mass exit from old companies to join new ones, has led to rise in wages and increase in cost of

production, leading to inflation.

5. After lockdown increase: Sectors that have been hit hardest by COVID-19 like transportation and hotels

have begun propping up prices to cover up losses. People locked at their places are rushing to tourist places

that led to momentary surge in demand and thereby prices.

6. Larger than adequate liquidity: Government is focusing on fiscal stimulus in terms of spending on various

sectors to boost economic growth. Interest rates are not altered much to ensure enough liquidity. This has

led to larger than adequate liquidity in the banking system, thereby leading to inflation.

Inflation is not only bad in terms of reduced economic efficiency and competitiveness, but it also effects poor person

the most. There is need to correct inflationary tendencies in Indian economy. There is need for strengthening the

fundamentals of the Indian economy in terms of formalizing Indian economy, land reforms, self-sufficiency in

production (Atmanribhar) etc. (399 words)

Page 2 of 10

Page 5: MGP 2022 (Cohort 2

This document has been created by ForumIAS Academy, 19, IAPL House, PUSA Road, Karol Bagh, New Delhi-110005.

Q.3) It is not only the amount but also the manner of forex accumulation that determines macroeconomic stability

of a country. Discuss in Indian context.

Approach: Start by defining the foreign exchange. Then provide the benefits of high forex. Also, highlight the

importance of the manner of accumulation of forex for macroeconomic stability. Conclude with the way forward.

Foreign exchange reserves are assets denominated in foreign currency that is held by a central bank. India's foreign

currency (forex) reserves have recently surpassed the record $600 billion mark, making it the fourth largest in the world.

Significance of high amount forex in the maintenance of macroeconomic stability:

1. Comfortable Position to Government: It helps in managing India’s external and internal financial issues at

a time of major contraction in economic growth and avoids Balance of Payment (BoP) crisis. It can also cover

for surges in import bills.

2. External Debt Obligations: Assist the government in meeting its foreign exchange needs and external debt

obligations.

3. Confidence in the Market: Reserves will provide a level of confidence to markets and investors that a country

can meet its external obligations. This can reduce the cost of borrowing for India in the external markets.

4. Can influence rupee vs other currencies appreciation & depreciation: With high number of reserves, RBI

can influence the value of rupee based on our imports & exports to secure a favorable position for India in

the International Trade.

The most desirable way of building forex is by surplus exports. But Indian forex built-up is a consequence of high

inflow of foreign capital (FDI, FPI). Importance of manner of accumulation of forex in India:

1. Volatile forex: Unlike other countries, our increase in forex reserves was not due to increase in exports; we

are still import dependent and these reserves from various investments and loans can be pulled out of our

economy.

2. High US dollar basket: Too much dependence upon the US dollar could expose our reserves and thereby our

economy to external shocks. Also, RBI buying dollar with rupees can appreciate dollar and, in an import

dependent country, this can increase the inflation

3. High debt to forex ratio: India’s foreign loans or external commercial borrowing stands for $560, which is

equivalent to 93% of our foreign exchange reserves. These dollar obligations of the short and long-term loans

also pose a threat to the macroeconomy as it also increases the debt to GDP ratio of the country.

4. Fiscal addiction: Large forex size means RBI’s balance sheet gets bloated during the depreciation of rupees

as balance sheets are measured in rupees. This free gain can be pass as a dividend to the union government.

This results in free money addiction or even dilution of RBI’s independence.

The government with RBI must bring a dedicated national plan on foreign exchange which should emphasize

diversifying the forex, systematic investment of forex, and restrictions on the use of dividends for fiscal purposes. (433

words)

Q.4) Gig economy represents a fundamentally regressive future for employment with modest pay, long working

hours, ephemeral jobs and no social security. Analyze.

Approach: Introduce by defining gig economy. In body, discuss various issues of gig economy. Mention benefits

provided by gig economy. Conclude with government efforts toward gig economy and need to formulate explicit rules

for gig workers.

Gig economy is defined as a free-market system which is characterized by temporary, short-term contractual jobs

and freelance work, on a project-to-project basis. In recent years, gig economy has grown significantly in India. The

Global Gig Economy Index report ranked India among the top 10 countries with rapidly increasing number of

freelancers.

Some experts criticize the Gig economy as fundamentally regressive for employment due to following reasons:

1. Modest pay: Gig workers are modestly paid backed by complex contracts and changing rates of

incentives. The parameters to measure efficiency and productivity are ambiguous, which prevent increase

Page 3 of 10

Page 6: MGP 2022 (Cohort 2

This document has been created by ForumIAS Academy, 19, IAPL House, PUSA Road, Karol Bagh, New Delhi-110005.

in wages and incentives. A study by the Institute of Public Policy on gig economy has documented below

the minimum wage earning, despite working beyond eight hours a day.

2. Long working hours: Often companies get more work done from gig workers in name of contractual work.

Due to lack of control over impossible targets and short timeframe, gig workers often end up doing more

than 12 hours of work daily, without an off-day.

3. Ephemeral jobs: Jobs in gig economy are ephemeral in nature due to contractual and short-term projects.

Once the contract is over, there is no guarantee that worker’s contract will be renewed. Also, companies

can fire anytime with no obligation to retain their gig workers.

4. Lack of social security: Gig economy thrives largely unregulated with no security of employment or

benefits such as insurance, medical benefits, employees' provident fund, etc. Though, Social Security

Code, 2020, mentions that platform (gig) workers are now eligible for benefits like maternity benefits,

provident fund, etc., there are no enforcement measures.

Though gig economy has above related concerns, it also provides significant benefits, such as:

1. Working on projects for multiple companies simultaneously, gig workers can grow their skillset and can

earn more.

2. Greater flexibility leads to increased productivity. Workers can work at hours and days that suit them

giving their best to the organization.

3. Increased women participation due to greater ownership over work-life balance.

4. Gig economy allows work from distant locations, thereby increasing job prospects, and filling in for regional

divide in development.

Though gig economy has led to the transformation of work culture, various issues need to be addressed. There are

examples of collaboration between government and private which can be scaled up e.g., Uber partnered with

Ayushman Bharat to facilitate free healthcare for its workers. In addition, explicit rules for gig workers should be

formulated to provide them social security. (413 words)

Q.5) Arbitrariness in compliance with rulings of international tribunals is a challenge in India emerging as an

attractive place for international arbitration. Do you agree? Justify your view.

Approach: Introduce your answer by briefing about the recent Cairn Energy case related to non-compliance by

India. In the main body, highlight the various arguments about arbitrariness in compliance by India. Conclude your

answer by suggesting a way forward.

India has been party to arbitrations outside Indian Courts in several instances like the Vodafone case, the recent

Cairn Energy case etc. Sometimes, India has even failed to comply with these awards.

These arbitrariness in compliance is seen as a challenge towards India becoming an arbitration hub due to the

following:

1. The extent of non-compliance: Non-compliance in multiple occasions like the Devas Multimedia order for a

$1.3 billion award. This leads to a lack of trust in India's commitment to the rule of law.

2. Honoring agreements: Another major setback for India in becoming hub of international arbitration comes

from cancellation of agreements without credible reasoning. For example, the Devas agreement was

cancelled citing national security.

3. Efforts to delay compliance: Whenever India loses a case to a foreign investor, efforts are made to delay

the compliance, for example, in Cairn Energy case India has gone forward for multiple appeals.

4. The question of retrospective legislation: India’s 2012 retrospective taxation has attracted criticism from

many MNC’s, as a form of tax terrorism. This creates negative sentiment for arbitration in India. E.g.,

Vodafone case.

5. Judicial delays: International arbitration flows towards locations depending on how well the legal system

enforces contracts and protects property rights in which India has a poor track record.

In this scenario, an alternative outlook for our policy can be:

1. Retrospective taxation: The 2012 policy of retrospective tax should be scrapped and other fair and

transparent methods of tax avoidance be sought. For example, global minimum taxes like GMCT.

Page 4 of 10

Page 7: MGP 2022 (Cohort 2

This document has been created by ForumIAS Academy, 19, IAPL House, PUSA Road, Karol Bagh, New Delhi-110005.

2. More empowered domestic arbitration tribunals: This will increase local resolution of dispute and create

trust in investor community.

3. Leading by example: India has shown strict compliance like the Permanent Court of Arbitration (PCA) award

of a maritime dispute with Bangladesh. Similarly, India has to honor appeal verdicts in time to earn the trust.

4. Engage in Better Bilateral Investment Treaties (BITs) with other countries so that there is amicable

resolution of issues in the future and gaining trust in India honoring rule of law.

As a result, rather than being a compulsive litigant in appeals, India should have a clear policy on arbitrary awards.

At the same time, prudence is required when dealing with the image of a sovereign country that must defend itself.

As a country having good connections with both developed and developing countries, as well as with a long history of

ethical and human principles, The New Delhi International Arbitration Centre and the International Financial

Services Centres Authority (IFSCA) at Gujarat International Finance-Tec (GIFT) city are steps in the right direction

to make India an arbitration hub of the world. (439 words)

Q.6) What are the challenges in taxation of Multi-National Corporations (MNC)? In this context, highlight the

key proposal of Global Minimum Corporate Tax and discuss its likely impact on developing and developed

countries.

Approach: Introduce your answer by highlighting about the global consensus developing for corporate tax reforms.

In the main body highlight the main challenges in taxing MNC’s. Also, write the key proposals of global minimum

tax. Conclude your answer by highlighting its impact on developed and developing world.

Global Minimum Corporate Tax (GMCT) is the minimum standard rate of taxation applicable on corporation to

prevent practice of profit shifting by MNCs for tax avoidance. A GMTC of 15% has been proposed in this regard

by OECD, G7 and G20 nations. The rationale behind this proposal lies in various challenges in taxation of multi-

national corporations which can be seen as follows:

1. Low Tax Jurisdictions: MNC’s shift their income offshore for tax benefits. That means they only pay the

local rate of tax, even if the profits mainly come from sales made elsewhere.

2. Multilayering by MNCs: Major corporations typically rely on complex webs of subsidiaries to shift profits

out of major markets into low-tax countries.

3. Global operations: MNC’s operate at global scale across various countries, this lays out jurisdiction,

compliance and monitoring challenges.

4. Global competition for lowering of tax rates: In order to attract MNCs, countries resort to ultra-low tax and

incentives. Resulting in unsustainable competition to bottom.

Having recognized these challenges, a global minimum corporate tax has been proposed. The key proposals in this

regard are:

1. An effective global minimum tax of 15% to be imposed on multinationals with more than $890 million in

revenue.

2. The system will redirect some of the taxes to the countries where their products or services are sold,

instead of only the country they’re headquartered in.

3. Proposal to raise taxes for companies based in countries that don’t join mostly tax heavens, thus effectively

disincentivizing profits shifting to tax heaven countries.

4. Building a global consensus: The new tax system expected to take effect in 2023, has been agreed to by 132

countries.

5. Large Multinationals with more than $23.8 billion in revenue, will pay between 20% to 30% of their

profits.

The impact of the global minimum corporate tax on developing countries like India is as follows:

1. Destination-based taxation will help developing countries as the flow of valuable trade, services and

technology have been largely from developed to developing countries.

2. Help developing countries to tax tech companies which do not have physical presence in many developing

countries.

3. Prevent base erosion by local MNC’s to tax heavens, thus increasing tax collection.

4. However, as most large MNC’s are based in developed countries the large chunk of benefit will go to

developed countries.

Page 5 of 10

Page 8: MGP 2022 (Cohort 2

This document has been created by ForumIAS Academy, 19, IAPL House, PUSA Road, Karol Bagh, New Delhi-110005.

5. It may potentially decrease foreign direct investment, as low tax rate is one of the effective tools towards

attracting global MNCs.

Similarly, the impact of global minimum corporate tax on developed countries may be as follows:

1. Increase tax revenue, by preventing base erosion and profit shifting.

2. The developed countries will be benefitted because they will be able to charge tax operating in other countries

but based in developed countries.

3. This will discourage companies from shifting their bases from developed countries to elsewhere, thus create

more jobs and locking companies at home.

Thus, Global minimum corporate tax is a significant step to address the base problem of tax evasion and a race to

low taxes between countries. However, the detailed provision should be such that it balances the aspirations of both

the developing and developed world. (526 words)

Q.7) Inclusive growth is both a process and an outcome. Discuss in Indian context.

Approach: Introduce your answer by describing the concept of Inclusive growth as both process as well as outcome.

In body, list the aspects of inclusive outcome of economic growth. List the aspects that make the process of economic

growth inclusive. Use example relevant to India. Conclude your answer by suggesting some measures to make the

growth process more inclusive.

UNDP defines Inclusive growth as the process and the outcome wherein all groups of people participate in growth

and benefits of growth are shared equitably among them.

Growth produces inclusion as an outcome in following ways:

1. Employment generation: Economic growth produces jobs and provides livelihood opportunities. India lifted

271 million people out of poverty in the high growth phase between 2005-06 and 2015-16.

2. Redistribution: Economic growth creates resources for the government through taxation which are deployed

for welfare schemes targeted at vulnerable sections such as in public education, health & sanitation, skill

development programmes etc.

3. Intergenerational development: Livelihood generation provides financial capacity and awareness about

availing education opportunities, improving health and nutrition which have inter-generational effect on

ending poverty.

However, challenges like unemployment reaching an all-time high (Periodic labor force survey), low female labor

force participation rate, disguised employment in agriculture sector and lack of opportunities in manufacturing

sector have laid bare the promise of inclusion.

It is estimated that after the economic reforms of 1991, economic inequality has increased in India. As per Oxfam,

10% Indian hold 77% of the total national wealth.

Thus, it has been argued that inclusion needs to be made a part of the growth process itself, such as:

1. Giving proper political representation: In India, constitutional provisions and political developments

have helped in increasing the representation of backward sections of the society. The government schemes

are designed to provide inclusive development as otherwise people can vote out the government.

2. Satisfaction of food, health and nutritional needs: Expanded coverage of public distribution system under

National Food Security Act 2013, universal immunization programme, and similar other initiatives in

social sector are example of inclusive growth as these measures have helped the country move towards zero

hunger, and in developing better human capital.

3. Educational equality and skill development: Programmes such as Sarva Sikha Abhiyan have helped

achieve almost 100% Gross Enrolment Ratio (GER) and gender parity in primary education. Samagra Siksha

Abhiyan has been launched to address gaps in achieving universal education.

4. Good Governance: Corruption affects growth of businesses, and undermines equitable redistribution of

growth’s benefits. Good governance helps provide level-playing field in economy, prevents the misuse of

public funds and authority by ensuring transparency and accountability.

5. Financial Inclusion: Access to financial services to vulnerable groups at affordable cost through the

Pradhan Mantri Jan Dhan Yojana has helped in promoting the culture of savings, which initiates a

virtuous cycle of economic development.

Page 6 of 10

Page 9: MGP 2022 (Cohort 2

This document has been created by ForumIAS Academy, 19, IAPL House, PUSA Road, Karol Bagh, New Delhi-110005.

But despite the inclusive outcome as well as inclusive process of growth, issues such as prevalence of malnutrition,

high out-of-pocket expenditure on health, dropout rate in school education, poor learning outcomes remain. Recent

pandemic has seen large number of people falling back in poverty.

India has come a long way in its development journey, the challenges of inclusive growth still remain. Improvement in

public health and education facilities, providing industry-oriented skill development, development of backward area

(with schemes like Aspirational District Programme etc.), giving due importance to environment etc. will help in

making the growth process more inclusive. (510 Words)

Q.8) At the time of introduction, Goods and Services Tax (GST) was hailed as the biggest indirect tax reform

since independence. Has the GST lived up to this expectation? Examine.

Approach- Introduce the answer by briefly talking about GST. Explain some features of the GST in the later part.

Highlight the positives that GST achieved and heralded. Discuss the shortcomings in the present GST regime.

Conclude accordingly.

GST is an umbrella, multistage, destination based indirect tax, which subsumed taxes like central excise, service

tax, additional duties of excise & customs, VAT etc. The GST was launched at midnight on 1 July 2017. It was hailed

as the biggest indirect tax reform of independent India due to its composition and envisaged impact.

About GST

1. It subsumes and replace 17 local levies like excise duty, service tax and VAT and 13 cesses.

2. Under GST, a four-rate structure that exempts or imposes a low rate of tax 5 per cent on essential items and

top rate of 28 per cent on luxury items. The other slabs of tax are 12 and 18 per cent.

3. In the pre-GST era, the total of VAT, Excise, CST and their cascading effect led to 31 per cent as tax

payable, on an average, for a consumer.

Four years since its implementation there are questions whether GST- one nation, one tax has lived up to the

expectations it promised. The performance of GST regime can be assessed from following points:

1. Increase in Taxpayers- Number of taxpayers registered under GST rose to 1.3 crore by 2021.

2. Increased compliance-High tax rates of the pre-GST era acted as a disincentive to paying tax, the lower rates

under GST helped to increase tax compliance. More than 66 crore GST returns have been filed in the past four

years.

3. Ease of doing business- GST brought in a conducive environment for businesses by easing tax norms

and giving tax concessions to corporate.

4. One nation One tax-The multiple markets across India, with each state charging a different rate of tax, led to

great inefficiencies and costs of compliance. Under GST’s vision of one nation one tax this problem was to

some extent addressed.

5. Fiscal Federalism-GST also represents an unprecedented exercise in fiscal federalism. The GST Council,

that brings together the Central and State governments, has met 44 times to improve the working of the

mega tax reform

However, there are certain problems that persist in the current GST regime as discussed below:

1. Federal issues: Center has failed to fulfill its promise on compensating the states in case of revenue

shortfall. This has put strain on center state relations. It also denied power to states to impose new taxes to

make up for revenue shortfall.

2. Taxing medical equipments: Items like vaccines, drugs, PPE kits, masks, ventilators, concentrators etc.

remained under taxed category for long time, increasing the cost of important medical supplies.

3. GST Collections- The expected growth in revenue has not happened and there seems to be stagnation in

revenue growth. There have been only nine months out of the 33 months till March 2020 in which target of

1 Lakh Cr mark has been exceeded in nominal terms.

4. Problem of tax slabs- Despite best efforts the GST could not be imposed in 1-2 tax slabs. The concept of sin

tax and exclusion of several products like alcohol, petroleum products have created problem for producer

states.

Page 7 of 10

Page 10: MGP 2022 (Cohort 2

This document has been created by ForumIAS Academy, 19, IAPL House, PUSA Road, Karol Bagh, New Delhi-110005.

5. Gaps in GSTN- CAG had highlighted poor backend management by GSTN in its audit report on GST.

Following points can be considered as way forward for reforms in GST

1. Revenue Guarantee- The income of states has seen a decline in past 5 years, compounded by the

expenditure due to Covid-19. Assurance to states regarding Revenue Guarantee beyond 2017-22 period is

needed.

2. Loss for Manufacturing states- Ideally GST was to bring as much tax as the previous tax regimes, but GST

being a consumption point tax meant manufacturing states like Tamil Nadu, Maharashtra had to bear loss.

These states demand compensation for shortfall.

3. Reforms in GST Council- Reforms such as more weightage to the states, clarity on suggestions of council

for borrowing etc.is required.

4. FRBM ACT 2003- suitable relaxations in FRBM Act 2003 be made to account for larger fiscal deficit years

in case of contingencies like Covid-19

Therefore, the GST has been a mixed bag, the businesses or governments, are not fully satisfied with the current state

of GST. It requires modifications before it produces the kind of benefits that were talked about prior to its roll out.

(546 words)

Q.9) The vision of the Union Budget 2021-22 is to extend the goal of Atmanirbhar Bharat and make India a

global manufacturing hub across sectors. Analyse the measures proposed in the budget to achieve this objective.

Approach: Give a contextual introduction about the budget’s focus on manufacturing and Aatmanirbhar Bharat.

Enumerate and mention the advantage of each of the initiatives announced for the same. Highlight issues in

proposals that need to be resolved. Conclude by mentioning about need to implement an integrated strategy

inculcating advantages that India has.

Union Budget 2021-22 has proposed measures to enhance the focus of government’s economic policies on the

manufacturing sector. This is expected to help achieve the goal of Aatmanirbhar Bharat, thereby, making India a

global manufacturing hub across various sectors.

The budget includes various general and sector-specific steps for facilitating the growth of manufacturing sector in

India, as listed below:

Production-linked incentives (PLI): Benefits worth ₹ 1.97 Lakh crores have been announced for PLI schemes in 13

sectors. The scheme incentivizes manufacturing in India in a WTO-compliant framework.

This is intended to promote integration of Indian manufacturing capacity with the global supply chains and

help Indian companies move up the value chain, while creating considerable employment opportunities.

1. Infrastructure development: National Infrastructure Pipeline’s horizon is to be increased to 7400

projects with a thrust on institutional structures, asset monetization and enhancing capital expenditure.

2. Infrastructure financing: ₹20,000 crores for setting up a Development Financial Institution (DFI) for

acting as an enabler for infrastructure financing, thereby catalyzing the infrastructure development.

3. Economic corridors: Economic corridors in West Bengal, Tamil Nadu, Kerala and Assam for boosting

economic activity, especially, in the manufacturing sector.

4. Textile manufacturing: Textile sector would get the additional thrust due to the Mega Investment Textiles

Park (MITRA) scheme along with the PLI scheme which would make it globally attractive while boosting

employment generation and exports.

5. Transport development: Flagship expressways, rail freight corridors and port development would

ensure better transit and reduce logistical bottlenecks.

6. Boost to MSMEs: The allocation to the MSMEs has been doubled taking into account their importance in

the economic growth.

However, certain issues need to be resolved in order to streamline the implementation of these measures. These include:

1. Challenges in WTO due to indigenization and objections to ‘trade-disruptive’ policies.

2. Integration of schemes running across various sectors and ministries can be a challenge. Similarly, lack of

center-state coordination has caused hurdles in fund flow in past.

3. National Infrastructure Pipeline might face issues due to huge outstanding NPAs, land acquisition issues

among others. Bureaucratic inertia which might lead to delays in projects due to hurdles in approvals.

Page 8 of 10

Page 11: MGP 2022 (Cohort 2

This document has been created by ForumIAS Academy, 19, IAPL House, PUSA Road, Karol Bagh, New Delhi-110005.

4. Efficient fund utilization remains a major challenge for the success of Development Financial Institution

(DFI).

5. Mismatch between the level of skills needed and available might pose human capital-related issues as

well.

India continues to be a net importer of manufacturing products across various sectors. Moreover, manufacturing

sector’s contribution to India’s GDP looms around 16-17%, thus, leaving the immense potential of manufacturing

sector untapped.

In order to achieve the goal of Aatmanirbhar Bharat, the need is to implement a strategy integrating the benefits of

3D (demography, democracy and dividend) coupled with the geographical advantages that are inherently present

with India. (457 words)

Q.10) Economic development requires a push towards improving business environment, increasing labor and

product market flexibility, and improving governance. Comment.

Approach: Introduce by mentioning recent Covid-19 crisis and its impact on economic growth. In main body discuss

how improved business environment, more labor and product market flexibility and improved economic governance

will help in economic development. Mention some measures to ensure above three reforms. Conclude by mentioning

need of eliminating unnecessary government interventions.

The COVID-19 has led to devastating health and economic crisis. Investment in the economy has collapsed impacting

economic growth. There is formidable challenge for government to ensure recovery.

To meet this challenge and to set a foundation for robust growth and development in the longer run, there is need

of a major push to improve business environments, increase labor and product market flexibility, and strengthen

transparency and governance. A focus on these three areas will help in following ways:

1. Improving business environment: India ranked at 63 in Ease of Doing Business 2020. There is lot of space

in improving business environment. Improved environment will lead to economic development by

a. Attracting global investments due to increased confidence in the economy.

b. Better debt management and less fiscal deficit in terms of government spending.

c. More socio-economic development due to ability of government to spend less fiscal on reviving

economy and more on socio-economic welfare.

d. Capital formation due to more investment in the capital-intensive sectors.

e. Increased aggregate demand and raising the potential supply of the economy.

2. Increasing labor and product market flexibility: In the Index of Economic Freedom 2021, India was

ranked at 121 reflecting very less economic freedom. India’s labor and product market are rigid. Excessive

regulation and complex legal requirements have led to such a rigidity. Flexibility in these areas will lead to

a. Establishment of more businesses in India leading to economic growth.

b. More job creation with increase in regular employment.

c. Economic efficiency with formalization of economy.

d. Labor welfare and their socio-economic security.

e. Competitive and better-quality products leading to further economic growth.

3. Improving governance: Excessive government intervention and lack of transparency has affected economic

growth and distorted market equilibrium. E.g., frequent and unpredictable imposition of blanket stock

limits on commodities under ECA have distorted the incentives for the creation of storage infrastructure by

the private sector. There is need to improve economic governance which will lead to

a. Increased confidence in the economy and making doing business easier in India.

b. Less cost and delays in terms of regulatory needs and red-tapism.

c. Better transparency thereby reducing chances of corruption which usually leads to increased cost

of business.

d. Clarity in terms of regulation and legal requirements, thereby preventing unnecessary legal

fights.

Following measures are required to ensure better business environment, more labor and product market flexibility,

and good governance for economic development:

Page 9 of 10

Page 12: MGP 2022 (Cohort 2

This document has been created by ForumIAS Academy, 19, IAPL House, PUSA Road, Karol Bagh, New Delhi-110005.

1. Examining unnecessary interventions: Each department and ministry in the Government must

systematically examine areas where the Government needlessly intervenes and undermines markets.

2. Ease of doing business: Government has recently achieved significant improvement in the Ease of doing

business index. Government should continue similar efforts to remove procedural constraints.

Government should further simplify GST regime and labor laws. There is need to reduce average time for

filing taxes and remove unnecessary laws and regulations.

Covid-19 has impacted severely all economies in the world. To ensure fast recovery and put India back on track,

Indian market should be made more flexible, business friendly and transparent. There is need to eliminate

unnecessary government intervention which will enable competitive markets and thereby spur investments and

economic growth. (529 words)

We are continuously working on improving our quality. If you are unhappy or happy with the quality of this

study material, want to report an error, or want to leave us a feedback, you can email us at [email protected]

Page 10 of 10