Indian Economy, 5th edition (113 page)

Q. 15 Write a note on the benefits of the VAT to the Indian economy.

Ans.
Value Added Tax (VAT) is an indirect tax to be collected at all those points where value is added to a product. It has the following positive impacts on the economy:

(i)
Due to differentiation among states regarding the rates of the Sales Tax, India was having differentiated market prices, this tax will bring in ‘uniformity’ in the market.

(ii)
Since this tax is imposed at different points of the value addition chain, it does not impose tax upon tax; that’s why there won’t be any ‘cascading effect’ of tax on inflation.

(iii)
t
his will automatically check the evasion of the sales tax.

(iv)
This is a pro-poor tax without being anti-rich.

(v)
This will enhance production levels as prices go down and cousumption increases.

(vi)
Supportive to the economic growth.

(vii)
It will increase the tax revenue of the states.

(viii)
It will become easier to attain fiscal responsibility for the economy.

Q. 16 Write a note on the prospects and challenges to Indian agriculture in the WTO regime.

Ans.
As the provision of the WTO came into effect, experts rightly visualised great prospects and at the same time some serious challenges for the Indian agriculture sector. As far as the extent of the prospects are concerned, immense export potential is visible in the following areas:

(i)
Cotton textile, yarn, readymade garments, etc.

(ii)
Agricultural products, cereals, fishery products, and forest goods.

(iii)
Processed foods, beverages, and soft drinks. A joint projection of the OECD and the GATT did put an increase in the world merchandise trade by $745 billion upto 2005 once the WTO provisions get implemented. As per the projection, 99 per cent of this trade almost falls in the agriculture sector. As India has been an agrarian economy and enough prospects for agricultural expansion are possible, it can encash this opportunity (NCAER survey supported this in 1993–94).

We may see the possible major challenges in the WTO regime:

(i)
Food self-sufficiency:
As cheaper food-grains will have unrestricted flow into India, we might become almost dependent upon import supplies for our food requirement–our self-reliance is badly threatened.

(ii)
Price-stability:
The price stability aspect of agricultural products, specially the sensitive foodgrains, will be in great risk as fluctuations in the imports are natural (agriculture being highly prone to weather and the climatic variations) hurting the poor people.

(iii)
Cropping pattern:
Cropping pattern of India might go in for a major shift in favour of the profitable crops threatening the fragile ecosystem and the balance of biodiversity.

All the above given challenges could be dealt with the suitable type of timely agricultural and trade policies—but WTO provision does not give such kind of sovereign choices to its member countries. It means we need to go for flexibility in the provisions of the WTO.

(iv)
Weaker Sections:
Weaker sections of the society will again miss the train of globalisation for their upliftment as the process of globalisation is not neutral to area, crop, and the individual. We will need a more focussed distributive kind of economic policies to do it.

(v)
Commitments towards the WTO:
Our agricultural subsidy cannot cross the 10 per cent mark of the agricultural GDP, any year. Though this is still not alarming, the higher subsidies forwarded by the USA and the EU is diluting the competitiveness of Indian agricultural goods—the ‘Blue Box’ and the ‘Green Box’ subsidies need redefinition immediately.

Conclusion:
Visualising the emerging challenges to the agriculture sector of the developing countries, like-minded nations came together (G-22) and tried to go for a justified change in the provisions of the WTO—Seattle, Doha, Cancun, and Hong Kong. Agriculture was the most important issue because of which the important ministerial conference at Seattle failed. At the Hongkong conference in December 2005, an agreement on the withdrawal of agricultural subsidies by the Euro-American countries came as a help. The 7th WTO Ministerial meeting held in Geneva from November 30–December 3, 2009 provided for different groups and caucuses to access the direction of the negotiations.

Q. 17 ‘Hedge funds and black money in India’s economy look intertwined’. Comment.

Ans.
Hedge Funds are privately owned huge external funds with swift movement tendencies dedicated to minimise the financial risks of external investments. Every economy with high growth rate as well as a vibrant stock market is a possible destination for it. As per a recent IMF report, such funds together amount to over $1500 billion. Attractive foreign investment policies of the countries are the main reasons for their inflows, provided there is liberal outflow policies too.

In the case of India, these funds have been blamed to generate black money, by the experts. The government has also taken steps to reign them. The main instrument via which these funds look intertwined with the generation of black money in India has been the ‘participatory notes’ (PNs) through which a FII may invest into India’s share/stock market without disclosing the source of the funds to the SEBI. Similarly, Overseas Derivative Instruments (ODIs) are other routes frequently used by the ‘Hedge funds’ to channelise black money into India, which are kept overseas in major tax-havens. Finally, these funds are not only giving Indian black money a legal re-entry, but also a route to finally exit India.

Q. 18 Write a note on the role of the states in the ongoing process of economic reforms.

Ans.
Economic reforms started in 1991–92, but the benefits to the states and the masses looks unbalanced.

Reasons and Solutions

•
Due to the special federal structure of India, economic reforms though well-started by the Union, could not be complemented by the states.

•
A certain degree of working and effective political and financial autonomy are desirable for the states so that they may move towards reaping the fruits of the reform process.

•
Lack of political coordination as well as cooperation between the goverments at the Centre and the states.

•
Process of reform should have been initiated by the states and facilitated/supported by the Centre (Union Budget 2002–03 already announced it for future reform).

•
The design and centralising nature of the Planning Commission need a change in favour of greater participation from the states so that the deteriorating regional disparities in the reform period (over one and half decades) could be checked (such a change was initiated with the tenth Plan).

•
Panchayati Raj Institutions (PRIs) should be given effective powers by the states so that the benefits could reach the masses via mass participation.

•
Streamlining of the rules and regulations from the Centre to the states.

•
Better governance, check on the menace of corruption, legal reforms, infrastructure support, etc.

•
The Twelfth Finance Commission has provided the states greater financial leverage by allowing market borrowings for their plan development.

•
The implementation of the VAT has opened better prospects for tax collections by the states—to be boosted once the GST (goods and services tax) gets implemented.

•
The Eleventh Plan has made it compulsory for the states to make their PRIs a working entity for fund devolution for the development of local areas.

•
Providing gainful employment to the labour force over the plan period.

Q. 19 Write a note on the situation and importance of the Private Remittances for India.

Ans.
As per the report of UNDP, by end-2010, Indians were the second biggest diaspora, estimated at 25 million and among the largest ‘sending’ nations in Asia. Not only now, the ‘private remittances’ (PRs) of India was of crucial importance in the former decades after the Independence. Since then, it has gone swelling every year, with a major jolt to it in the early 1990s due to the Gulf war. As the Gulf became less attractive, the rise of the IT industries saw a major acceleration in PRs with Indian expatriates joining this emerging labour force is a big way.

As per the laterst data provided by the IMF/WB in 2013, India received the highest PRs in the world totalling to $57 billion (China being 2
nd
at $53). Its importance for India could be seen as given below:

(i)
The value of the PRs today stands at one sixth of its total foreign exchange reserves.

(ii)
India is able to promote and Sustain its huge current account deficit (2.5 per cent of GDP, now) with comfort.

(iii)
Indian diaspora not only plays a vital monetary role for India, but they gave a relative edge to Indian diplomacy too.

(iv)
They play a major role in India’s emerging economic diplomacy. Looking at their importance, the GoI in recent years has become more concerned about the welfare of its diaspora.

Q. 20 Discuss the challenges related to providing universal healthcare in India.

Ans.
Health indicators of India have been always low due to many resons and they still remain a matter of great concern for the GoI and UN bodies. Despite higher economic growth, India fares poorly when compared to countries like China and Sri Lanka in term of parameters like per capita expenditure on health, number of physician/hospital beds and IMR. In addition, within the country, the improvement has been quite uneven across regions/states, gender, rural/urban areas, etc. The health system in India is a mix of the public and private sectors, with the NGO sector playing a small role. In providing universal healthcare, the country faces the following challenges:

Physical challenges
are related to having adequate number of trained personnel, hospitals and other infrastructure. The centre and state need active participation from the private sector and the NGOs.

Economic challenges
are related to the mobilisation of funds to meet the physical challenges at one hand, while on the other, delivering the required medical services to the needy people.

Universal health insurance
is under consideration with government supported premium payment.

Government plans to promote the private sector and NGOs in its preperation for putting the right kind of physical set up while the delivery is to be taken care via the UID based insurance smart cards. Planning Commission has targeted to increase health expenditure to 2-3 per cent of GDP in the 12
th
Plan (from 1 per cent of GDP of the 11
th
Plan). However, sceptics doubt the efficacy of the smart card-based healthcare delivery due to information divide in the country.

Q. 21 Examine India’s food security in light of the record foodgrain production is 2010-11.

Ans.
India has achieved a record foodgrain production of 241 million tonnes (MT) in the 2010-11 crop year with record production in wheat, maize and pulses. This has really encouraged the hope of attaining food security for the country. We may analyse it as given below:

(i)
India’s population growth rate at present is 1.76 per cent (as per the provisional data of census 2011) while its foodgrain growth rate is just at about ‘one per ent per year (since 1996-97). It put a pressure of 0.76 per cent per year on production of the foodgrains.

(ii)
As per the latest data released by the Governement of India, by 2020-21 the country will need a total of 281 MT of food grains for its consumptuion – it is only possible once we are able to achieve a 2 per cent annual growth rate in foodgrain production.

(iii)
Once the Universal Right to food becomes effective, the real pressure on the physical availability of foodgrain will start showing up.

(iv)
Scarcity of foodgrains has been a major reason for their price rise in the recent years, as with increasing income, there is increased demand of food grains from the newer population of the country.

In the process of attaininy food security the Government is going for a multi-dimensional approach:

(i)
second green revolution with emphasis on plant protection, organic farming, new seeds, use of bio-tech, etc.

(ii)
promoting contract and corporate farming.

(iii)
Action and policies regarding the effects of climate change on agriculture.

(iv)
Marketing and distribution reform.

(v)
Targeting agricultural subsidies in a right way.

(vi)
Promoting agricultural research through private-public participation.

(vii)
Trying to make farming a remunerative profession.

Q. 22 Write a note on the strategy of monitorable development targets initiated by the Eleventh Five-Year Plan.

Ans.
The 11
th
Plan (2007–12) has identified 27 targets at the national-level related to income and poverty, education, health, women and children infrastructure and environment, whereby 13 of the 27 targets, which are easy to monitor, have been set for the states (after due consultations with them). The strategy of setting such development targets is supposed to serve the following purposes to the economy:

(i)
It will prevent the Plan faltering from its desired goals and help the Centre to achieve the objectives contained in the National
c
ommon Minimum Programme (NCMP);