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Urbanization in India - 2.Smart Cities


The Moot Point
The urbanization sector has finally caught the attention of Indian policymakers and some interesting
policies are on the anvil. One such policy is the Smart City Schemes. The scheme proposes to make
Indian Cities smarter. What constitutes this smartness is however anybodys guess.
The government has recently released a draft not on the Smart City Scheme, which brings some
clarity on the concept. Besides, there are some steps that Indian Cities have already taken or are in the
process of taking, which shall also constitute the smartness notwithstanding the definitions.
In the second article of the series on Urbanization in India, we are examining the concept of Smart Cities
in detail.
The Cheatsheet
Some globally accepted definitions of Smart City The UK Department of Business, Innovation and Skills considers smart cities a process rather than as a
static outcome, in which increased citizen engagement, hard infrastructure, social capital and digital
technologies make cities more liveable, resilient and better able to respond to challenges.
The British Standards Institute defines it as the effective integration of physical, digital and human
systems in the built environment to deliver sustainable, prosperous and inclusive future of its citizens.
IBM defines a smart city as one that makes optimal use of all the interconnected information
available today to better understand and control its operations and optimize the use of limited resource.
CISCO defines smart cities as those who adopt scalable solutions that take advantage of information and
communications technology (ICT) it increase efficiencies, reduce costs and enhance the quality of life.
Wikipedia defines a city as Smart when investments in human and social capital and traditional
(Transport) and modern (ICT) communications infrastructure fuel sustainable economic development
and a high quality of life, with a wise management of natural resources, through participatory action and
engagement (Caragliu et al, 2009)
Accenture defines it as A Smart City delivers public and civic services to citizen and businesses in an
integrated and resource efficient way while enabling innovative collaborations to improve quality of life
and grow the local and national economy.
The Critical Analysis
Government of India has recently released a draft not on Smart City Scheme. According to the note,
Smart City can be characterized as People migrate to cities primarily in search of employment and economic activities beside better quality
of life. Therefore, a Smart City for its sustainability needs to offer economic activities and employment
opportunities to a wide section of its residents, regardless of their level of education, skills or income
levels.

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Apart from employment, it is also important for a Smart City to offer decent living options to every
resident. This would mean that it will have to provide a very high quality of life i.e. good quality but
affordable housing, cost efficient physical, social and institutional infrastructure such as adequate and
quality water supply, sanitation, 24 x 7 electric supply, clean air, quality education, cost efficient health
care, dependable security, entertainment, sports, robust and high speed interconnectivity, fast &
efficient urban mobility etc.

Pillars of a Smart City

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Case Studies of Smartness of Indian Cities


In many ways, Indian cities are already smart and some are in the process of getting smart. The case
studies areDelhi Planning & Design

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The Master Plan for Delhi 2021 proposes transit oriented development for the city.
A Transit-oriented Development (TOD) is a compact high density mixed use development designed
around new or existing public transit stations or corridors which provide housing, employment,
entertainment and civic functions within the walking distance.
The primary role of TOD is to encourage people from all economic strata towards increased dependency
on reliable and safer Public Transport.
One aspect of TOD is by creating a TOD zone which extends 500 meters on either side of an
identified Delhi Metro corridor. The zone allows landowners in the area to avail 400 FAR (floor area
ratio) on redeveloping their land, enabling maximum densities around the public transport zones.
The other aspect of TOD is to create transportation hubs. One such hub will come up in East Delhi,
around an area comprising two Metro stations, Anand Vihar railway station, Anand Vihar ISBT. The
centralized public transport infrastructure will form the centre of planning, where the residential
densities will decline as we move away from the central zone. Thus, the areas immediately around the
centre will accommodate maximum population.
Ahmedabad Public Transportation System
Since its launch in 2009, the BRTS has turned out to be the most popular means of transport for the
people of Ahmedabad.
About 55 kms of BRT corridors are operational in Ahmedabad. The corridor carries 0.15-0.18 million
passengers per day, with daily revenue of Rs. 7.5-9 lakh.
A special purpose vehicle Ahmedabad Janmarg Ltd (AJL) was created to thrust the responsibility,
execution and adherence to policy upon a new company.
The BRTS boasts of smart cards, designer bus stops that cost Rs 1 crore each, air-conditioned buses,
dedicated fast lanes, a public information system, Global Positioning System and a centralized control
room.
Surat Water Supply System
The Water Supply System of Surat is based on a Grid System. Initially, entire water supply for Surat city
was dependent on one water works only. Therefore, shutdown/ closure of the plant caused regular
interruption in the entire water supply system. Today, there are four water works and ten water
distribution stations interconnected in a grid in such a way that failure of any water works does not
cause any disruption on the entire water supply system.
In order to meet and ensure the treated water quality in accordance to the drinking water standard IS
10500:1991 edition 2.2, online water quality monitoring system is deployed for round the clock
monitoring of essential water quality parameters like pH, turbidity, etc.

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The Surat Municipal Corporation has done extensive Leakage Mapping. It has been observed that, after
the Leakage Mapping initiative, the number of leakages in the central zone has reduced gradually.
Indore Automated Building Permission System
The bulding permission system of Indore is completely automated. The building plans are submitted,
verified, processed and approved online.
The process has brought various benefits to the people of the city such as increased convenience and
transparency.
The system has also aided the Indore Municipal Corporation in Uniform interpretation of Bye-laws and
eliminating human errors.
Ahmedabad - Municipal Bonds
One of the key developments in the arena of infrastructure financing in the country has been the
emergence of nascent municipal bond market in the country. Internationally, municipal bonds have
played a key role in the creation of urban infrastructure assets in United States and Canada.
In 1998, taking a cue from the emerging discussions, the Ahmedabad Municipal Corporation (AMC)
proposed to raise finances of Rs.1000 Million through municipal bonds. The AMC was at that time
proposing to implement water supply & sewerage project and upgrade its existing networks for which it
required substantial resources.
The debt market for municipal securities in India has grown since the issuance of the AMC bonds.
Following the AMC issue, Municipal Bonds are now available as an option for financing Urban
Infrastructure outside the usual sources (grants and devolutions from the state governments and local
taxes).
GPkaFunda
The phrase Smart City has done one good thing which is to get limelight to the issue. And the issue is
state of our urban centers. Besides, the phrase Smart City is just a term to explain a collective vision of
our future cities which will be economically, physically, socially and institutionally capable of managing
the expectations of its residents.
The test of the schemes however is not in its name or definitions, but its actual implementation. The
scheme is still in its conception stage, so there cannot be clarity on that. But one interesting thing worth
seeing in the scheme would be the kind of institutional and financial arrangement it proposes to
improve the cities. These two invariable have been the biggest challenges and the implementation of
the entire schemes will ultimately fall on these two heads.
Further, it will be also interesting to see how the scheme helps upscale various experiments already
happening on the ground, as far as the urbanization sector is concerned. There is an interesting case

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study of BRT failing in Delhi, but being successful in Ahmedabad. Could the Smart City scheme help find
answers to such questions. Let us wait for the action on ground.
INDIA'S DEMOGRAPHIC DIVIDEND 2. THE CHALLENGE OF JOB CREATION
The Moot Point
India's Demographic Dividend has been a global talking point for quite some time. While the whole
world is aging, India has a significant percentage of population in the young age category. This has
heightened the prospects for not just India but the entire world. While India sees the demographic
resource to aid its economic development, the world sees it as a huge market and potentially global
workforce.
The critics however say that India's demographic potential is highly overemphasized. They point to the
abysmal standards of education, human development, and job creation in the country. According to
them, it is not demographic dividend but a demographic disaster waiting to happen.
While the critics concerns may be genuine, none can discount the potential of India's demographic
resources. Couple this with strong urge of India and its current government to get over the ghosts of
past and make a new beginning, and we have 'Demographic Dividend'.
In this second article of the series on Realizing India's Demographic Dividend, we are discussing the
issues of Jobless Growth and thee larger challenge of Job Creation to meet the burgeoning needs of
India's youth.
The Critical Analysis
'Jobless Growth' Conundrum
2005-10 has been referred to as the period of jobless growth for India. The period saw record economic
growth percentages, but without the corresponding increase in the number of jobs created
2009-10 Employment-Unemployment National Sample Survey (NSS) data shows addition of merely 2.76
million work opportunities during 2006-10, the fastest 5 year growth period for the economy.
Compared to this, there was an addition of 60 million to the workforce between 1999-2000 and 200405.
An absolute decline of 14 million in employment in agriculture during the second half of the decade
(2006-10) was seen. Most of the people moving from agriculture were consumed by construction sector
rather than the sustainable manufacturing or service sector.
The increase in construction employment is guided by the increase in infrastructure investment during
the 11th Five Year Plan (2007-12) period to 7.5 per cent of the GDP in the terminal year of the Plan.
Total employment in manufacturing in India actually fell in the five year period of high growth. It had
increased from 44 million in 1999-2000 to 55 million in 2004-05, falling to 51 million by 2009-10.
In the first half of the decade (2000 to 2005), total employment in services increased from 94.2 million
to 112.8 million (an increase of 18.6 million). However, in the latter half of the decade (2005-10) there
was an increase of only 3.5 million in total employment in services.

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These facts show that the period of high growth is India did not add significant number of jobs. While,
the jobs in the manufacturing sector declined, a sharp increase in the non-manufacturing sector
primarily construction was seen. The jobs in the service sector, having the major share in the output did
not generate a significant number of jobs.
A reversal in the job creation trends has been observed after 2010.
The NSSO 68th round data suggests that industrial employment has increased by 15.7 million during
2010-12. The data suggests that employment in manufacturing rose by 8.9 million in this two-year
period, while non-manufacturing (mostly accounted for by construction) rose by 6.8 million.
The data also shows that the services employment has increased by an overwhelming 11 million in this
two-year period between 2009-10 and 2011-12 a significant acceleration in job creation, compared
to the latter half of the previous decade.
The share of agriculture in total employment has fallen by 4 percentage points in two years from 53% in
2009-10 to 49% in 2011-12. There was no absolute decline in agricultural employment between
Independence and 2004-05, which began after 2005 for the first time in Indian history. This decline has
intensified since 2010.
Notwithstanding the reversal in the trends, Indian economy needs to keep creating about 15 million jobs
every year to accommodate those entering the working age group and those shifting from farm
employment to non-farm employment.

EMPLOYMENT ELASTICITY
The biggest challenge as far as creation of jobs is concerned is Indias falling employment elasticity
between 2004-05 and 2011-12.
Employment elasticity is defined as the percentage increase in employment for every percentage point
increase in GDP.
The employment elasticity deteriorated sharply to 0.38% during these high growth years from 0.52% in
the prior 5- year period (1999-00 to 2004-05) for non-agricultural sector.
Employment elasticity of industry and services sectors fell considerably during this period, while for the
agricultural sector it went negative on labor migration.

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Services
India's GDP growth during the boom years was largely driven by the less labour-intensive sectors.
Information technology, financial services, real estate and other business services grew at over 11% per
year, and contributed significantly (22%) to overall growth. However, as these services require only
about 1-2 people to produce Rs 1 million of real value-added GDP, their high growth did not lead to
large incremental employment.
In contrast, the more labour-dependent services sub-sectors grew at a much slower pace. For instance,
health, education and recreation services, which require 9 people to produce Rs 1 million of real GDP,
grew at 6.8% in the seven fiscals to 2012. As a result, employment addition in these sectors was limited.

Manufacturing
During the high growth years from 2004-05 to 2011-12, the labor intensity of manufacturing also fell
sharply.
A large part of the manufacturing sector's growth came from fast-growing, capital intensive industries
such as petrochemicals.
Rising substitution of manual labor is also seen, due to complicated labor laws in India and technological
progress leading to higher automation.
The automobiles sector is a prime example of the shift toward automation. Vehicle makers have been
increasingly resorting to robotics to skirt mounting labour costs and neutralise unionism.
As manufacturing failed to create many jobs, incremental employment in the boom years came largely
from the construction segment, which became the largest employment creator due to a profusion of
projects.
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Agriculture
There was an absolute decline in total employment in agriculture
There was a decline even in allied in agriculture horticulture, animal husbandry, forestry and
fisheries.

GPkaFunda
Creating enough jobs to meet the needs of expanding workforce is perhaps the biggest challenge of the
present government and policy makers. The government can take sector specific steps to create jobs.
These steps can be Agriculture - The number of jobs in the agriculture will only decline, which in itself is a desirable to thing,
to check the disguised unemployment and crowding of agriculture. However, there is a huge scope of
creation of jobs in allied agricultural activities like horticulture, animal husbandry. These allied economic
activities in agriculture are in urgent need of policy support by both state and central government if they
are to flourish, and employment in these activities is to be increased.

Manufacturing - The largest increase in employment throughout the decade of the 2000s has continued
to take place in construction. Since infrastructure investment and investment in housing is expected to
grow very sharply during the 12th Five Year Plan, construction will continue to provide a source of
escape for agricultural labourers desirous of moving out of agriculture. The government should take
concrete steps in investing or attracting investments in manufacturing sectors like power, mining and
other basic industries. These sectors will also push growth and job creation in other allied sectors. The
hope of the new proposed Make in India Mission is that not only will manufacturing become an engine
of growth during the 12th Plan, but it will also provide at least 100 million additional decent jobs. Special
emphasis needs to be put in on priority sectors (textile and garments, leather and footwear,
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gems and jewellery, food processing industries, handlooms and handicrafts). These are labor intensive
sectors, which will generate more employment per unit investment, than other sectors.

Services - Investing in health and education services is not only important from a growth perspective,
but also from an employment perspective. They are the most labour-intensive among all services subsectors, requiring almost 9 people to produce Rs 1 million worth of real output compared with just 1-2
people in the final real-estate and business services. The government should take these sectors as
priority sectors to ensure job creation as well to improve the Human Development parameters of the
country.

INDIA - SRI LANKA RELATIONS: 3.'CHINA AXIS' EXPLAINED


The Moot Point
The current state of India-Sri Lanka relationship can be best described as to be in a state of flux.
Momentous events have happened on the ground in last few years that have the potential to alter the
state of India-Sri Lanka relations - UNHRC Resolutions against Sri Lanka, Elections to the Northern
Provincial Assembly, Indian General Elections and now Sri Lankan Presidential Elections. This has led to
uncertainties over the state of various unresolved issues.
In this third article of the India-Sri Lanka Relations Series, we are discussing in detail the 'China Axis'.
In this series of articles on India-Sri Lanka Relations, we are firstly discussing in detail the Tamil Issue.
The Cheatsheet
Brief of India-Sri Lanka Relations
The Tamil Issue
The 'Tamil Issue' in Sri Lanka has formed the bedrock of India-Sri Lnka relations, since its independence
in 1948.
The nearly three-decade long armed conflict between Sri Lankan forces and the LTTE came to an end in
May 2009. During the course of the conflict, India supported the right of the Government of Sri Lanka to
act against terrorist forces. At the same time, it conveyed its deep concern at the plight of the mostly
Tamil civilian population
The need for national reconciliation through a political settlement of the ethnic issue has been
reiterated by India at the highest levels
Fishermen issue
Given the proximity of the territorial waters of both countries, especially in the Palk Straits and the Gulf
of Mannar, incidents of straying of fishermen are common.
The issue has heated up in last few years, after incidents of use of fire arms against the Indian fishermen
by Sri Lankan were reported.

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The issue also involves ecological issue with respect to protection of biodiversity in the Palk Straits and
the Gulf of Mannar Region.
The China Issue
In recent years, China has invested to strengthen its relationship with countries in Indian Ocean Littoral
Region, especially Sri Lanka.
China engages with Sri Lanka in critical aspects like infrastructure development, arms supply.
There have been concerns from India, with respect to Sri Lanka playing China Card to corner India; and
China following its Strings of Pearls Strategy of cornering India, with Sri Lanka being one of the pearls.
Trade Relations
Sri Lanka is Indias second largest trading partner in SAARC. India in turn is Sri Lankas largest trade
partner globally. Trade between the two countries grew particularly rapidly after the entry into force of
the India-Sri Lanka Free Trade Agreement in March 2000.
According to Sri Lankan Customs, bilateral trade in 2014 amounted to US $ 4.6 billion, achieving a
growth of 23.37% compared to 2013. Exports from India to Sri Lanka in 2014 were US$ 3977 Million,
while exports from Sri Lanka to India were US $ 625 Million.
India is among the top four investors in Sri Lanka with cumulative investments of over US$ 1 billion since
2003.
Strategic Relations
India and Sri Lanka have been engaging strategically to deepen their naval ties. India and Sri Lanka have
agreed on various measures to target pirates and terrorist groups operating in Indian Ocean.
Besides, India and Sri Lanka engage strategically at the platform of Bay of Bengal Initiative for MultiSectoral Technical and Economic Cooperation (BIMSTEC), Indian Ocean Rim Association (IOR-ARC) and
India-Sri Lanka-Maldives Trilateral Maritime Arrangement.
Sri Lanka Elections
Presidential elections were held in Sri Lanka on 8 January 2015, two years ahead of schedule. The
incumbent President Mahinda Rajapaksa was the United People's Freedom Alliance's candidate, seeking
a third term in office. The United National Party (UNP)-led opposition coalition chose to field Maithripala
Sirisena, the former Minister of Health in Rajapaksa's government.
Sirisena was declared the winner after receiving 51.28% of all votes cast compared to Rajapaksa's
47.58%.
The winning government is a coalition government, which comes with a significant support of minority
communities of Sri Lanka the Tamils, the Muslims.
Nuclear Relations

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India and Sri Lanka have recently signed nuclear pact to facilitate cooperation in the transfer and
exchange of knowledge and expertise, sharing of resources, capacity building and training of personnel
in peaceful uses of nuclear energy.
The pact is Sri Lankas first nuclear partnership with any country.
The Critical Analysis
Sri-Lanka China Axis Issue
China and Sri Lanka have significantly strengthened their relations in last decade.
China is heavily invested in the infrastructure development in Sri Lanka. It has also emerged as a steady
source of military equipment supply.
In 2014, Chinese President Xi Jinping visited Sri Lanka. Negotiations are going on over proposed Free
Trade Agreement.
Sri Lanka is also a major partner for the Chinese String of Pearls with the Hambantota port playing a
major role in it.
The relationship has been specially projected as Sri Lanka playing China Card to ward off Indias
influence in its affairs.
Coupled with these factors, was the design of former Sri Lankan President Rajapakse to deliberately play
China Card against India. As Sinhala hardliner, his government took steps to nullify the 13th amendment
and used China to contain India in its neighborhood.
Another factor which has weakened India-Sri Lanka relations involves domestic Indian politics and
center-state relations. The last government largely prioritized the internal interests of the state of Tamil
Nadu over national strategic interests in Sri Lanka. This led to the vacuum in Sri Lanka, which China was
too happy to fill in.
GPkaFunda
The China-Sri Lanka Axis issue should be seen in the larger globalization framework. In current
framework of global relations, no country can afford to restrict its relations to just one country. Sri
Lankas developing its relations with China is its expression of a pragmatic foreign policy.
Further, Chinas has considerable ability to invest in and carry out infrastructure projects. This is
especially attractive to many developing nations throughout the world. The resources that the China
has, only adds to its attractiveness. India cannot compete with China in this regard. Remember, Sri Lanka
first offered India the opportunity to develop Hambantota port, but India declined, while China was able
to assume this role.
The election of new government in both Sri Lanka and India however give the countries an opportunity
to reinvigorate the relations. The primary tool to achieve the same should be trade and investment.
The February and March Modi-Sirisena summits have presented opportunities for Indian investment in
Sri Lanka, including in the maritime realm. Prime Minister Modi announced that Indian and Sri Lankan
companies will work together to develop oil tank facilities that can refuel visiting ships in Trincomalee.
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These developments suggest India may undertake a major investment in Sri Lankas maritime
infrastructure.
Going forward, Indian government should encourage public-private partnerships and government-togovernment investments in Sri Lanka, beyond concerns about China. Also, the present majority
government in India shall ensure that domestic political compulsions do not come in the way of larger
geo-strategic goals.
Corporate Governance in India 1. The Concept
The Moot Point
The recent issues of Corporate Espionage, SEBI's directive for listed firms to appoint at least one woman
director on their boards and Insider Trading have brought to the fore, the important issue of Corporate
Governance. Further, the issue of Corporate Governance has increasingly come to the limelight in recent
past due to ever increasing escapades of Indian corporates.
But what is corporate governance, its importance, challenges; let us try to find out. In this series of
articles on Corporate Governance and the related issues, we are firstly discussing the concept of
Corporate Governance, its meaning, importance, challenges.
The Critical Analysis
Concept
Corporate Governance may be defined as a set of systems, processes and principles which ensure that a
company is governed in the best interest of all stakeholders. Good Corporate Governance is achieved
through Adequate disclosures and effective decision making to achieve corporate objectives;
Transparency in business transactions;
Statutory and legal compliances;
Protection of shareholder interests;
Commitment to values and ethical conduct of business.
The aim of "Good Corporate Governance" is to ensure commitment of the board in managing the
company in a transparent manner for maximizing long-term value of the company for its shareholders.
Importantly, corporate governance is beyond the realm of law. It cannot be regulated by legislation
alone. Legislation can only lay down a common minimum framework. The "substance" will ultimately
determine the credibility and integrity of the process. Substance is inexorably linked to the mindset and
ethical standards of management.
A good corporate governance model incorporates responsibilities towards all stakeholders. These are Political: the basic political obligations are abiding by legitimate law; respect for the system of rights and
the principles of constitutional state.

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Social: the corporate ethical responsibilities, which the company understands and promotes either as a
community with shared values or as a part of larger community with shared values
Economic: acting in accordance with the logic of competitive markets to earn profits on the basis of
innovation and respect for the rights/democracy of the shareholders which can be expressed in terms of
managements' obligation as 'maximizing shareholders value'.
Organizational and Legal Framework
The organizational framework for corporate governance initiatives in India consists of the Ministry of
Corporate Affairs (MCA) and the Securities and Exchange Board of India (SEBI).
The important legislations for regulating the entire corporate structure and for dealing with various
aspects of governance in companies is Companies Act, 2013.
Benefits of Good Corporate Governance
Several studies in India and abroad have indicated that markets and investors take notice of well
managed companies and respond positively to them.
In today's globalised world, corporations need to access global pools of capital as well as attract and
retain the best human capital from various parts of the world. Under such a scenario, unless a
corporation embraces and demonstrates ethical conduct, it will not be able to succeed.
The credibility offered by good corporate governance procedures also helps maintain the confidence of
investors both foreign and domestic - to attract more long-term capital. This will ultimately induce
more stable sources of financing.
Good Corporate Governance standards add considerable value to the operational performance of a
company by: improving strategic thinking at the top through induction of independent directors who
bring in experience and new ideas; rationalizing the management and constant monitoring of risk that a
firm faces globally; limiting the liability of top management and directors by carefully articulating the
decision making process; assuring the integrity of financial reports, etc.
It also has a long term reputational effects among key stakeholders, both internally and externally.
Investors are willing to pay higher prices to the corporates demonstrating strict adherence to internally
accepted norms of corporate governance.
Challenges of Corporate Governance in Indian Context
The regulatory structure to manage the ever expanding corporate sector in India, is still evolving. The
old laws and regulations have not matched up to the demands of time.
The enforcement of existing regulations is an even bigger issue. Numerous government departments,
multiple layers of bureaucracy and complex power sharing equations among them stifle stringent
enforcement of regulations.
The corporate sector in India, has not been forthcoming in adopting the best corporate governance
standards. There is a prevalence of family promoted businesses. Within many board rooms in India, the
topic of CEO succession is not often discussed.

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The civil society is still not very aware about the importance of good corporate governance; hence, the
investor activism in India is relatively muted. As experience has shown, greater investor scrutiny could
bring about substantial improvement in corporate governance.
GPkaFunda
The economic reforms of 1991 put the Indian private sector in the much needed growth trajectory.
Since then, the private sector in India has become an important partner of the society in achieving the
objectives of better quality of life for the Indian citizens. This phase of 25 years, however was not
remarkable from the point of view of Corporate Governance, as both the corporates and the
government were lax in enforcing good corporate standards. As a result, we witnessed Harshad Mehta,
Satyam Fiasco, 2G and Coal Scam, Worms and Pesticides in the products of MNC brands like Coke and
Cadbury.
The time has now come to move to the next phase. The phase marks the beginning of ever aware civil
society and its anger over collusive corruption. The phase also represents Indian regulators like SEBI,
RBI, and Competition Commission finding their feet. And importantly, the phase also marks the
beginning of corporate participation in critical sectors like distribution of public utilities, extraction of
public resources. In such a scenario, there are high expectations from the Indian Corporates to evolve
and discipline themselves to the best standards of Corporate Governance. As the global experiences
have shown, Good Corporate Governance is a win-win situation for all.

India's Contribution to World Wars


The Moot Point
It has been 100 and 70 years since the World War 1 and 2, respectively; but the collective memory of
the two world wars does not seems to fade. And why should it fade, it caused almost 100 million deaths
and changed the world for ever.
But what has certainly faded is the contribution of India in the two World Wars. Indeed, India was a
British colony at that time and the wars were not fought in Indian subcontinent; notwithstanding, the
contribution of India in the wars was no less significant.
Let us study Indias contribution in the two world wars.
The Critical Analysis
World War 1
The British Empires biggest contribution to World War 1 was by India. This included 3.7 million
tonnes of supplies, over 10,000 nurses, 1,70,000 animals, 146m of Indian revenue, and political
support including that of Gandhi, who helped recruit Indian volunteers in the face of nationalist
opposition.
The most important contribution of all was the Indian Army, the largest volunteer force in the world.
The force provided 1.1 million troops to serve overseas, principally in the form of six expeditionary
forces labelled A to F, of which over 74,000 were killed.
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The forces not only protected the northwest of India, but also buttressed British garrisons in Egypt,
Singapore and China, as well as contributing to seminal battles of the Western Front, such as the Somme
and Neuve Chapelle. At Ypres, in particular, Indian casualties were exceptionally high, compounded by
the shock of German chlorine gas in April 1915.
Indian forces had their greatest impact in West Asia, with 60 per cent of all Indian troops serving in
Mesopotamia (modern day Iraq), and another 10 per cent in Egypt and Palestine.
India's contribution was not confined to the army. The Royal Indian Marine was armed in 1914, some of
its ships serving with the Royal Navy on escort duties and others as coastal minesweepers or river
gunboats in the Mesopotamia campaign.
World War 2
By 1945, the Indian Army had become the largest volunteer force in history - over 2.5 million men.
Infantry, armored divisions and a fledgling airborne force fought on three continents in Africa, Europe
and Asia. By the end of the war, 25,000 were killed and 65,000 were wounded.
In the Second World War, the ships of the Royal Indian Navy (RNI) saw action in the Red Sea, the Indian
and Atlantic Oceans, the Bay of Bengal and the Mediterranean, as well as in combined operations off the
coasts of Sicily and Burma.
The Indian Air Force (IAF) was formed as late as 1933. Initially a small tactical air force, it grew in size
throughout the war, joining forces with the army in the Burma campaign. Many of its officers also
served with the Royal Air Force in Burma and other theatres.
Indian women served too, many of them nurses in civil and military hospitals or WACs (members of the
Women's Auxiliary Corps) performing vital tasks for the war effort just behind the front lines. The
Women's Royal Indian Naval Service (WRINS) contributed significantly to the running of RIN shore
establishments.
One Indian woman of special note was Noor Inayat Khan. She became a special agent for Britain,
working with the French resistance. She was finally captured by the Gestapo and executed at Dachau
Concentration Camp.
Indias material and financial contributions to the war were equally significant. India emerged as a
major military-industrial and logistical base for Allied operations in South-East Asia and West Asia.
GPkaFunda
The World Wars 1 and 2 are seminal events in the history of mankind. Despite all the death and
destruction, the wars have taught us great lessons, helping us move forward. One of the earliest of the
lesson was to form an international body like United Nations to help cooperation among countries.
There have been other lessons in the form of building up of European Union, ASEAN to prevent the
seeds of distrust from flowering, among the countries. It is thus very important to keep the Wars in our
memory, and keep learning lessons from it.
Sugarcane Industry and its Issues
The Moot Point
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The sugarcane industry is again in news, that too- bad. It has almost become a yearly ritual that sugar
mills fail to pay the farmers, running high on arrears; meanwhile, the farmers are forced to destroy their
canes, running high in debt. The government then institutes some ad-hoc measures to keep everyone
happy for few months, until the problem comes up again.
But why does the problem comes up again and again, and what are the real issues and the solutions to
it, let us find out The Cheatsheet
The sugar industry is facing a huge financial crisis. The sugar prices are falling continuously every month.
Due to low realization from sugar, the mills are unable to recover the cost of production and generate
enough cash flows. Due to the mills inability to generate cash flow on account of low realization
from sugar, the cane arrears have also risen to record levels in the current sugar season.
The sugar prices are falling mainly due to an excess supply in the local market. The current sugar season
of 2014-15, is the fifth year in a row of surplus sugar production. The crisis has been accentuated by
surplus sugar production globally, putting a downward pressure on sugar prices.
The Critical Analysis
Problems being faced by Indian Sugar Industry
The core issue of the industry is the entire set of government regulations that prevent the industry from
performing according to market principles.
The core issue of regulation is the disconnect between the prices of sugar and those of sugarcane, which
leads to build-up of such arrears year after year. Central Government fixes the Fair Remunerative Price
(FRP) for the uptake of cane by Sugar Mills from Cane Farmers. The State Governments fix an even
higher State Advises Price (SAP) for the same.
The yield per hectare of the Sugarcane farms is extremely low. The farms use water and other inputs
extensively, further raising the cost of growing cane.
Most sugar mills in our country are of small size with a low crushing capacity. They use obsolete
technology and in many cases, not able to utilize the bye-products of sugarcane. Most of them have
turned economically unviable.
Regulation of Sugar Industry
The sugar falls under Essential Commodities Act, 1955 and Sugar Control Order, and is thus subjected to
various regulations. These regulations are

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Reform Agenda
The Rangarajan Committee, setup by government, had given its report in 2012. The report outlined the
reform agenda for the sugarcane industry. Unfortunately, most of the recommendations have still not
been-implemented.
Rangarajan Committee: Recommendations

Way Forward The government needs to reform the sector, based on the recommendation of Rangarajan Committee,
to enable it to perform according to market principles.
The reforms are critical as they will help attract investments in the Sugar Industry and will lead to its
consolidation. The consolidation will enable infusion of technology and unleash the potential of byeproducts of cane.

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Sugarcane farming is highly resource intensive. The government should take steps to ensure that
sugarcane is grown in geographically favorable areas. The Southern India is more favorable to grow
sugarcane, due to longer crushing season and higher sucrose content.
The government should also take steps to infuse technology in sugarcane farming. Drip irrigation
technology is the need of the hour as sugarcane farming requires huge amount of water.
The government should also take steps to promote mandatory blending of ethanol in petrol. This will
provide an alternate market of sugarcane.
GPkaFunda
India is the second largest producer of sugar, and sugar is one of the important cash crops grown in
India. The issue will thus always have its political undertones. However, given the recurring nature of
crisis, it is perhaps time to take some concrete actions.
The immediate priority should certainly be to save the sugarcane farmers and sugarcane mills. The
government can implement Interest subvention schemes and interest free loans for sugar mills, to
enable them to maintain cash flows and make payments to cane farmers. Further, the government can
increase import duty on sugar and raise export subsidies on sugar. It will prevent the risk of sugar prices
further going down, and enable the sugar mills to survive.
However, this should not stop us from taking the long term reforms of the sector.
India - China Relations - 1.Focus on Boundary Dispute and Water Issues
The Moot Point
India and China are among the oldest civilizations on the planet and have had one of the longest
uninterrupted continuations as nations in world history. Even in the modern history of the world, India
and China emerged as independent nation-states about the same time. However, India-China relations
have experienced deep fluctuations over the past five decades ranging from compassionate camaraderie
in the 1950s through armed conflict in the 1960s, strategic distances in the 1970s to efforts for
normalization in present times.
At this opportune moment when Prime Minister Narendra Modi has just completed his maiden visit to
China, let us study the various areas of cooperation and conflict between the two countries.
In the two series article on India-China Relations, we are today focusing on the Boundary Dispute and
the River Waters Issue.
The Cheatsheet
Overview of India-China Relations over the years
India and China started off on friendly footing soon after their formation as republics. In 1949, the Indian
government under Prime Minister Jawaharlal Nehru was quick to recognize the Peoples Republic of
China (PRC) government. And, in 1954, India officially acquiesced in Chinese dominance over Tibet.
In 1954, the two countries had signed an agreement concerning trade between India and Tibet
Region of China. This agreement also incorporated the five principles of Panchsheel. The two
leaders, Nehru and Chou issued a joint statement reiterating Panchsheelfive principles of peaceful
co-existence, which later became an important set of principles to guide international relations.

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The five principles are:


Mutual respect for each others territorial integrity and sovereignty;
Mutual nonaggression;
Mutual noninterference in each others internal affairs;
Equality and mutual benefit; and
Peaceful coexistence
The principles of Panchsheel and the spirit of Bandung disappeared by late 1950s. The contention
between India and China on the border issue gave birth to a period of bitterness in the bilateral
relationship. The building of a controversial road in the Aksai Chin area and frequent border skirmishes
in other sectors finally led to a border war in October 1962, when China attacked India.
The period following the war saw India align more closely with the Soviet Union, which had already
begun to split quite noticeably from China within the international Communist movement. China for its
part began to follow through on the exploratory discussions it had with Pakistan in the previous decade.
Prime Minister Indira Gandhi took steps to normalize relations with China. The first step in that direction
was the establishment of full-fledged diplomatic relations with the country, in 1976.
In 1978, the Indian Minister of External Affairs Atal Bihari Vajpayee made a landmark visit to Beijing, and
both nations officially re-established diplomatic relations in 1979.
Renewed Chinese interest in resolving the border dispute with India was evident in 1980. A long
dialogue process was initiated the following year, when Foreign Minister Huang Hua became the first
Chinese leader since Zhou Enlai in 1960 to visit India.
The path-breaking visit by Prime Minister Rajiv Gandhi to China in 1988the first prime ministerial visit
in 34 yearswide opened the avenues for high-level exchange of visits by Indian and Chinese leaders.
By the time Prime Minister Narasimha Rao visited Beijing in 1993, the entire international milieu had
changed. The Soviet Union had disintegrated and the Cold War had ended. Nations around the world
were searching for a new definition of their respective foreign policies in the new context of the global
political situation. So were India and China.
Following Indias nuclear tests of May 1998, China did not waste time in resuming relations with
India. A critical test was the Kargil conflict between India and Pakistan in 1999, during which Indian
Foreign Minister Jaswant Singh visited China and was assured of Beijings neutrality in the conflict,
much to the satisfaction of Indian leaders.
In recent times, the status of India and China relationship can be best described as hot and cold. While
the political leadership is engaging on various issues like trade, boundary dispute; the military
adventurism has not stop. In September, 2014 the relationship took a sting as troops of the Peoples
Liberation Army (PLA) have reportedly entered two kilometres inside the Line of Actual Control (LAC) in
Chumar sector
The Critical Analysis : Boundary Dispute
The Dispute

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The contested areas between India and China now consist of two sectors. The Western Sector refers to
the Aksai Chin region between the Karakoram Range and the Kunlun Range. India claims that its border
should begin from the Karakoram Pass and run along the Kunlun Range; the Chinese government asserts
that the boundary should be along the Karakoram Range, where the LAC now lies.
The Eastern Sector encompasses the Indian state of Arunachal Pradesh whose northern border
coincides with the McMahon Line. Chinese claims in this sector have varied from parts of Arunachal
Pradesh to the entire state.
On the other hand, the dispute over the Middle Sector, where Sikkim lies, appears to have dissipated as
China formally ceded its claim to Sikkim by referring to it as the Sikkim State of the Republic of
India in the 2005 Joint Statement with India.

It was the difference in interpretations that provoked the border war in 1962 which would in turn alter
the strength of claims made by both states. Prior to the war attempts to open negotiations on the
border issue failed and border incidents continued. A war eventually broke out in both the western and
eastern sectors. An important consequence of the war on the territorial claims was that China gained de
facto control of the disputed Aksai Chin.
Attempts at Resolution
There was no concrete progress in border talks until the 1990s. In 1993, both countries signed the
Agreement on Maintenance of Peace and Tranquillity along the LAC, followed by the Agreement on
Confidence Building Measures in the Military Field along the LAC in 1996.
The latest agreement to be signed was the Agreement on the Political Parameters and Guiding Principles
for the Settlement of the Boundary Question in 2005. This agreement is significant from India's point of
view as Article VII states that, "In reaching a boundary settlement, the two sides shall safeguard the
interests of their settled populations in the border areas".
During this period there was also a maturation of dialogue mechanisms. A Joint Working Group (JWG)
was set up in 1988 to replace the annual dialogue of Vice Ministers and it consisted of bureaucrats and
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experts that are well-suited to engage in technical discussions on the border issue. In 2003, Special
Representatives were also appointed with the political mandate to steer negotiations.
Until now, 18 Rounds of Special Representative Talks have taken place between the officials of two
countries; however, without any concrete results. In recent years, there have been increasing media
reports from both sides of incursion along the border. Both countries have been beefing up their
military presence along the border.
In seeking a resolution to the border dispute, India has shown greater urgency than China, which insists
that the intractable issue should be sidestepped for now to avoid crippling development in other
bilateral issues. In fact, China is reluctant to seek a resolution to the issue. The reasons given are By keeping the boundary dispute unresolved, China can force India into misallocating its
resources. In the competition to match each other's commitment to border development, China
believes that its vibrant economy would allow it to outlast India in this process of attrition.
Moreover, a state confident of having a stronger bargaining position in the future would favour
postponing the resolution. Greater bargaining power, especially in negotiations over territorial disputes,
is often derived from increased military strength. Thus it is not surprising that China, which has been
rapidly expanding its military capabilities, is unwilling to cooperate now: it expects itself to establish a
position of relative superiority through an aggrandisement of hard power so that it can concede less and
bargain for more in the later settlement.
From a political perspective, China would like to have Tibet recognized as an inalienable part of China,
not only now but historically too. Without that the Chinese takeover of Tibet lacks legitimacy and will
always be considered an imperial conquest. As such, China is not likely to settle the boundary question
with India unless it has definitively resolved the question of Tibet on its terms and Tibet comes firmly
under its control. Arunachal Pradesh matters to China because the Chinese leadership has projected it
as southern Tibet and therefore Chinas inability to annex Arunachal Pradesh could be seen
as weakening Chinas claim to Tibet itself.
The Critical Analysis: River Waters Issue
China is an extremely thirsty country and is one of the world's driest nations. With a population of 1.35
billion and much of its rivers polluted and silt-ridden, water undoubtedly becomes a prized strategic
asset.
Some of the water data figures suggest that roughly 354 BCM of water flows from Tibet into India, of
which 131 BCM is accounted in the Brahmaputra. The water resources of Tibet add great salience to
China's resource aggressiveness.
Under China's 11th five-year plan (2006-2010), a huge development thrust involving 180 projects worth
more than 770 billion yuan was earmarked for Tibet. It includes building of roads, railways and airports
and importantly the completion of two hydro-projects: Zhikong on the Lhasa River (which is one of the
five tributaries of the Yarlung-Tsangpo, which flows into India as the Brahmaputra) and Shiquanhe which
is the upper reach of the Indus in the Ngari Prefecture. China's increased infrastructural activities are a
pointer to its long-term plan to build more dams and hydro-projects on the Indus, Sutlej and
Brahmputra. In 2013, the Chinese government announced building of three new dams on YarlungTsangpo.
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Harnessing the potential of the Brahmputra is critical to China's overall developmental plans and is part
of its grand design to divert waters from the south to the north. As a lower riparian, India will be
vulnerable to any major storage projects planned on the Brahmputra.
Furthermore, there exist no agreements between China/Tibet and India pertaining to water resources.
There is no discharge data on the Brahmputra and no reliable information on the present or proposed
water-related developments and projects in the Tibet region.
India's concerns on glacial lake outbursts in the upper regions of the rivers that flow into India from
Tibet have not been adequately addressed.
It is said that China will remain unforthcoming to any cooperative institutional mechanism with India for
discussions on water resources projects.
Also, there is no clear accepted international law on shared waters, and when one such was attempted,
China was among the only three countries that voted against the Convention on the Law of the NonNavigational Uses of International Water Courses in the UN General Assembly in 1997.
China is also likely to use water as a tool to pressurize India and to extract concessions on the boundary
question.
China has recently agreed to allow Indian hydrological experts to conduct study tours in Tibet to monitor
the flows on the upper reaches of the Brahmaputra, according to a new agreement. In a move to
assuage Indias concerns about the ongoing dam projects on the upper reaches of the river
known as the YarlungZangbo in Tibet Beijing has formally agreed to allow India to dispatch
hydrological experts to conduct study tours according to the principle of reciprocity.
China has in the past been sensitive about allowing access to Tibet, and Indian hydrological experts
have, as yet, not been allowed to formally visit the region to monitor the rivers flows.
GPkaFunda
There are two perspective to look at India and China relationship; India and China and India
v/s China. Fortunately, we have a word in foreign policy terminology called Dwadibhav, a
concept given by Chanakya to explain Dual Policy. If we extrapolate the concept to India China
relationship, we are going to see that India and China will cooperate in certain aspects and conflict in
certain others.
The Boundary issue and the River Water issues are the ones where cooperation will be very difficult, and
even if it is there, it will be limited. The very nature of the two issues is such that India finds itself at the
inferior position. The Chinese already control the Aksai Chin Region and are the upper riparian state in
case of river waters; which gives it a natural advantage.
India has to thus tread a very hard and steep path to seek solution to these issues. It will be a test of its
diplomacy, its patience and potentially, its extravagance because the solution will take time and India
might have to make some concessions in its demands.
Indias Demographic Dividend 3.The Challenge of Quality Employment
The Moot Point

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Indias Demographic Dividend has been a global talking point for quite some time. While the whole
world is aging, India has a significant percentage of population in the young age category. This has
heightened the prospects for not just India but the entire world. While India sees the demographic
resource to aid its economic development, the world sees it as a huge market and potentially global
workforce.
The critics however say that Indias demographic potential is highly overemphasized. They point to the
abysmal standards of education, human development, and job creation in the country. According to them,
it is not demographic dividend but a demographic disaster waiting to happen.
While the critics concerns may be genuine, none can discount the potential of Indias demographic
resources. Couple this with strong urge of India and its current government to get over the ghosts of past
and
make
a
new
beginning,
and
we
have
Demographic
Dividend.
In the third article of the series on Realizing Indias Demographic Dividend, we are discussing the issue
of quality of employment and the growing phenomenon of Informalization of employment in the Indian
Economy.
The Cheatsheet
Unorganized Sector
National Commission for Enterprises in the Unorganized Sector (NCEUS) defines the Unorganized Sector
as 'All unincorporated private enterprises owned by individuals or households engaged in the sale and
production of goods and services operated on a proprietary or partnership basis and with less than ten
total
workers.'
In effect, the unorganized sector refers to those enterprises whose activities are not regulated under any
legal provision.
Informal Worker/Employment
National Commission for Enterprises in the Unorganized Sector (NCEUS) defines the Informal Workers as
'those working in the organized or unorganized sector, without any employment and social security
benefits provided by the employers'.
Status of Formal Informal Employment across Organized Unorganized Sectors in 2011-12

Source : Economic Survey 2014-15

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The Critical Analysis

Consequences of Informalization of Labor


To the Enterprises
It is widely acknowledged that the informal sector in India suffers from a low productivity, compared to
the formal sector.
Primitive production technologies and feudal production relations are rampant in the unorganized sector,
and they do not permit or encourage the workmen to imbibe and assimilate higher technologies and
better production relations.
Most of the employment is flexible, leading to seasonality and part time works. This does not allow the
enterprises to invest in human resource development, and thus, remain perpetually low scale.
They do not have access to formal sources of finance, inhibiting their investment potential.
The incentives and the resources to invest in innovations are very low.
To the Employees
Informalization is seen largely as a measure adopted by the employers to reduce labour cost in the face
of stiff competition. These flexible workers in the informal economy are highly vulnerable in terms of job
security and social protection, as they are not deriving any of the social protection measures stipulated in
the existing labour legislations.
The prominent features of the sector are lower real wages; the incomes of unskilled informal workers
have not grown at the staggering rate of their employers.
There is no formal employer employee relationship. The informal workers are thus, subject to
exploitation and mostly work in poor working and living conditions.
Poor human capital base (in terms of education, skill and training) as well as lower mobilization status of
the work force further add to the vulnerability and weaken the bargaining strength of workers in the
informal sector.
The Informal workers do not receive sufficient attention from the trade unions.
As the unorganized sector suffers from cycles of excessive seasonality of employment, majority of the
unorganized workers does not have stable durable avenues of employment. Even those who appear to
be visibly employed are not gainfully and substantially employed, indicating the existence of disguised
unemployment.
To the Economy
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The economy loses due to low productivity of its enterprises. On one hand, the amount of value
formations is low, and on other hand, the exports of the economy become less competitive.
The socio-economic conditions of the informal workers; the economy thus suffers from poor human
development indicators of not just the workers, but the associated family members.
The economy loses a fair share of taxes that it could have realized in a formal economy. Due to loss of the
taxes, the economy again suffers due to fewer resources available for productive investments.
Reasons for Informalization of Labour
Rigid Labor Laws
Scholars suggest India's rigid labor laws and excessive regulations assumed to protect the labor are the
cause of slow employment growth in high paying, organized sector. India's labor related acts and
regulations have led to labor market rigidity. This encourages shadow economy for entrepreneurs, an
economy that prefers to employ informal labor to avoid the complicated and opaque laws.
Rigid Labor Laws
Market Factors are also an important reason for the Informalization of workforce. As the number of job
seekers increase, while the number of jobs remains more or less constant, there are more incentives for
the enterprises to remain outside the purview of labor laws. This allows them to save to hire workers at
rates below minimum wages, without shelling out extra social security costs.
Competition from Emerging Markets
The market is forced to hire workers informally and save on costs, to remain relevant in face of increasing
competition from emerging producers. Informalization is thus a key to remain competitive.
GPkaFunda
In the context of Demographic Dividend of India, there has been a lot of focus on creation of
employment. The quality of employment has been a rather neglected area. This however is a dangerous
lacunae; more so, because the rates of informal employment is growing even in organized sector.
Checking the phenomenon of Informalization is critical to the health of economy in long run; even
though we might have to pay extra costs in the short run. It is therefore, pertinenet that steps are taken
in this regard.
The way forward should be a holistic approach to address the issue of Informalization, which to a larger
part is a consequence of a complex matrix of a large number of poorly educated and unskilled labor
force, traditional occupations, poor financial inclusion, and unfavorable economic fundamentals.
The solution is to create an ambience that would encourage even micro and small enterprises to register
and realize that this cost of formalization is coming with benefits of access to finance, better
infrastructure, market information, government incentives, a platform for formal association, providing
them legal framework, efforts to overcome uncertainty in financial returns and safety nets for them as
well as their workers.
This to a large extent will help to overcome challenges to Informalization not only in unorganized sector
but also arrest growth of informal employment in organized enterprises.
Economic Survey 1.Focus on Fiscal Framework and Jam Trinity
The Moot Point
The Economic Survey is the flagship annual document of the Ministry of Finance, Government of India.
The Survey reviews the developments in the Indian economy over the previous 12 months, summarizes
the performance on major development programmes, and highlights the policy initiatives of the
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government and the prospects of the economy in the short to medium term.
In essence, it is a treasure trove for any student of economics or a student preparing for exams like Civil
Services. In this series of articles on Economic Survey 2014-15, we are discussing the chapters on Fiscal
Framework and JAM Trinity Solution.
The Critical Analysis : Chapter - Fiscal Framework
Background and Lessons from History
India's macroeconomic improvement has been nothing short of dramaticinflation has been cut in half
to about 5 percent today, underlying rural wage growth has declined from over 20 percent to below 5
percent, and the current account deficit has shriveled from over 6.7 percent of GDP (in Q 3, 2012-13) to
an
estimated
1.0
percent
in
the
coming
fiscal
year.
That said, there is hardly room for fiscal complacency. To understand why, to realize where India needs
to go, it is important to understand where it has been, and to draw lessons from this experience. The
similarity between India's situation today and in the early 2000s makes this exercise especially important.
In the recent history of Indias economy, three phases of policy can be distinguished since the early
2000s: 2002-2007; 2008-2011; and post-2012

2002-2007 : In the first phase, all key measures of fiscal performance improved dramatically, driven largely
by rapid growth. The fiscal deficit of the central government declined by nearly 3.2 percentage points,
accounted for largely by an increase in the tax-GDP ratio (3.4 percentage points) along with a decline in
other non-debt receipts (1.4 percentage points) and the rest by expenditure reductions (1.2 percentage
points).
2008-2011 The second and difficult phase of Indian fiscal history began with the Lehman crisis in 2008-09
and lasted four years. In this period nearly all the positive trends of the previous six years were reversed.
The fiscal deficit increased by about 4 percentage points, shared equally between revenue reductions
(owing to large indirect tax cuts) and expenditure increases. In the initial years (2008-09 to 2011-12),
current expenditures (public consumption) increased dramatically due to the rising subsidy bill (up by 1
percentage point of GDP). Meanwhile, the quality of spending suffered as non-defence capital
expenditure stagnated while current expenditures rose by about 2 percentage points on average during
the period
Post 2012 The third and most recent phase, from 2012-13 to 2014-15, was characterized by a sharp
growth slowdown. Moreover, non-defence public capital expenditures remained exceptionally low,
significantly below the level recorded in the early 2000s. Most significantly, India experienced a near-crisis
during July/August 2013, as the conjunction of the U.S. Federal Reserve's decision to taper its monetary
stimulus and India's growing current account deficit, high inflation, and still-large fiscal deficits caused
capital to flee the country. This episode underscored the final and most critical lesson, namely that India
needs to create additional fiscal space, in order to ensure macro stability and to create buffers for
economic downturns in the future.
Medium Term Strategy
To create this fiscal space, a medium-term fiscal strategy needs to be put in place.
Investments and the Golden Rule
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The, golden rule of fiscal policy is that governments are expected to borrow over the cycle only to finance
investment and not to fund current expenditures. Looking ahead and beginning in this budget, the
government should target steady declines in the revenue deficit to move closer to the golden rule.
Legacy/Credibility
India's FRBM Act as well as the Kelkar Committee (2012) established the principle of aiming to bring the
Centre's fiscal deficit down to 3 percent of GDP. Adhering to this objective is essential for maintaining
credibility and also to bring India closer in line with its emerging market peers.
Accordingly, the medium-term fiscal strategy should be based on two pillars. First, the fiscal deficit should
be reduced over the medium-term to the established target of 3 percent of GDP. Second, and mindful of
the experience of the past decade, efforts to achieve this objective should be based on firm control over
expenditures, most notably by eliminating leakages in subsidies and social expenditures.
Further, switching from public consumption (via the rationalization of subsidies) to public investment will,
for any given level of overall spending, mitigate long-run inflationary pressures because the latter will add
to capacity and boost the aggregate supply potential of the economy.
Short Term Issues
Against this medium-term background, what should be the stance of fiscal policy in the short term? The
budget for 2015-16 will be confronted by a number of one-off factors.

The Fourteenth Finance Commission has just submitted its recommendations on the transfer of resources
to the states. It is possible that implementing them will entail the centre having to pay an additional cost.
Negotiations on the GST had been stalled on account of a trust deficit between the centre and states.
There is a pressing need to increase public investment to revive private investment and growth.
The Critical Analysis: Chapter - Wiping every tear from every eye
Background
Price subsidies have formed an important part of the anti-poverty discourse in India and the
governments own policy toolkit. The estimated direct fiscal cost of this illustrative subset of subsidies
is about Rs.378, 000 crore or about 4.24 percent of GDP.
Subsidizing Whom?
Prima facie, price subsidies do not appear to have had a transformative effect on the living standards of
the poor, though they have helped poor households weather inflation and price volatility. A closer look at
the price subsidy landscape reveals why they may not be the government's best weapon of choice in the
fight against poverty.
Price Subsidies are often regressive
By regressive, we mean that a rich household benefits more from the subsidy than a poor household.
Consider price subsidies in electricity; Note first that these subsidies can only benefit the (relatively
wealthy) 67.2 percent of households that are electrified. Second, note that even among electrified
households,
richer
households
(predictably)
use
much
more
power.
The story is similar when one just considers subsidies for Liquefied Petroleum Gas (LPG). From the table
we note the striking fact that the poorest 50 percent of households consume only 25 percent of LPG.
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Subsidized water is almost as regressive; a large fraction of price subsidies allocated to water utilities - by
one estimate up to 85 percent - are spent on subsidizing private taps when 60 percent of poor households
get
their
water
from
public
taps.
It is not just commodity subsidies that are sometimes regressive; subsidized services can be as well.
Passenger tariffs on railways are held artificially low - since 1993, the CPI has increased by over 4 times,
whereas average passenger rates have not even doubled. Controlled rail prices actually provide more
benefits for wealthy households than poor households, since the bottom 80 percent of households
constitute only 28.1 percent of total originating passengers on non-suburban rail routes.
Price Subsidies distort Markets
Subsidies can distort the incentives of consumers and producers, and result in misallocation of resources
across sectors and firms, which lower aggregate productivity and often disproportionately hurts the poor
and
vulnerable.
MSPs result in farmers over-cultivating rice and wheat, which the Food Corporation of India then
purchases and houses at great cost. High MSPs also encourage under-cultivation of non-MSP supported
crops. The resultant supply-demand mismatch raises prices of non-MSP supported crops and makes them
more volatile. This contributes to food price inflation that disproportionately hurts poor households.
High MSPs and price subsidies for water together lead to water-intensive cultivation that causes water
tables
to
drop,
which
hurts
farmers,
especially
those
without
irrigation.
In order to cross-subsidize low passenger fares, freight tariffs are among the highest in the world. This
reduces the competitiveness of Indian manufacturing and raises the cost of manufactured goods that all
households, including the poor, consume. Different subsidies may also interact to hurt the poor. For
example, fertilizer manufacturers do not have an incentive to sell their product in geographically isolated
regions. Since price controls mean that prices are similar everywhere, freight subsidies on railways have
been introduced to incentivize manufacturers to supply their produce widely. But those subsidies are
sometimes insufficient, since freight rates on Indian railways are among the highest in the world to crosssubsidize artificially low passenger fares.
Leakages undermine Product Subsidies
Price subsidies are often challenging for the state to implement because they offer large rent-seeking
opportunities to black marketers. Like the distortions emphasized above, leakages not only have the direct
costs of wastage, but also the opportunity cost of how the government could otherwise have deployed
those
fiscal
resources.
Converting all subsidies into direct benefit transfers is therefore a laudable goal of government policy.
The Possibility of Cash Transfers
Technologies that enable the state to better target and transfer financial resources to households expand
the set of anti-poverty tools the government has in its armory. The government should push cash transfers
because

Recent experimental evidence documents that unconditional cash transfers - if targeted well - can boost
household consumption and asset ownership and reduce food security problems for the ultra-poor.
Cash transfers can also augment the effectiveness of existing anti-poverty programs. By reducing the
number of government departments involved in the distribution process, opportunities for leakage are
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curtailed. The value of the fiscal savings - due to lower leakages - was 8 times greater than the cost of
implementing the program.
In addition to net fiscal savings, income transfers can compensate consumers and producers for exactly
the welfare benefits they derive from price subsidies without distorting their incentives
The JAM Number Trinity Solution
The JAM Number Trinity - Jan Dhan Yojana, Aadhaar and Mobile numbers - allows the state to offer this
support to poor households in a targeted and less distortive way. We describe two alternative financial
delivery mechanisms below:

Mobile Money : With over 900 million cell phone users and close to 600 million unique users, mobile
money offers a complementary mechanism of delivering direct benefits to a large proportion of the
population. Given that Aadhaar registrations include the mobile number of a customer, the operational
bottlenecks required to connect mobile numbers with unique identification codes is also small. With
several cell phone operators reportedly applying for a payment bank license in February 2015, mobile
money platforms offer tremendous opportunities to direct Aadhaar based transfers.
Post Offices : Similar to the mobile money framework, the Post Office (either as payment transmitter or
a regular Bank) can seamlessly fit into the Aadhaar linked benefits-transfer architecture by applying for
an IFSC code which will allow post offices to start seeding Aadhaar linked accounts. The post office
networks also enjoy s a long-standing reputation of using its deep network to serve many geographically
isolated consumers in the country.
If the JAM Number Trinity can be seamlessly linked, and all subsidies rolled into one or a few monthly
transfers, real progress in terms of direct income support to the poor may finally be possible.
India's Relations with Mongolia and South Korea
The Moot Point
Recently, PM Modi was on the Asian Trip. While China's visit garnered all the limelight, there were two
other major countries that the PM visited - Mongolia and South Korea. The reason for the same is that
India's relations with Mongolia and South Korea is devoid of any major trapping or even benefits, so as to
command
the
limelight.
Notwithstanding, India's relations with these two country is multi-faceted and requires detailed study. Let
us therefore discuss India's relations with Mongolia and South Korea in detail.
The Critical Analysis - Overview of India - Mongolia Relations

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Mongolia's strategic position at the cross junction of Central Asia, Northeast Asia, Far East, China
and Russia attracts major powers towards it. For the United States, Mongolia is an important
partner in its "pivot" to Asia. At the same time, Mongolia's geographic proximity to North Korea
and Afghanistan were also factors in US calculations. Mongol troops were deployed in Iraq and
Afghanistan.
Because Mongolia is geopolitically sandwiched between Russia and China, it could not escape
Sino-Russian rivalry. Since the Cold War ended, Mongolia has shed its image of being under Soviet
tutelage and is now seen as one of Asia's vibrant democracies.

31

India traditionally did not ignore Mongolia despite the country being peripheral to its immediate
interests. India-Mongolia relations have underpinnings in the age-old historical and cultural
relationships
spanning
over
2500
years.
India traditionally attached great strategic importance to Mongolia. Vice President Dr. S.
Radhakrishnan visited Mongolia in 1957. Subsequently, India began to strongly advocate
Mongolia's case for UN membership despite China's opposition. India also supported Mongolia's
membership in the Non-Aligned Movement.

For India, the cultural bond with Mongolia is its biggest asset. That Prime Minister Narendra Modi
is continuing this vision and approach is visible now. His visit to Ulaanbaatar to commemorate the
60th anniversary of the establishment of diplomatic relations and the silver jubilee of Mongolia's
democracy is significant.

The significance of his visit lies in the fact that he is the second Indian leader after Nehru to take
the cultural ownership of Mongolia. Today, PM Modi's India has greater economic strength to
nurture the relationship with Mongolia. PM Modi will be the first Indian leader to address the
Mongol Great Khural (parliament) on 17th May.

Over the years India's relationship with Mongolia has been widening to include strategic elements
such as the import of uranium from Mongolia. Defence cooperation has grown and the militaries
of the two countries conduct exercises. Consultation between the National Security Councils of
the two countries since 2006 covers aspects such as cyber security . Surely, PM Modi will push for
greater trade and investment ties with Mongolia. Mineral discoveries are the key to expanding
Mongolia's appeal to exploration companies. In fact, Mongolia's natural resources such as
uranium,
coal
and
copper
deposits
are
mouthwatering.
India should consider Mongolia as a green zone of economic development that absorbs hi-tech
features and production skills in a modernization process. India should invest in agro-farming in
the
vast
Mongolian
steppes.
Mongolia plays a key role in Asian energy transportation as it falls on the crossroads of major
energy supply routes.

At the diplomatic level, India and Mongolia have the potential to work together in regional and
sub-regional groupings. Strategically, Indian and Mongolian interests in China and Central Asia
coincide. Mongolia has been consulting India on issues relating to the Shanghai Cooperation
Organization. In this context, India and Mongolia must cooperate to fight against terrorism and
fundamentalism.

There is the element of India's rivalry with China which drives PM Modi's brief sojourn in
Mongolia. If China spends so much political energy in cultivating India's neighbors in the
subcontinent and the Indian Ocean, it has been argued, Delhi should be doing the same on China's
periphery
However, there are also limits to any Indian power play in Mongolia. With just two neighbours,
with whom Mongolia has had difficult relations in the past; Ulaanbaatar has no interest in
provoking either Russia or China by undertaking activities hostile to them.

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India also needs to factor Mongolia in its Russia policy as well, for safeguarding interests in the
Asia-Pacific region. India's benign presence in Mongolia is desirable for India's future interest in
Russia's resource-rich trans-Siberia and Far East.

The Critical Analysis - India - South Korea Relations

South Korea and India have both economic and cultural ties, apart from similar historical
trajectories. Their ancient bonds are based on the twin strands of Buddhism and the Princess of
Ayodhya. Koreans widely believe that a princess from Ayodhya travelled by sea to Korea in 48CE
and married King Kim Suro. A prominent branch of the Kim clan called the Gimhae Kims proudly
claim
this
Indian
lineage.
The two countries also share bitter colonial experiences; they had to undergo post-independence
horrors of partition. Both continue to face hostile nuclear siblings: Pakistan and North Korea,
respectively.

Despite this, India and South Korea did not take much notice of each other till the end of the
1970s. A nonaligned India pursued a policy of equal treatment of the two Koreas, which it finally
abandoned in the 1980s.

The emergence of South Korea as an Asian Tiger compelled India to look at it as a source of
investment and technology. The dawn of real democracy in South Korea in the late 1980s brought
it ideologically closer to India. The end of the Cold War and former Prime Minister Narasimha
Rao's 'Look East Policy' opened the doors for a rapid economic engagement with South Korea.

Korean Companies such as Samsung, LG and Hyundai Motors invested heavily in India in the late
1990s.Their success in capturing the Indian market is visible all around us. Korean investment in
India is now more than $3 billion. Indian companies such as Tata Motors, the Mahindra Group
and Birla Group have also invested more than a billion dollars in South Korea.

The first decade of the new millennium saw a rapid expansion of both economic and political
relations. In 2010, India and South Korea became 'Strategic Partners' and implemented the
Comprehensive Economic Partnership Agreement (CEPA). Bilateral trade surged to $20 billion in
2011,
surpassing
India's
trade
with
Japan.
However, economic activities have been somewhat stagnant since then and require renewed
energy and new ideas. For instance, the much-heralded $12 billion investment by the Korean
steelmaker POSCO in Odisha has been stuck since 2005 in the quagmire of procedures for mining
licenses, land acquisition and environmental clearances.

Future Prospects

The key component of India-South Korea strategic partnership continues to be a robust economic
engagement. This fits squarely with the present priorities of the Prime Minister to boost the
manufacturing sector in India.

PM Modi will benefit from studying the Korean experience of rapid skill development in the 1960s
and 1970s. The impressive industrial miracle of South Korea is based on its trained and dedicated

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manpower. The system of vocational training, technical education as well as Research and
Development is driven by the requirements of industry.

In the shipbuilding sector, South Korea has world class technology, but India has obsolescent
equipment and management. Creative policy changes would be required in India to motivate
Korean private shipbuilders to invest in India.

There is vast potential for the growth of tourism on both sides and India's decision to grant
Visa on Arrival' and e-visas to Koreans will facilitate tourism. Indian films, cuisine and yoga are
widely popular in Korea.

Challenges

PM Modi is likely to face some pressure from President Park for urgent revision of the CEPA.
However, he must be cautious as the present CEPA has not generated any extra exports from
India, and the bilateral trade gap is widening against India.

Despite assurances, the Korean regulators continue to drag their feet in according approvals for
import of Indian generic drugs and agricultural products. Indian IT companies have also been
struggling for business in South Korea as Koreans hesitate in sharing data with outsiders.

GPkaFunda
There are many reasons why the PMs trip to Mongolia and South Korea is important. Firstly, there is
no doubt about the fact that 21st century is to be the Asian century. It is important for India to build as
many ties as possible in the Great Asian countries of present and future. While Korea is the country of
present,
Mongolia
is
of
future.
Secondly, in the multi-polar and globalizing world of today, the only way to maintain strategic autonomy
in the foreign policy is through Multi-Alignment. India would serve its many strategic objectives while
boosting
its
ties
with
Mongolia
and
South
Korea.
Also, as the geo-economic replaces geo-politics, it makes sense for the countries to diversify their markets,
both as consumers and as producers. India also has a lot to gain economically, from its ties with Mongolia
and
South
Korea.
Thus, PM Modi's visit to these two countries is timely.
ECONOMIC SURVEY : 3. Focus on Railways & Make in India
The Moot Point
The Economic Survey is the flagship annual document of the Ministry of Finance, Government of India.
The Survey reviews the developments in the Indian economy over the previous 12 months, summarizes
the performance on major development programmes, and highlights the policy initiatives of the
government and the prospects of the economy in the short to medium term.
In essence, it is a treasure trove for any student of economics or a student preparing for exams like Civil
Services. In this series of articles on Economic Survey 2014-15, we are discussing the chapters on Railways
and Make in India.
The Critical Analysis - Putting Public Investment on Track
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The Rail Route to Higher Growth The decline in public as well as private corporate investment has been
associated
with
the
growth
decline
in
recent
years.
The International Monetary Fund (IMF), in the World Economic Outlook (October 2014), has noted that
increases in public infrastructure investment, if efficiently implemented, affects the economy in two ways.
In the short run it boosts aggregate demand and crowds in private investment due to the complementary
nature of infrastructure services. In the long run, a supply side effect also kicks in as the infrastructure
built
feeds
into
the
productive
capacity
of
the
economy.
The country thus needs to see increased investment in public infrastructure, to realize the dreams of
double digit economic growth. The trick however, is to find sectors with maximum positive spillovers and
institutions with a modicum of proven capacity for investing quickly and efficiently. The economic survey
stakes its claims on Railways.
The Case for Public Investments in Railways
Successive plans have allocated fewer resources to the railways compared to the transport sector. The
legacy of inadequate allocation is reflected in the fact that the share of railways in total plan outlay is
currently only 5.5 per cent vis-a-vis about 11 per cent for the other transport sectors and its share in
overall development expenditure has remained low at below 2 percent over the past decade.
In per-capita terms, China has invested on average eleven times as much over the same period even
though both countries have similar populations.
Capacity Expansion
The first casualty of such an under-investment has been capacity expansion. With lack of capacity addition,
the share of railways in the GDP has declined to stand at around 1 per cent in recent years. This has
effectively led to railways ceding significant share in passenger and especially freight traffic to the road
sector.
The share of the railways in originating tonnage has fallen from 65 per cent in the late 1970s to 30 per
cent in 2007-08. Further, the modal share in freight traffic stands at 36 per cent for the railways vis-a-vis
57 per cent for roads.
Congestion
A second and related consequence has been congestion and stretching of capacity. The increasing load
on railway infrastructure and lower speeds are a logical consequence of lack of capacity addition. For
example, the speed of the average freight train has remained virtually constant between 2000-01 and
2012-13
at
around
24-25
km/hour.
With passenger trains utilizing around 65 percent of the network capacity, the above situation imposes
constraints on the running of heavy freight trains and high speed passenger trains as passenger traffic is
generally accorded priority.
Impact of Vibrant Railways on Economy
Forward and Backward Linkages
Transport, and especially railways infrastructure, are critical for manufacturing and services. Railways are
found to possess strong backward linkages with manufacturing and services. Based on 2007-08 data, it
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appears that increasing the railway output by Rs. 1 would increase output in the economy by Rs. 3.3.
Further, there are sectors where railway services are an input to production (forward linkages). A Rs. 1
push in railways will increase the output of other sectors by about Rs. 2.5.
Combining forward and backward linkage effects suggests a very large multiplier (over 5) of investments
in Railways.
Price Distortions
Ultimately, the railways has to be a viable commercial organization that is less dependent on state support
and able to generate enough resources on its own to not only provide world-class passenger amenities
but
also
by
providing
freight
services
at
reasonable
rates.
The profits generated via freight services have cross-subsidized passenger services and Indian (PPP
adjusted)
freight
rates
remain
among
the
highest
in
the
world.
The objective of keeping fares low for consumers has forced high freight tariffs - high even by crosscountry standards. The political economy of price setting and railway operations over the years has also
meant that new investments are often directed at populist projects at the cost of those that help to ease
congestion and enhance productivity. This tendency has undermined the commercial viability of railways,
including the inability to generate enough internal resources to finance capital investments. More
importantly, the cross-subsidization and consequently high freight charges, along with inefficiency and
stressed capacity, has undermined the competitiveness of Indian industry.
Policy Recommendations - Key Takeaways

Greater public investment in the railways would boost aggregate growth and the competitiveness
of Indian manufacturing substantially.

In part, these large gains derive from the current massive under-investment in the railways.

In the long run, the railways must be commercially viable and public support for the railways
should be restricted to (i) equity support for investment by the corporatized railways entities and
(ii) for funding the universal service obligations that it provides.

However, any public support should be clearly linked to serious reform of the structure of the
railways; of their adoption of commercial practices; of rationalizing tariff policies; and through an
overhaul of technology.

The Critical Analysis - What to make in India: Manufacturing or Services?


Introduction
Prime Minister Narendra Modi has elevated the revival of Indian manufacturing to a key policy objective
of the new government, identifying this sector as the engine of long-run growth. "Make in India" is now a
flagship initiative not to mention a catchy campaign. But the question arises "What should India make?"
The
comparison
here
is
between
manufacturing
and
services.
India is taken up as a case study for addressing this question due to the poor performance of
manufacturing
in
India
and
the
relatively
strong
performance
of
services.
Historically, there have been three modes of escape from under-development: geology, geography, and
"jeans" (code for low-skilled manufacturing). In recent years West Asia, Botswana and Chile, and further
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back in time Australia and Canada, exploited their natural resources endowed by geology to improve their
standards of living. Some of the island successes (Barbados, Mauritius, and others in the Caribbean) have
exploited their geography by developing tourism to achieve high rates of growth.
In the early stages of their success, East Asian countries (China, Thailand, Indonesia, Malaysia, etc.) relied
on relatively low-skilled manufacturing, typically textiles and clothing, to motor economic growth. Later
on, they diversified into more sophisticated manufacturing but "jeans" offered the vehicle for prosperity
early
on.
No country has escaped from underdevelopment using relatively skill-intensive activities as the launching
pad for sustained growth as India seems to be attempting. Put differently, India seems to have defied its
"natural" comparative advantage, which probably lay in the "jeans" mode of escape because of its
abundant
unskilled
and
low-skilled
labor.
The Indian experience, still a work-in-progress, raises the question of whether structural transformation
necessarily requires manufacturing to be the engine of growth.
The Manufacturing Scorecard
In India it is highly misleading to speak generally of manufacturing because of the clear difference between
unregistered manufacturing - which is a very low productivity activity - and registered manufacturing which is an order of magnitude (7.2 times) more productive. It is registered manufacturing, not
manufacturing in general, which has the potential for structural transformation.
Also, the level of productivity in registered manufacturing is not only high relative to unregistered
manufacturing; it is high compared to most other sectors of the economy.
Thus, on the first criterion of high levels of productivity, registered manufacturing scores spectacularly
well.
Expansion or Pre-mature Non-Industrialization?
It is a stylised fact that the process of development includes stages of industrialisation followed by deindustrialisation: a country first experiences a rising share of resources especially labour- devoted to
the industrial sector, after which the services sector becomes more important, so that the share of
employment in the industrial sector declines from its peak. In recent years, however, "deindustrialisation" seems to be taking place prematurely. That is, poor countries seem to be reaching their
peak levels of industrialisation at lower levels of industrialisation and income.
What about India? The phenomenon of de-industrialisation is particularly salient for India for three
reasons. Looming ahead is the demographic bulge, which will disgorge a million youth every month into
the economy in search of employment opportunities. Rising labour costs in China create opportunities for
low-skilled countries such as India as replacement destinations for investment that is leaving China.
But the sobering fact is that India seems to be de-industrialising too. in nearly all states (with the exception
of Himachal Pradesh and Gujarat), registered manufacturing as a share of value added is now declining
and, for most states, has been doing so for a long time. The most sobering of facts however is that
manufacturing has even been declining in the poorer states: states that never effectively industrialised
(West
Bengal
and
Bihar)
have
started
de-industrialising.
Several explanations are possible for why manufacturing has not been this escalator in India. They fall
under four broad categories: distortions in labour markets; distortions in capital markets; distortions in

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land markets; and inappropriate specialisation away from India's natural comparative advantage and
toward skill intensive activities.
Manufacturing - Alignment with Comparative Advantage
In order for a sector to offer transformational possibilities, it must not only be characterised by high levels
and growth rates of productivity, it must also absorb resources from the rest of the economy. But in order
to do so, the sector's use of inputs must be aligned with the country's comparative advantage. That will
allow the abundant factor of production (usually unskilled labour) to benefit from productivity growth
and convergence, and in so doing make growth not only rapid and sustainable but also inclusive. In other
words, the dynamic sector must at least initially be relatively unskilled labour intensive. Is this true of India
manufacturing? It is found that Indian manufacturing was unusually skill labour intensive.
It turns out that registered manufacturing is a sector that is relatively skilled labor intensive. The share of
workers with at least secondary education is substantially higher in registered manufacturing than in
agriculture, mining or unregistered manufacturing and also greater than in several of the service
subsectors.
Services - Alignment with Comparative Advantage
Services in aggregate are no less skill-intensive: on average, 78 percent of workers in the service sector
have at least a primary education, and 48 percent have at least a secondary education.
What this implies is that most service subsectors (precisely the high productivity, high growth subsectors,
for the most part), have a limited capacity to make use of India's most abundant resource, unskilled labor.
Conclusions
The choice for India is not manufacturing versus services but comparative advantage deifying (unskilledintensive) sectors versus comparative advantage defying (skill-intensive) sector development. This is both
a
positive
and
a
policy
question.
There is now evidence that the increasing opportunities that are spurring economic growth also
contribute to raising these returns, leading to a greater demand for educational servicespublic and
privateand hence improvements in educational outcomes. This has put pressure on the supply of
education.
The policy question is the following. Insofar as the government retains influence over shaping the pattern
of development, should it try to rehabilitate unskilled manufacturing or should it accept that that is
difficult to achieve, and create the groundwork for sustaining the skill intensive pattern of growth?
Attempting the former would be a history-defying achievement because there are not many examples of
significant reversals of de-industrialisation. A lot would have to change in Indiafrom building the
infrastructure and logistics/connectivity that supports unskill-intensive manufacturing to reforming the
panoply of laws and regulationsor perhaps addressing corruption in the manner of their
enforcement that may discourage hiring unskilled labor and achieving scale in the formal sector.
Sustaining a skill-intensive pattern on the other hand would require a greater focus on education (and
skills development) so that the pattern of development that has been evolving over time does not run
into shortages. The cost of this skill intensive model is that one or two generations of those who are
currently unskilled will be left behind without the opportunities to advance. But emphasising skills will at
least ensure that future generations can take advantage of lost opportunities.
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What the analysis suggests is that while Make in India, which has occupied all the prominence, is an
important goal, the Prime Minister's other goal of "Skilling India" is no less important and perhaps
deserves as much attention. Make in India, if successful, would make India a Lewisian economy in relation
to unskilled labor. But "Skilling India" has the potential to make India a Lewisian economy with respect to
more skilled labor. The future trajectory of Indian economic development could depend on both.
Corporate Governance in India 2. Issues
The Moot Point
The recent issues of Corporate Espionage, SEBI's directive for listed firms to appoint at least one woman
director on their boards and Insider Trading have brought to the fore, the important issue of Corporate
Governance. Though the term in itself is not new; but it has increasingly come to the limelight in recent
past
due
to
ever
increasing
escapades
of
Indian
corporates.
In this second article of the series on Corporate Governance and the related issues, we are discussing the
issues of Insider Trading, Corporate Espionage and the recent SEBI's regulation to induct women members
on the boards of listed companies.
The Critical Analysis - Insider Trading
Concept
Insider trading is defined as a malpractice wherein trade of a company's securities is undertaken by people
who by virtue of their work have access to the otherwise non-public information which can be crucial for
making
investment
decisions.
Insider trading is an unfair practice, wherein the other stock holders are at a great disadvantage due to
lack of important insider non-public information. Insider trading therefore includes tipping others when
they have any sort of nonpublic information.
The Issue
The Securities and Exchange Board of India ("SEBI") has notified the SEBI (Prohibition of Insider Trading
Regulations) 2015 ("Regulations") on January 15, 2015 replacing the two-decade old insider trading norms
in
India.
The Regulations are based on the recommendations made by an 18 member committee ("Committee")
constituted by SEBI under the chairmanship of Justice N.K. Sodhi, former Chief Justice of the High Courts
of Kerala and Karnataka.
SEBI Regulations

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Applicability of the Regulations : The charge of insider trading has been extended to securities
listed and proposed to be listed on stock exchanges. This is an expansion from the 1992
Regulations which only applied with respect to companies that were listed.
Additionally, the Regulations also strengthen the definition of who an 'insider' is. The scope of
'connected persons' under the Regulations has been widened to include persons associated with
the company in a contractual, fiduciary or employment relationship or having direct or indirect
access to unpublished price-sensitive information.

39

Prohibition on Insider Trading Multiple restrictions have been placed i.e. (i) prohibition on
communication of unpublished price sensitive information (ii) procurement of unpublished price
sensitive information and (iii) trading in securities when in possession of unpublished price
sensitive
information.
The 1992 Regulations prohibited 'dealing' in securities when in possession of unpublished price
sensitive information, amongst others; the expression 'dealing' has been replaced with 'trading'
in
securities.
Under the Regulations, the definition of 'trading' has been kept wide. It must be noted that the
1992 Regulations placed no restrictions on the 'procurement' of unpublished price sensitive
information by other persons.

Trading Plans : Quite a novel concept to India, provisions on 'trading plans' have been introduced
whereby every insider is entitled to execute trades in pursuance of pre-determined trading plan
in accordance with the Regulations.

Compliance Officer : Qualification criteria have been set for a compliance officer who shall report
to the board of directors of the company or the head of the organization, as the case may be.
The compliance officer's role in monitoring and approving a trading plan has been made
important. Enhanced role for the compliance officer who would need to police, monitor and
regulate trading by employees and connected persons.

Penalties : Insider trading is publishable with a penalty of INR 250,000,000 (Rupees Two Hundred
Fifty Million Only) or 3 times the profit made out of insider trading, whichever is higher. SEBI is
also empowered to prohibit an insider from investing in or dealing in securities, declare violative
transactions as void, order return of securities so purchased or sold. Any person contravening or
attempting to contravene or abetting the contravention of the Act may also be liable to
imprisonment for a term which may extend to ten years or with fine which may extend to INR
250,000,000

Consequence of Insider Trading


The aim of "Good Corporate Governance" is to ensure commitment of the board in managing the
company in a transparent manner for maximizing long-term value of the company for its shareholders.
Importantly, corporate governance is beyond the realm of law. It cannot be regulated by legislation alone.
Legislation can only lay down a common minimum framework. The "substance" will ultimately determine
the credibility and integrity of the process. Substance is inexorably linked to the mindset and ethical
standards
of
management.
A good corporate governance model incorporates responsibilities towards all stakeholders. These are The Critical Analysis - Insider Trading
Concept
'Corporate Espionage' basically refers to a practice wherein a corporate system or structure is
impregnated with the help of spies or systems so as to facilitate the leakage of information which could
mar
the
general
growth
of
the
victim
organization.
It covers within itself illegal activities such as theft of trade secrets, business plans, customers' lists, pricing
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data, bribery, blackmail, technological surveillance etc. resulting in breach of security of an organization
and
gaining
access
to
its
confidential
and
sensitive
information.
The information thieves use many intrusive methods in order to gain such sensitive information for
instance eavesdropping by bugging offices, wiretapping, recording telephone conversations, penetrating
computer networks etc.
The Issue
On the night of February 18, officers of the Delhi Police, who had prior information about an espionage
network, kept a watch on three persons coming in an Indigo car to Shastri Bhavan, which houses some of
the key economic Ministries in New Delhi. Two persons got down and the third remained inside the car.
After about two hours, when the duo returned to the car, all three of them were caught for stealing
photocopies of classified documents of the Ministry of Petroleum & Natural Gas (MoPNG).
Going by the first information report (FIR) filed by the Delhi Police in the case, which lists out some of the
documents that were leaked out, it is evident that the corporates were getting access to significant policy
documents before they were finalised.
Consequence of Corporate Espionage
Information can make the difference between success and failure; if a trade secret is stolen, the
competitive playing field is leveled or even tipped in favor of a competitor.
Thus, a company getting prior information about a government policy change can take actions before
other does. It can manipulate stock markets, prepare itself for a policy change and devise a strategy to
benefit
from
a
future
policy.
Similarly, companies can benefit from the information regarding other companies. They can get details of
the tendering and contracting process, get details about the proposals of other companies, and get an
estimate of other companies' market fundamentals.
The Critical Analysis - Women on Board of Companies
The Issue
According to the Sebi directive and the Companies Act, 2013, all listed firms were required to have at least
one
woman
director
on
their
boards
by
March
31,
2015.
Before the regulations, SEBI noted that close to one-third of the top 500 listed companies do not have any
woman on their Boards.
Rationale of SEBI's Move

Ensuring the participation of Women at the highest decision making level in the corporate sector,
will inspire other women at various levels within the corporate sector and the larger society.

It will also check the glass ceiling effect that is generally associated with the careers of women in
the corporate sector. The move will inspire many women to seek higher roles and breach the glass
ceiling.

Women bring diversity to boards, whether in India or globally, and diversity is acknowledged to
improve the quality of decision-making and the overall performance of companies. Multiple

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studies show that companies with women on boards perform better than those without women
directors.

Studies show that women report greater ability to understand human issues and make rational
judgments based on them. As a consequent, Boards with woman representatives are better
aligned to make sound judgments than the ones with only male representation.

Finally, the move is a small attempt to counter the patriarchal mindset of the society.

Challenges

Corporate Sector in India has not internalised the need to have woman directors. The need for
gender diversity isn't truly felt across boardrooms.

A majority of listed companies have appointed family members to fulfil the directive. Many
experts warn that if women from promoter families are given token board positions, the
effectiveness of the board could get diminished in the long run.

A board position requires a director to bring to the table lot of strategic insights. Women can only
do that with proper exposure and professional training. When it comes to Board-ready woman
leaders in India, one of the biggest hurdles companies face is the small pool.

Some women are themselves reluctant to raise their hands to take up the challenges and rigours
that a top management job brings

GPkaFunda
The economic reforms of 1991 put the Indian private sector in the much needed growth trajectory. Since
then, the private sector in India has become an important partner of the society in achieving the objectives
of better quality of life for the Indian citizens. The phase of 25 years, however was not remarkable from
the point of view of Corporate Governance, as both the corporates and the government struggled to come
up to the reality of changed times. As a result, we witnessed Harshad Mehta, Satyam Fiasco, 2G and Coal
Scam, Worms and Pesticides in the products of MNC brands like Coke and Cadbury.
The time has now come to move to the next phase. The phase marks the beginning of ever aware civil
society and its anger over collusive corruption. The phase also represents Indian regulators like SEBI, RBI,
and Competition Commission finding their feet. And importantly, the phase also marks the beginning of
corporate participation in critical sectors like distribution of public utilities, extraction of public resources.
In such a scenario, there are high expectations from the Indian Corporates to evolve and discipline
themselves to the best standards of Corporate Governance. As the global experiences have shown, Good
Corporate Governance is a win-win situation for all.
India - China Relations :2.Focus on Trade and Maritime Issues
The Moot Point
India and China are among the oldest civilizations on the planet and have had one of the longest
uninterrupted continuations as nations in world history. Even in the modern history of the world, India
and China emerged as independent nation-states about the same time. However, India-China relations
have experienced deep fluctuations over the past five decades ranging from compassionate camaraderie
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in the 1950s through armed conflict in the 1960s, strategic distances in the 1970s to efforts for
normalization
in
present
times.
At this opportune moment when Prime Minister Narendra Modi has just completed his maiden visit to
China, let us study the various areas of cooperation and conflict between the two countries.
In the second article of the series on India-China Relations, we are focusing on the Trade and Maritime
Issues.
The Cheatsheet
Overview of India-China Relations over the years
India and China started off on friendly footing soon after their formation as republics. In 1949, the Indian
government under Prime Minister Jawaharlal Nehru was quick to recognize the People's Republic of China
(PRC) government. And, in 1954, India officially acquiesced in Chinese dominance over Tibet.
In 1954, the two countries had signed an agreement concerning trade between India and "Tibet Region
of China". This agreement also incorporated the five principles of Panchsheel. The two leaders, Nehru and
Chou issued a joint statement reiterating Panchsheel-five principles of peaceful co-existence, which later
became
an
important
set
of
principles
to
guide
international
relations.
The five principles are:
1. Mutual respect for each other's territorial integrity and sovereignty;
2. Mutual non-aggression;
3. Mutual non-interference in each other's internal affairs;
4. Equality and mutual benefit; and
5. Renewable energy is a distributed and scalable resource, making it well suited to meet the needs
and demands of power in rural areas, which lack grid and road connectivity.
6. Peaceful co-existence.

The principles of Panchsheel and the spirit of Bandung disappeared by late 1950s. The contention
between India and China on the border issue gave birth to a period of bitterness in the bilateral
relationship. The building of a controversial road in the Aksai Chin area and frequent border skirmishes in
other sectors finally led to a border war in October 1962, when China attacked India.
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The period following the war saw India align more closely with the Soviet Union, which had already begun
to split quite noticeably from China within the international Communist movement. China for its part
began to follow through on the exploratory discussions it had with Pakistan in the previous decade.
Prime Minister Indira Gandhi took steps to normalize relations with China. The first step in that direction
was the establishment of full-fledged diplomatic relations with the country, in 1976.
In 1978, the Indian Minister of External Affairs Atal Bihari Vajpayee made a landmark visit to Beijing, and
both
nations
officially
re-established
diplomatic
relations
in
1979.
Renewed Chinese interest in resolving the border dispute with India was evident in 1980. A long dialogue
process was initiated the following year, when Foreign Minister Huang Hua became the first Chinese
leader
since
Zhou
Enlai
in
1960
to
visit
India.
The path-breaking visit by Prime Minister Rajiv Gandhi to China in 1988-the first prime ministerial visit in
34 yearswide opened the avenues for high-level exchange of visits by Indian and Chinese leaders.
By the time Prime Minister Narasimha Rao visited Beijing in 1993, the entire international milieu had
changed. The Soviet Union had disintegrated and the Cold War had ended. Nations around the world were
searching for a new definition of their respective foreign policies in the new context of the global political
situation.
So
were
India
and
China.
Following India's nuclear tests of May 1998, China did not waste time in resuming relations with India. A
critical test was the Kargil conflict between India and Pakistan in 1999, during which Indian Foreign
Minister Jaswant Singh visited China and was assured of Beijing's neutrality in the conflict, much to the
satisfaction
of
Indian
leaders.
In recent times, the status of India and China relationship can be best described as hot and cold. While
the political leadership is engaging on various issues like trade, boundary dispute; the military adventurism
has not stop. In September, 2014 the relationship took a sting as troops of the People's Liberation Army
(PLA) have reportedly entered two kilometres inside the Line of Actual Control (LAC) in Chumar sector
Trade Issues
Bilateral trade between India-China has grown rapidly in the past few years and picked up significantly
after Chinese accession to WTO. Bilateral trade turnover jumped by nearly twenty five times, from US$
2.7 billion in 2001 to nearly US$ 68.8 billion in 2012.
India's Imports
India's bilateral imports are mostly concentrated in the manufacturing sector. Four dominant sectors
comprising of chemicals, machinery, base metals, and textile & clothing contributed around 85 per cent
to bilateral imports in 2008. Among these sectors, the largest and the most dynamic sector has been that
of
machinery
import.
India's pattern of imports clearly indicates that demand for technology-intensive products is becoming
strong in the domestic market whereas demand for labour intensive and resource-based products is
gradually weakening in recent years.
India's Exports
India's exports to China are highly concentrated where in four sectors take the lion's share of 79 per cent
of
the
total
bilateral
exports
in
2012.
For the last several years, mineral sector dominated India's bilateral export basket with China, but its
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prominence declined significantly in recent years. Especially during the period of recent episode of
recession, the share of mineral sector declined noticeably. Share of the mining sector declined from 55.4
percent
in
2007
to
24.0
percent
in
2012.
During recession, textiles & textile products emerged as the largest exporting sector and its share
increased significantly from 10.4 per cent to 26.1 per cent between 2007 and 2012 respectively.
The nature of India's bilateral export basket indicates that these sectors fall mostly in the categories of
resource-based and labour intensive products. India's attempts to export technology-intensive products
have been much below its potential as shown from its current engagement with China.
Trade Imbalance
There is a growing concern in India relating to sustainability of mounting bilateral trade along with surging
trade imbalance between them in the medium term. The trade imbalance between the two countries
reached US$ 40 Billion.

China follows predatory trade practices which include a mulish refusal to allow free flow of its
currency and making its exports advantageous though low wages, local tax incentives and
aggressively subsidizing domestic players.

Indian exporters are routinely confronted with market access issues in China. The software
services and IT enabled services exports, in particular, face restrictions in the Chinese market with
the country's increasing focus on developing its service industry in an attempt to create more
employment for its youth. The Pharmaceuticals and auto component exporters confront similar
issues in China.

The farm sector and agro-processing industry also face limited access in Chinese market,
continuing the Chinese trend to allow limited access in the higher-value sectors. In the past, China
has banned several agricultural exports from India, including Basmati exports without providing
sufficient scientific evidence as is required under the Agreement on Sanitary and Phyto-sanitary
Measures.

India's own set of structural hurdles, some of which are deep-rooted- and productivity gap with
China are to be blamed for the ballooning trade deficit with China. Besides, India hasn't even been
able to make the best of its comparative advantage with China. For instance, even after the lifting
of the ban on Basmati exports, India has failed to tap the under-exploited Chinese market.

Way Forward

Chinese President Xi Jinping, on his 2014 visit to India, proposed to strengthen investment
cooperation between the countries and invest $20 billion in the coming 5 years. India must take
steps to realize the promised investment.

While China honors commitments, India must look to diversify its trade basket, especially in laborintensive sectors such as textiles, as China battles rising labor costs and unfavorable
demographics, challenging its low-cost manufacturing advantage.

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India must look at the areas where it enjoys competitive edge- skill intensive sectors like IT and
pharmaceuticals which make the perfect use of India's intellectual capital. India should push for
greater market access in these sectors.

Maritime Issue
The Indian Ocean is the world's link between the East and the West, encompassing vital sea lanes of
communication that feed the world's economies. Around 80 per cent of the world's sea-borne oil trade
passes
through
the
choke
points
of
this
ocean.
Both India and China, in recent decades, have focused on developing their naval strength and maritime
capabilities. With shifting of global power balance towards Asia, both the countries seek to influence the
Indian Ocean Region.
China's Interests
China's foreign policy goal is to achieve the status of a global power. To achieve those objectives within
the context of the Indian Ocean region, China seeks to counter what it perceives as regional US
interference and Indian influence. China is also mindful of its "Malacca Dilemma", the chokepoint through
which most of its energy imports arrive from the middle-east. The critical sea lines of communication that
connect China to Middle Eastern oil-producing states traverse the South China Sea and the Malacca
Straits, making it a key strategic region, and potential trouble spot, for the Chinese government.
Ultimately, China's interests in the Indian Ocean region also underpin its reliance on domestic growth and
consumption to maintain or improve living standards, societal cohesion and internal stability. Thus, China
is seeking to increase its influence in the Indian Ocean Region through 'Strings of Pearls' and now
'Maritime Silk Road'.
China's Strings of Pearls
The String of Pearls theory is a geopolitical theory regarding potential Chinese intentions in the Indian
Ocean region. It refers to the network of Chinese military and commercial facilities and relationships along
its sea lines of communication, which extend from the Chinese mainland to Port Sudan. These are :

In 2001, the Chinese government signed a contract with Pakistan for the development of its deepsea port at Gwadar.

The Chinese Export-Import Bank has funded the first phase of the Hambantota port's
construction, in Sri Lanka.

In Bangladesh, China has focused on the modernization of the deep-sea port in Chittagong.

Kyaukphyu port in Rakhine State of Myanmar has assumed a prominent position in China's
investment plans.

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China's Maritime Silk Road


The priority of the initiative is port construction and free trade zones. The plan is expected to focus on
infrastructure construction of countries along the route, including ports of Pakistan, Sri Lanka and
Bangladesh. The initiative, which will deepen Chinese economic and maritime links with both Southeast
Asia and Indian Ocean Region countries, is being seen as to assuage regional anxieties about China's
growing military and naval presence amid a number of disputes. The new leaders put forward the "2+7"
formula of cooperation - consensus on two issues: deepening strategic trust and exploring neighbourly
friendship, and economic development based on mutual benefits and win-win outcomes. They also put
forward seven proposals

signing the China-ASEAN good neighbor treaty;

more effective use of the China-ASEAN Free Trade Area and intensive Regional Comprehensive
Economic Partnership negotiations;

acceleration of joint infrastructure projects;

closer maritime cooperation;

enhanced collaboration on security; and

more intensive people-to-people contacts along with increased cultural, scientific and
environmental protection cooperation.

India's Interests
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India clearly sees certain diplomatic, economic, and military interests at stake in Indian Ocean waters. In
particular, shipments of Middle East oil, natural gas, and raw materials are crucial to India's effort to build
up economic strength commensurate with the needs and geopolitical aspirations of the Indian people.
Some 90 percent of world trade, measured by bulk, travels by sea. A sizable share of that total must
traverse narrow seas in India's geographic neighborhood, notably the straits at Hormuz, Malacca, and Bab
el Mandeb. Shipping is at its most vulnerable in such confined waterways. Security of the sea lanes is thus
critical to secure economic development and achieve the great power status.
Further, Indian Ocean has historically been under India's influence. As India grows and seeks to achieve
the great power status; its influence on the Indian Ocean Region will be a primary determinant of its
power.
India's Iron Curtain
Backed by a burgeoning economy, India too aspires to be hailed as a true blue water navy and deter the
Chinese aspirations in the Indian Ocean Region via the Strings of Pearls policy which is basically aimed to
restrict India's dominance right in their backyard. To live up to this very objective, India too is answering
boldly by juxtaposing its presence alongside that of China in the IOR - a strategy that has been termed as
Iron Curtain.

India has strengthened its maritime base at strategically located Andaman and Nicobar islands,
which is in the proximity to South East Asian nations and they are in the location capable of
watching the main sea-lanes and the Malacca Straits.

Besides, India is presently exchanging dialogues with Nepal, Bhutan, and Bangladesh to identify
the areas of investments in these countries. In Myanmar, it is developing the Sittwe port.

The Tripartite Technical Expert Group (TTEG) consisting of Indonesia, Malaysia, and Singapore that
administers the Malacca Straits has recently received substantial monetary aid from India.

Militarily too India has expanded its presence in the IOR by setting up listening posts in Seychelles,
Mozambique, Madagascar, and Mauritius. Recently India has also gained berthing rights in Oman
and Vietnam, which again is sure to give the mighty Chinese dragon cold vibes.

India recently also signed a trilateral security cooperation agreement with Sri Lanka and Maldives
for cooperation in maintaining peace and security in the Indian Ocean through sharing maritime
information.

GPkaFunda
Again extrapolating the concept of Chankya's Dwadibhav, the trade issue can be seen as the one where
cooperation is plausible, while the maritime issue is one beset with conflicts.
The trade issue emerges primary because of two reasons - China's reluctance to open its markets and
invest in India, and India's own inefficient export parameters. As China moves up the economic ladder and
acquires the temperament of a super power, it will be forced to grant economic concessions to its
neighbors. And its humongous currency reserves will help in its endeavor. India can thus seek investments
from China in coming future. Also, as the labor costs rise in China, India can look to fill the void created in
low cost manufacturing. This may be the solution to the trade imbalance between the two countries.
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As far as the maritime rivalry in the Indian Ocean is concerned, there is no element of cooperation in sight.
China's ambitions in the Indian Ocean are guided not just by its aspirations of emerging as a super power
but also to secure its strategic sea lanes. China will thus continue to develop partnerships with Indian
Ocean littoral countries. India, in such a scenario, has just one option to beef up its own ambitions
and achievements in the Indian Ocean region. PM Modi's Sagar Yatra to Seychelles, Mauritius and Sri
Lanka in the recent past is a pointer to same strategy.
Renewable Energy in India - 3.Focus on Geothermal and Waste Energy
The Moot Point
Renewable Energy is the next big thing for India. And why shouldn't it be; it serves many purposes. Apart
from being a clean energy source, it has the potential to meet the electricity shortages the country is
facing while creating large number of jobs. And electricity itself has multiplied effects on the human
development as well as economic development parameters. To achieve the results on the ground
however,
we
have
to
overcome
various
challenges.
In the third article of the series on renewable energy in India, we are discussing the Geothermal Energy
and Waste to Energy.
THE CHEATSHEET
Total Installed Capacity of Power - 250,000 MW
Renewable Energy Distribution
Renewable Energy Installed Capacity (2014) - 35,000 MW (15% of Total Installed Capacity)
Wind
Power22,500
MW
Solar
Power3,000
MW
Biomass
Power
3,500
MW
Others - 6,000 MW
Potential of Renewable Energy in India

Potential: India has abundant untapped renewable energy resources. The countrys large land
mass receives one of the highest levels of solar irradiation. It has extensive coastline and high
wind velocity in many areas. India also has significant potential to produce energy from biomass
derived from agricultural and forestry residue.

Make in India: The huge potential resource of 895 GW from commercially exploitable resources
had resulted in renewable energy being identified as one of 25 sectors for the Make In
India initiative.

At present, 70 percent of the countrys solar content is imported and coming in from China
and the US. The sector provides a huge opportunity for the country to generate jobs to realize
Indias demographic dividend and fuel economic growth.

Human Development: According to Census 2011, 67% of Indian households have access to
electricity. Access to electricity will have a huge impact on the human development indicators of
population. Further, the economic benefits realized from the uninterrupted power supply will

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have an impact on the development of the country. Renewable Energy has a huge potential in
this regard.

Renewable energy is a distributed and scalable resource, making it well suited to meet the needs
and demands of power in rural areas, which lack grid and road connectivity.

Climate Change: India is among the most vulnerable countries to the impact of climate change.
Also, generating renewable power will help India meet its global emission cut commitments.

THE CRITICAL ANALYSIS: Geothermal Energy


Geothermal Energy
Geothermal is made of two Greek words - geo which means 'earth', and therme, which means 'heat'. Thus,
geothermal energy is the heat from the earth. It is a clean and sustainable source of energy.
Geothermal energy is captured from geothermal hotspots. A hotspot is an area of reduced thickness in
the mantle which allows the excess internal heat from the interior of the earth to flow to the outer crust.
These hotspots include the volcanic islands, mineral deposits, and geysers normally known as hot springs.
Means of utilizing Geothermal Energy

Geothermal Power Plants : The most common way of capturing energy from geothermal heat is
to tap into naturally occurring 'hydrothermal convection systems where cooler water seeping into
earth's crust is heated up, and it then rises to the surface. When heated water from the hot springs
is forced to the surface, the steam is captured and used to drive electric generators.

Direct uses : Geothermal reservoirs of hot water, which are found a couple of miles or more
beneath the Earth's surface, can also be used to provide heat directly. Direct use of geothermal
energy is a very old method when people used hot springs for bathing, cooking food, and other
day
to
day
heating
purposes.
Now, modern systems are being used for direct-use in which a well is drilled into a geothermal
reservoir to provide a steady stream of hot water. The water is brought up through the well and
a mechanical system - piping, a heat exchanger, controls, which delivers the heat directly for its
intended use.

Ground-source heat pumps It is found that the temperature of the upper 10 feet of the earth is
nearly constant - between 10 - 16 C. During winter this region is warmer than the air above it,
whereas in summer it is cooler. In order to take advantage of this resource, geothermal heat
pumps can be set up to heat and cool buildings.

Advantages of utilizing Geothermal Energy

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The first advantage of using geothermal heat as a source of energy is that, unlike most
power stations, a geothermal power plant does not create any pollution.

Geothermal energy can be used to produce electricity 24 hours a day.

Geothermal power plants are generally small and have little effect on the natural
landscape, or the nearby environment.

50

As no fuel is used to generate the power from the geothermal heat, running costs for
geothermal power plants are very low.

The cost of the land to build a geothermal power plant, is usually less as compared to the
cost of constructing an oil, gas, coal, or nuclear power plant.

Limitations of utilizing Geothermal Energy

If harnessed incorrectly, geothermal energy can sometime produce pollutants. Improper


drilling into the earth can release hazardous minerals and gases from deep down inside
the earth, which can be contained quite easily.

It is also feared that the geothermal power plant sites may run out of steam in the long
run.

Plant construction can adversely affect land stability. Subsidence has occurred in the
Wairakei field in New Zealand and in Staufen im Breisgau, Germany.

Enhanced geothermal systems can trigger earthquakes as part of hydraulic fracturing. The
project in Basel, Switzerland was suspended because more than 10,000 seismic events
measuring up to 3.4 on the Richter Scale occurred over the first 6 days of water injection.

Main disadvantages of building a geothermal energy plant mainly lie in the exploration
stage, which can be extremely capital intensive and high-risk. Locating the best resources
can be difficult; and developers may drill many dry wells before they discover a viable
resource.

Prospects of Geothermal Energy in India


The power generation through geothermal resources is still in nascent stages in India. Geological Survey
of India has identified about 340 geothermal hot springs in the country. These springs are grouped into
seven geothermal provinces i.e. Himalayan (Puga, Chhumathang), Sahara Valley, Cambay Basin, SonNarmada-Tapi (SONATA) lineament belt, West Coast, Godavari basin and Mahanadi basin. Some of the
prominent geothermal resources include :

Puga Valley, Jammu and Kashmir,

Manikaran in Himachal Pradesh,

Jalgaon in Maharashtra and

Tapovan in Uttarakhand.

Tattapani in Chhattisgarh

The Critical Analysis: Waste to Energy


Waste to Energy Power Plants

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Waste to Energy constitutes all those processes through which wastes generated in urban and rural areas
are used to generate energy. The energy can be in various forms.
Advantages of Waste to Energy Power Plants
High inflation and limited return on banks' assets has ensured that the rates maintained by banks fetched
households
a
negative
real
rate
of
return
on
deposits.
Household savings continue to be the largest contributor to gross capital formation. Household savings
has two components- financial and physical, where the latter typically does not lend itself easily to
financial intermediation in the economy. The contribution of physical assets to household savings has
stood stubbornly above 60 per cent all through the last decade.
Financial Repression on the Asset Side

The total quantity of waste currently handled each day in the urban areas in the country
is estimated to be 1, 70,000 metric tonnes i.e. about 62 million tonne per year. This will
require an estimated 60,000 acres of land for a period of 25 years to landfill.

Most wastes that are generated, find their way into land and water bodies without proper
treatment, causing severe water pollution. They also emit greenhouse gases like methane
and carbon dioxide, and add to air pollution.

Any waste from urban and rural areas and industries is a resource. The problems caused
by solid and liquid wastes can be significantly mitigated through the adoption of
environment-friendly waste-to-energy technologies.

India's growing energy deficit is making the government central and state governments
become keen on alternative and renewable energy sources. Waste to energy is one of
these.

Two groups of technologies could be used for processing the fractions of wastes:

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Bio-chemical waste to energy technologies : Bio-chemical conversion of biodegradable


MSW can be categorized into composting, biomethanation and fermentation.
Composting is an aerobic process in which biologically degradable wastes are converted
through solid state biochemical transformation to yield stable granular material - which
could
be
used
as
soil
conditioners
and
nutrients.
Biomethanation is an anaerobic slurry-phase process that can be used to recover both
nutrients and energy contained in biodegradable waste. Biogas can be used either as a
source of thermal energy or to generate electricity by using gas engines and turbines.

Thermo-chemical waste to energy technologies : Thermal processing of MSW can be


accomplished in several ways including incineration, pyrolysis, gasification and mass
burning. Typically, the feedstock could be segregated or un-segregated MSW or refuse
derived
fuel.
Incineration is the complete combustion of waste with the recovery of heat, to produce
steam, which in turn produces power through steam turbines. Mass burning of MSW is
achieved
by
burning
unprocessed
wastes.

52
Pyrolysis uses heat to break down organic materials in the absence of oxygen, producing
a mixture of combustible gases (primarily methane, complex hydro, carbons, hydrogen,
and
carbon
monoxide),
liquids
and
solid
residues.
Gasification is a process that converts organic or fossil based carbonaceous materials into
carbon monoxide, hydrogen and carbon dioxide at elevated temperature (500-1800oC)
in the presence of limited amount of oxygen typically called as Syngas at temperature
above 900oC along with the conventional fuels like coal without any ill effects for
generating heat.
Limitations of Waste to Energy Power Plants

Wastes to Energy power plants are a major source of toxic emissions that include volatile
organic gases and heavy metals. They are also among the top five sources of dioxin
emissions worldwide, which even in low does have the potential to cause cancers.

Power generation though waste has so far been a rather unachievable dream given the
nature of our waste. This is primarily due to the failure of these technologies to process
unsegregated waste.

Waste-to-Energy is still a new concept in the country; Most of the proven and commercial
technologies in respect of urban wastes are required to be imported.

When it comes to generating energy, Waste to Energy power plants are capital intensive
and inefficient.

Lack of conductive policy guidelines from State Governments in respect of allotment of


land, supply of garbage and power purchase / evacuation facilities, is a major reason why
waste to energy sector has not progressed.

Prospects Waste to Energy Power Plants in India


According to Ministry of New and Renewable Energy estimates, there is as potential of 1500 MW energy
generation from wastes. At present, however, only 200 MW is being generated. There is thus, a huge
potential.
GPkaFunda
Renewable energy is the way to go forward; however, whether geothermal energy and waste energy are
the right means of renewable energy, is open to debate. The two technologies will have to surmount
various
natural
challenges,
and
yet
not
prove
consumer-friendly
enough.
However, the two resources could still be used locally. Geothermal energy can be used directly. What we
need is to train the local communities to use the resources. The resource can be panacea for the
communities in inaccessible regions, where the conventional sources of energy might not be able to
reach.
Similarly, the solid waste can be used as compost. This is a better utilization of the waste comparing it
with inefficient, costly and polluting conversion to electricity.
Urbanization in India - 3.Real Estate Bill
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The Moot Point
Some interesting reforms are underway in various sectors of economy. One such sector is the Real Estate
Sector. The real estate development and housing construction was largely the concern of State institutions
till the 1980s with very few private promoters and a nascent industry. With the liberalization of the
economy, conscious encouragement was given to the growth of the private sector in construction, with a
great deal of success, and the sector today is estimated to contribute substantially to the countrys
GDP.
However, the real estate and housing sector, at present, is largely unregulated and opaque, with
consumers often being unable to procure complete information, or to enforce accountability against
builders and developers in the absence of effective regulation. This is a matter of concern not just for the
consumer, but the sector at large. Increasing the confidence in the market is critical to the long term
growth of the sector. Is the bill able to achieve that, let us find outThe Cheatsheet
The salient features of the Real Estate (Regulation and Development) Bill, 2013 are :

Applicability of the Bill : The proposed Bill is applicable to both residential and commercial real
estate

Establishment of Central Advisory Council: To advise the Central Government on implementation


of the Act, recommend policy, protection of consumer interest and to foster growth and
development of the real estate sector;

Establishment of Real Estate Regulatory Authority : Establishment of one or more Real Estate
Regulatory Authority in each State/ Union Territory (UT) . The Authority to act as the nodal agency
to co-ordinate efforts regarding development of the real estate sector and render necessary
advice to the appropriate Government to ensure the growth and promotion of a transparent,
efficient and competitive real estate sector;

Registration of Real Estate Projects and Registration of Real Estate Agents: Mandatory
registration of real estate projects and real estate agents who intend to sell any plot, apartment
or building, with the Real Estate Regulatory Authority;

Mandatory Public Disclosure of all project details: Mandatory public disclosure norms for all
registered projects such as details of promoters, project, layout plan, plan of development works,
land status, status of statutory approvals and disclosure of proforma agreements, names and
addresses of real estate agents, contractors, architect, structural engineer etc.;

Functions and Duties of Promoter:


1. Disclosure of all relevant information of project;
2. Adherence to approved plans and project specifications;
3. Obligations regarding veracity of the advertisement for sale or prospectus;
4. Rectify structural defects;

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5. Refund money in cases of default;

Compulsory deposit of 50 percent: To compulsorily deposit 50 percent (or such lesser percent as
notified by the Appropriate Government) of the amounts realized for the real estate project from
the allottees in a separate account in a scheduled bank within a period of fifteen days to cover
the cost of construction to be used for that purpose;

Functions of Real Estate Agents:


1. Real estate agents to sell properties registered with the Authority;
2. Maintain books of accounts, records and documents;
3. Not to involve in any unfair trade practices;

Fast Track Dispute Settlement Mechanism:


1. Fast track dispute resolution through adjudicating officers (District Judge);
2. Appellate Tribunal to hear appeals;

Establishment of Real Estate Appellate Tribunal: Real Estate Appellate Tribunal to hear appeals
from orders of the Authority and the adjudicating officer. The Appellate Tribunal is to be headed
by a sitting or retired Judge of the High Court, with one judicial and one administrative/technical
member;

Punitive Provisions: Punitive provisions including de-registration of the project and penalties in
case of contravention of provisions of the Bill or the orders of the Authority or Tribunal;

The Critical Analysis


Pro-View

The Bill ensures mandatory disclosure by


promoters to customers through registration of
real estate projects and real estate agents with
the Real Estate Regulatory Authority. It aims at
restoring confidence of the general public in the
real estate sector; by instituting transparency
and accountability in real estate and housing
transactions.
The passing of the Bill will see establishment
of regulatory bodies at the State and Central
levels, making it possible for the consumers, to
get grievances addressed through established
and institutionalized process.

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Anti-View

The developers are not very happy with the


bill. They feel the new regulatory provisions
obsessively target them only while other
concerned authorities are not even addressed.
Specifically, they would like states to set-up a
single-window clearance system for some 50
project-related approvals. Authorities also
need to commit that all infrastructural linkages
will be provided, for which external
development charges are paid to local
authorities.
While the developer has to be penalized for
issues relating to him, the authoritys role must

55

If a builder wants to alter the design or the


structure of the project he will need to take the
consent of at least two-thirds of the buyers.
This has been prompted by recent cases where
builders were found guilty by the courts of
building extra floors on their own. Not only is
the practice unfair to the early round of buyers,
who had assumed that they would share the
common infrastructure with a certain number
of people, but also a safety hazard because
taller and bigger buildings require stronger
foundations.
The average delay in delivering projects
across the National Capital Region (NCR) and
Mumbai Metropolitan Region (MMR) between
2011 and 2014 has been 30 months and 20
months respectively. As per the bill, builders
will need to deposit 50 per cent of the money
collected from the buyers in an escrow account,
which will be used only for the project. The idea
is to check "serial builders", who use the money
raised for one project to buy more land and
launch newer projects.
Another aspect of the bill is that real estate
agents will be regulated and are liable to be
punished for misdeeds. Stories of brokers
misleading buyers are common.
All these measures to promote consumer
interests will increase the market confidence.
This will enable the sector to access capital and
financial markets essential for its long term
growth. It will also promote orderly growth
through consequent efficient project execution,
professionalism and standardization.
These measures are expected to boost
domestic and foreign investment in the sector
and help achieve the objective of the
Government of India to provide Housing for All

CL May

also be looked as in many cases they do not


fulfil their obligation relating to trunk
infrastructure even after the completion of the
project. Since project delays are often caused
by rent-seeking from approving authorities, the
performance of these should be examined by
the authority, with powers to fine or jail people
for lapses.
Developers must open separate bank
accounts for each project, in which 50 per cent
of the amount received from customers must
be deposited, with an undertaking by the
developer that these will be used only for cost
of construction. It is not clear whether cost of
land counts as cost of construction.
Further, In cities like Mumbai, the
construction cost comes to only around 20-30
per cent of the project cost and the land cost
goes up to 60-70 per cent. So if the 70 per cent
of receivable from the home buyer is kept in the
escrow account for construction, then it
amounts to blockage of funds, which is
undesirable
The Bill does not recognize that the promoter,
the agent and the allottee are not the only
three players in the project. This chain includes
the landowner, an attorney who investigates
titles, the developer, the architect, the
structural engineer, the approving authority,
the contractor, the project manager who
supervises construction, the agent and the
purchaser. Registering only the developer and
the real estate agent, and their projects, and
expecting that this registration will bring about
transparency and solve all problems, is too
naive.
The reform of the sector on ground is the
difficult part. Every state has a different set of
rules and regulations for real estate. And
financial contributions from builders fund a

56

by 2022, through
participation.

enhanced

private

The real estate sector is increasingly seeing


corporate interest. In recent times, several
large business groups like Tata, Godrej,
Mahindra and Bharti have entered the
business. Having a regulator is thus important.

large number of political campaigns. As a result,


there appears to be no urgency in any state to
reform the sector.

GPkaFunda
The Bill is a critical as it aims to regulate a critical sector of economy. Real Estate sector is important not
just from the present point of view that it significantly contributes to GDP; it is also important from future
point of view, as India embarks on the path of urbanization and seeks to provide good quality of life to its
citizens
in
urban
areas.
The bill is mostly able to achieve exactly that. It has some novel and progressive features to promote the
consumers interests like transparency about the project details, regulation of agents, the feature of
escrow account to check delays, etc. The regulatory architecture, given in the bill, is perhaps its most
important aspect; not just to protect consumer interest but developer's interests as well.
At the same time, the bill does have its misses. And one of the most critical miss is that the bill fails to
improve 'Ease of doing Business' in the real estate sector. The bill has absolutely nothing to regulate the
conduct of various government authorities and agencies that play an important role of giving permissions,
clearances,
developing
infrastructure.
Despite the concerns, the Bill does indeed create confidence in the market for real estate. It sets the stage
for ushering in many more credible domestic corporates and also gives comfort to foreign investors. It is
the necessary step forward for the long term growth of the sector.
Economic survey - 4. Focus on National Agriculture market & climate change Imperative
The Moot Point
The Economic Survey is the flagship annual document of the Ministry of Finance, Government of India.
The Survey reviews the developments in the Indian economy over the previous 12 months, summarizes
the performance on major development programmes, and highlights the policy initiatives of the
government and the prospects of the economy in the short to medium term.
In essence, it is a treasure trove for any student of economics or a student preparing for exams like Civil
Services. In this series of articles on Economic Survey 2014-15, we are discussing the chapters on National
Agriculture Market and Climate Change Imperative.
THE CRITICAL ANALYSIS: CHAPTER - A NATIONAL MARKET FOR AGRICULTURAL COMMODITIES: SOME
ISSUES AND THE WAY FORWARD
Introduction
CL May

57
Presently, markets in agricultural products are regulated under the Agricultural Produce Market
Committee (APMC) Act enacted by State Governments. The result of the APMC Acts is that effectively,
India
has
not
one,
not
29
but
thousands
of
agricultural
markets.
These APMCs charge magnitudes and multiplicity of fees arising out of the operation. The levies and other
market charges imposed by states vary widely. They are a major source of market distortion. Also, such
high level of taxes at the first level of trading, have significant cascading effects on the prices. This acts as
a major impediment to creating national common market in agricultural commodities.
Model APMC Act
Since these State Acts created fragment markets (2477) for agricultural commodities and curtailed the
freedom of farmers to sell their produce other than through the commission agents and other
functionaries licensed by the APMCs, the Ministry of Agriculture developed a model APMC Act, 2003 and
has been pursuing the state governments for over a decade now to modify their respective Acts along the
lines of the Model APMC Act, 2003. The Model APMC Act:

provides for direct sale of farm produce to contract farming sponsors;

provides for setting up "Special markets" for "specified agricultural commodities" - mostly
perishables;

permits private persons, farmers and consumers to establish new markets for agricultural
produce in any area;

requires a single levy of market fee on the sale of notified agricultural commodities in any market
area;

replaces licensing with registrations of market functionaries which would allow them to operate
in one or more different market areas;

provides for the establishment of consumers' and farmers' markets to facilitate direct sale of
agricultural produce to consumers; and provides for the creation of marketing infrastructure from
the revenue earned by the APMC.

Inadequacies of Model APMC Act


The provisions of the Model APMC Act do not go far enough to create a national - or even state-level
common market for agricultural commodities. The reason is that the model APMC Act retains the
mandatory requirement of the buyers having to pay APMC charges even when the produce is sold directly
outside the APMC area, say, to the contract sponsors or in a market set up by private individuals even
though
no
facility
provided
by
the
APMC
is
used.
Further, though the model APMC Act provides for setting up of markets by private sector, this provision
is not adequate to create competition for APMCs even within the State, since the owner of the private
market will have to collect the APMC fees/taxes, for and on behalf of the APMC, from the buyers/sellers
in addition to the fee that he wants to charge for providing trading platform and other services, such as
loading, unloading, grading, weighing etc.
Alternative Ways of Creating National Market for Agricultural Commodities
CL May

58
The 2014 budget recognizes the need for setting up a national market and stated that the central
government will work closely with the state governments to reorient their respective APMC Acts to
provide for the establishment of private market yards/private markets. More steps may have to be taken
and incremental moves may need to be considered to get the states on board.

First, it may be possible to get all the states to drop fruits and vegetables from the APMC schedule
of regulated commodities; this could be followed by cereals, pulse and oil seeds, and then all
remaining commodities.

State governments should also be specifically persuaded to provide policy support for setting up
infrastructure, making available land etc. for alternative or special markets in private sector.

In view of the difficulties in attracting domestic capital for setting up marketing infrastructure,
particularly, warehousing, cold storages, reefer vans, laboratories, grading facilities etc,
liberalisation of FDI in retail could create the possibilities for filling in the massive investment and
infrastructure deficit which results in supply-chain inefficiencies.

THE CRITICAL ANALYSIS: CHAPTER - FROM CARBON SUBSIDY TO CARBON TAX: INDIAS GREEN
ACTIONS
Introduction
The recent steep decline in international oil prices is seen by many as an opportunity to rationalize the
energy prices by getting rid of the distorting subsidies whilst shifting taxes towards carbon use.
The recent measures by the Government of India to decontrol diesel prices while at the same time
increasing excise duty on petrol and diesel periodically to match the declining global prices reflects a
proactive stance in this direction.
Excise Duty on Petrol and Diesel as an Implicit Carbon Tax
Excise duties on petrol or diesel also act as an implicit carbon tax-by putting an effective price on
emissions. In addition to serving as a carbon tax, an excise on petrol and diesel may, of course, also price
other externalities associated with burning petrol or diesel. This includes congestion costs (from using
vehicles), noise and local air pollution (of various forms) which can be deeply damaging for health.
One cannot off course understate their role in raising substantial revenues for social redistribution
One can potentially estimate the carbon tax equivalent of excise duty increases in India and thereby
calculate CO2 emission reduction benefits. This is especially important in the context of global efforts to
deal with climate change where India as the third largest emitter of GHG emission is often looked upon
to
contribute
to
the
efforts
by
taking
on
a
target.
The striking feature is that India has moved from a carbon subsidization regime to one of significant carbon
taxation regime.
Translating Coal Cess into a Carbon Tax
Recently, the Government of India revised its coal cess from Rs. 50 per ton to Rs. 100 per ton. Translating
this into a carbon tax equivalent suggests that the carbon tax is around US$ 1 per ton.
Conclusions and Key Messages
CL May

59

India has cut subsidies and increased taxes on fossil fuels (petrol and diesel) turning a carbon
subsidy regime into one of carbon taxation.

This has significantly increased petrol and diesel price while reducing annual CO2 emissions.

But there is still a long way to go with potential large gains still to be reaped from reform of coal
pricing and further reform of petroleum pricing policies.

On the whole, the move to substantial carbon taxation combined with India's ambitious solar
power program suggests that India can make substantial contributions to the forthcoming Paris
negotiations on climate change.

India's Demographic Dividend - 4.The Challenge of Skill Development


The Moot Point
India's Demographic Dividend has been a global talking point for quite some time. While the whole
world is aging, India has a significant percentage of population in the young age category. This has
heightened the prospects for not just India but the entire world. While India sees the demographic
resource to aid its economic development, the world sees it as a huge market and potentially global
workforce.
The critics however say that India's demographic potential is highly overemphasized. They point to the
abysmal standards of education, human development, and job creation in the country. According to
them, it is not demographic dividend but a demographic disaster waiting to happen.
While the critics concerns may be genuine, none can discount the potential of India's demographic
resources. Couple this with strong urge of India and its current government to get over the ghosts of
past and make a new beginning, and we have 'Demographic Dividend'.
In the third article of the series on Realizing India's Demographic Dividend, we are discussing the
challenge of skill development.
THE CRITICAL ANALYSIS
Importance of Skill Development

For a country that adds 12 million people to its workforce every year, skill development is critical
to enable the workforce to access quality work opportunities.

As more workforce leaves the agricultural sector to seek work in other sectors, skill development
is the only way to make the largely uneducated workforce capable of realizing benefits from the
labor market.

The challenge is accentuated by the fact that, only 10% of the Indian workforce has formal training
in the form of higher education, technical education or vocational training. India currently has an
annual training capacity of 4.3 million, which is less than 20% of the industry requirement of 22
million skilled workers a year.

Skill development is also important for the growth of manufacturing sector in India. In India, an
important distinction must be made between unregistered (or informal) manufacturing and
registered manufacturing. The productivity and dynamism of the former is considerably less.
Thus, only skills led manufacturing is capable of being transformative.

CL May

60
Challenges of Skill Development
Role of Central Government

The existing institutional structure consists of a plethora of agencies with overlapping and
conflicting priorities. The governments own estimates reveal that currently, skill development
efforts are spread across approximately 20 separate ministries, and 35 state governments and
union territories. This creates the problem of coordination, regulation, enforcement.

The training infrastructure for imparting technical and vocational skills is woefully inadequate. In
terms of current capacity, it is estimated that various publicly funded organizations produce 3.5
million trained personnel per annum against the 12.8 million new entrants into the workforce
each year. In addition, the infrastructure in the skill development sector today is largely
government-owned while private sector investment hasnt been incentivized.

The government has been funding private skills/ training providers to impart market-driven skills
to the target group. The support to the private sector to enable skill development has been devoid
of terse quality protocols. The governance, management, quality assurance and monitoring
frameworks are at variance across various skill development schemes.

Even for similar types of skills or trades, provisions differ in terms of target groups, per-trainee
cost, duration, curriculum, pedagogy, competency testing and certification systems. Skills gap
analysis is yet to be institutionalized as a process that informs the design and implementation of
skill development programmes.

The government is yet to develop a central system for tracking outcomes. There are no central
checks to verify whether placements reported are accurate, no monitoring system to see what
wages are earned or whether jobs are commensurate with training and aspirations.

Linkage between Skill Development and Market Demand

In terms of growth in the rural non-farm sector, skill development in rural areas was seen to
provide in situ opportunities of employment for youth. However, skills training at present is
largely confined to urban locations (at best district headquarters) and industrially advanced
regions within states.

Also, the focus of vocational training offered in India is badly mismatched with the needs of casual
workers who constitute 90% of the labour force. Even the Central governments findings estimate
that the construction sector is likely to create over six times more jobs than the information
technology and related services sectors by 2022. Yet the policy focus - particularly at the state
level - has generally prioritized information technology, which is perverse in the extreme.

Linkage between Training and Employment

CL May

With no emphasis on imparting marketable skills and poor linkages between training and posttraining employment, there have been few improvements in the labour market outcome of
training in terms of improved earnings. In practice, even if employment were assured under
certain schemes, the tenure of employment provided was not sustainable.

61
Approach of Skill Development

Some experts point out that there are huge drawbacks in the governments approach to skill
development. A vast majority of skill development programmes are structured in a similar
manner: the government funds almost the entire training and incidental costs. Students may pay
a token amount and the industry pays nothing. Typically, programmes entail just two-three
months of classroom training and have a minimum-placement clause of around 70% of students
trained. If placement targets arent met, training providers stand to lose money. This approach
has three implications.

One, given short training duration, and absence of industry exposure, training providers are
unable to meaningfully improve the candidates skills. Hence employers see very little value-add
in training, and essentially view training companies as manpower sourcing agencies. Naturally,
they arent willing to offer higher pay to a trained candidate versus an untrained one.

Second, as students dont see any immediate monetary gain in spending time or money attending
a skills course they do not aspire for such courses or jobs.

Finally, given the placement requirement and limited budgets, training companies end up
focusing more on so-called easier sectors-such as retail, hospitality, domestic business process
outsourcing (BPO), etc., and less on critical sectors such as manufacturing and technical services.

Participation of Private Sector

More fundamentally, the government is placing too much responsibility on itself and training
providers and too little on employers and students. This is the crucial difference between the
Indian approach and the one used by the worlds most successful vocational training systemin
Germanyin which employers fund the bulk of the programmes cost through an
apprenticeship-based system.

While the primary focus of skill development is essentially towards private sector employment
and entrepreneurship, the private sector itself has not geared up for the challenge. The World
Bank Enterprise Surveys 2014 reveal that the percentage of firms offering formal training
programmes for its permanent, full-time employees in India is just 35.9, compared to Chinas 79.2.

Participation of State Governments

Almost all skill development programmes are implemented by respective departments at the
state level and, inter alia, through their nodal agencies at the district level. Viewed from this
perspective, it is safe to conclude that unless convergence is concurrently taking place at the state
level, its full benefits at the aggregate level may not reach target groups.

GPkaFunda
The Bill is a critical as it aims to regulate a critical sector of economy. Real Estate sector is important
not just from the present point of view that it significantly contributes to GDP; it is also important
from future point of view, as India embarks on the path of urbanization and seeks to provide good
quality
of
life
to
its
citizens
in
urban
areas.
CL May

62
The bill is mostly able to achieve exactly that. It has some novel and progressive features to promote
the consumers interests like transparency about the project details, regulation of agents, the feature
of escrow account to check delays, etc. The regulatory architecture, given in the bill, is perhaps its
most important aspect; not just to protect consumer interest but developer's interests as well.
At the same time, the bill does have its misses. And one of the most critical miss is that the bill fails to
improve 'Ease of doing Business' in the real estate sector. The bill has absolutely nothing to regulate
the conduct of various government authorities and agencies that play an important role of giving
permissions,
clearances,
developing
infrastructure.
Despite the concerns, the Bill does indeed create confidence in the market for real estate. It sets the
stage for ushering in many more credible domestic corporates and also gives comfort to foreign
investors. It is the necessary step forward for the long term growth of the sector.
Urbanization in India - 3.Real Estate Bill
The Moot Point
Some interesting reforms are underway in various sectors of economy. One such sector is the Real
Estate Sector. The real estate development and housing construction was largely the concern of State
institutions till the 1980s with very few private promoters and a nascent industry. With the
liberalization of the economy, conscious encouragement was given to the growth of the private sector
in construction, with a great deal of success, and the sector today is estimated to contribute
substantially
to
the
countrys
GDP.
However, the real estate and housing sector, at present, is largely unregulated and opaque, with
consumers often being unable to procure complete information, or to enforce accountability against
builders and developers in the absence of effective regulation. This is a matter of concern not just for
the consumer, but the sector at large. Increasing the confidence in the market is critical to the long
term growth of the sector. Is the bill able to achieve that, let us find outThe Cheatsheet
The salient features of the Real Estate (Regulation and Development) Bill, 2013 are :

Applicability of the Bill : The proposed Bill is applicable to both residential and commercial real
estate

Establishment of Central Advisory Council: To advise the Central Government on implementation


of the Act, recommend policy, protection of consumer interest and to foster growth and
development of the real estate sector;

Establishment of Real Estate Regulatory Authority : Establishment of one or more Real Estate
Regulatory Authority in each State/ Union Territory (UT) . The Authority to act as the nodal agency
to co-ordinate efforts regarding development of the real estate sector and render necessary
advice to the appropriate Government to ensure the growth and promotion of a transparent,
efficient and competitive real estate sector;

CL May

63

Registration of Real Estate Projects and Registration of Real Estate Agents: Mandatory
registration of real estate projects and real estate agents who intend to sell any plot, apartment
or building, with the Real Estate Regulatory Authority;

Mandatory Public Disclosure of all project details: Mandatory public disclosure norms for all
registered projects such as details of promoters, project, layout plan, plan of development works,
land status, status of statutory approvals and disclosure of proforma agreements, names and
addresses of real estate agents, contractors, architect, structural engineer etc.;

Functions and Duties of Promoter:


1. Disclosure of all relevant information of project;
2. Adherence to approved plans and project specifications;
3. Obligations regarding veracity of the advertisement for sale or prospectus;
4. Rectify structural defects;
5. Refund money in cases of default;

Compulsory deposit of 50 percent: To compulsorily deposit 50 percent (or such lesser percent as
notified by the Appropriate Government) of the amounts realized for the real estate project from
the allottees in a separate account in a scheduled bank within a period of fifteen days to cover
the cost of construction to be used for that purpose;

Functions of Real Estate Agents:


1. Real estate agents to sell properties registered with the Authority;
2. Maintain books of accounts, records and documents;
3. Not to involve in any unfair trade practices;

Fast Track Dispute Settlement Mechanism:


1. Fast track dispute resolution through adjudicating officers (District Judge);
2. Appellate Tribunal to hear appeals;

Establishment of Real Estate Appellate Tribunal: Real Estate Appellate Tribunal to hear appeals
from orders of the Authority and the adjudicating officer. The Appellate Tribunal is to be headed
by a sitting or retired Judge of the High Court, with one judicial and one administrative/technical
member;

Punitive Provisions: Punitive provisions including de-registration of the project and penalties in
case of contravention of provisions of the Bill or the orders of the Authority or Tribunal;

The Critical Analysis


Pro-View

CL May

Anti-View

64

The Bill ensures mandatory disclosure by


promoters
to
customers
through
registration of real estate projects and real
estate agents with the Real Estate
Regulatory Authority. It aims at restoring
confidence of the general public in the real
estate sector; by instituting transparency
and accountability in real estate and
housing transactions.
The passing of the Bill will see
establishment of regulatory bodies at the
State and Central levels, making it possible
for the consumers, to get grievances
addressed through established and
institutionalized process.
If a builder wants to alter the design or the
structure of the project he will need to take
the consent of at least two-thirds of the
buyers. This has been prompted by recent
cases where builders were found guilty by
the courts of building extra floors on their
own. Not only is the practice unfair to the
early round of buyers, who had assumed
that they would share the common
infrastructure with a certain number of
people, but also a safety hazard because
taller and bigger buildings require stronger
foundations.
The average delay in delivering projects
across the National Capital Region (NCR)
and Mumbai Metropolitan Region (MMR)
between 2011 and 2014 has been 30
months and 20 months respectively. As per
the bill, builders will need to deposit 50 per
cent of the money collected from the
buyers in an escrow account, which will be
used only for the project. The idea is to
check "serial builders", who use the money
raised for one project to buy more land and
launch newer projects.

CL May

The developers are not very happy with


the bill. They feel the new regulatory
provisions obsessively target them only
while other concerned authorities are not
even addressed. Specifically, they would
like states to set-up a single-window
clearance system for some 50 projectrelated approvals. Authorities also need to
commit that all infrastructural linkages will
be provided, for which external
development charges are paid to local
authorities.
While the developer has to be penalized
for issues relating to him, the authoritys
role must also be looked as in many cases
they do not fulfil their obligation relating to
trunk infrastructure even after the
completion of the project. Since project
delays are often caused by rent-seeking
from
approving
authorities,
the
performance of these should be examined
by the authority, with powers to fine or jail
people for lapses.
Developers must open separate bank
accounts for each project, in which 50 per
cent of the amount received from
customers must be deposited, with an
undertaking by the developer that these
will be used only for cost of construction. It
is not clear whether cost of land counts as
cost of construction.
Further, In cities like Mumbai, the
construction cost comes to only around 2030 per cent of the project cost and the land
cost goes up to 60-70 per cent. So if the 70
per cent of receivable from the home buyer
is kept in the escrow account for
construction, then it amounts to blockage
of funds, which is undesirable

65

Another aspect of the bill is that real


estate agents will be regulated and are
liable
to
be
punished
for
misdeeds. Stories of brokers misleading
buyers are common.
All these measures to promote consumer
interests will increase the market
confidence. This will enable the sector to
access capital and financial markets
essential for its long term growth. It will
also promote orderly growth through
consequent efficient project execution,
professionalism and standardization.
These measures are expected to boost
domestic and foreign investment in the
sector and help achieve the objective of the
Government of India to provide Housing
for All by 2022, through enhanced private
participation.
The real estate sector is increasingly
seeing corporate interest. In recent times,
several large business groups like Tata,
Godrej, Mahindra and Bharti have entered
the business. Having a regulator is thus
important.

The Bill does not recognize that the


promoter, the agent and the allottee are
not the only three players in the project.
This chain includes the landowner, an
attorney who investigates titles, the
developer, the architect, the structural
engineer, the approving authority, the
contractor, the project manager who
supervises construction, the agent and the
purchaser. Registering only the developer
and the real estate agent, and their
projects, and expecting that this
registration will bring about transparency
and solve all problems, is too naive.
The reform of the sector on ground is the
difficult part. Every state has a different set
of rules and regulations for real estate. And
financial contributions from builders fund a
large number of political campaigns. As a
result, there appears to be no urgency in
any state to reform the sector.

GPkaFunda
The Bill is a critical as it aims to regulate a critical sector of economy. Real Estate sector is important
not just from the present point of view that it significantly contributes to GDP; it is also important
from future point of view, as India embarks on the path of urbanization and seeks to provide good
quality
of
life
to
its
citizens
in
urban
areas.
The bill is mostly able to achieve exactly that. It has some novel and progressive features to promote
the consumers interests like transparency about the project details, regulation of agents, the feature
of escrow account to check delays, etc. The regulatory architecture, given in the bill, is perhaps its
most important aspect; not just to protect consumer interest but developer's interests as well.
At the same time, the bill does have its misses. And one of the most critical miss is that the bill fails to
improve 'Ease of doing Business' in the real estate sector. The bill has absolutely nothing to regulate
the conduct of various government authorities and agencies that play an important role of giving
permissions,
clearances,
developing
infrastructure.
CL May

66
Despite the concerns, the Bill does indeed create confidence in the market for real estate. It sets the
stage for ushering in many more credible domestic corporates and also gives comfort to foreign
investors. It is the necessary step forward for the long term growth of the sector.

CL May