GOODS & SERVICES TAX ( GST)

By: Vashistha Ray
There has been an inordinate delay in moving towards a new era of indirect –tax regime. The new indirect –tax system, called GST, is expected to open a window of opportunity of growth and prosperity.
 The introduction of the GST would be a milestone in the field of indirect tax reforms in India. By subsuming a large number of central and state taxes into a single tax, it would mitigatecascading or double taxation in a major way and pave the way for a common national market.
       From the consumer’s point of view, the biggest advantage would be in terms of a reduction in the overall tax burden on goods and services. For instance, if we go to a restaurant now, we bear the burden of sales tax (VAT) as well as service tax. After the introduction of GST we would be required to pay a single -rate GST.
Introduction of the GST is also expected to make Indian products competitive in domestic and international markets. Studies show that this would instantly spur aggregatedemand and economic growth. Because of its transparent character, it is expected that the GST would be easier to administer.
The broad features of the proposed GST model are as follows:
(i)  GST would be applicable on supply of goods or services as against the present concept of tax on the manufacture (Exciseduty) or on sale of goods ( Sales Tax) or on provision of services( ServiceTax).
(ii) GST would be a destination-based tax as against the present concept of origin-based tax.
(iii) It would be a dual GST with the centre and the states simultaneously levying it on a common base. The GST to be levied by the centre would be called central GST (CGST) and that to be levied by the states would be called state GST (SGST).
(iv) An integrated GST(IGST) would be levied on inter-state supply (including stock transfers) of goods or services. This wouldbe collected by the centre so that the credit chain is not disrupted.
(v) Import of goods or services would be treated as inter-state supplies and would be subject to IGST in addition to the applicable custom duties.
(vi) A non-vatable additional tax, notexceeding 1 percent on inter-state supply of goods would be levied by thecentre and retained by the originating state at least for a period of two years.
(vii) CGST, SGST, and IGST would be levied at rates to be recommended by the Goods and Services Tax Council (GSTC) which will be chaired by the Union Finance Minister and will have Finance Ministers of states as its members.
(viii) GST would apply to all goods and services except alcohol for human consumption.
(ix)  GST on petroleum products would be applicable from a date to be recommended by the GST Council.
(x)  Tobacco and tobacco products would be subject to the GST. In addition, the centre could continue to levy central excise duty.
(xi) A common threshold exemption would apply to both CGST and SGST. Taxpayers with a turnover below would be exempt from GST. A compounding option (i.e. to pay tax at a flat rate on turnover without credits would be available to small taxpayers below a certain threshold.However, a taxable person falling within the limit of threshold or compoundingcould opt to pay tax at the normal rate in order to be part of the input taxcredit chain.
(xii) The list of exempted goods and services would be kept to a minimum and it would be harmonized for the centre and statesas far as possible.
(xiii  Exports would be zero-rated.
(xiv)Credit of CGST paid on inputs may be usedonly for paying CGST on the output and the credit of SGST paid on input may beused only for paying SGST. In other words, the two streams of input tax credit(ITC) cannot be cross utilized, except in specified circumstances ofinter-state supplies, for payment of (IGST).

Over the past four decades, the value added tax (VAT) has been an important instrument of indirect taxation, with 130 countries having adopted it, resulting in one-fifth of theworld’s tax revenue. Tax reform in many of the developing countries has focused on moving to VAT. FEDERAL COUNTRIES LIKE Canada, New Zealand, and Australia have successfully adopted the GST into their structure. Implementation of a comprehensive GST in India is expected, ceteris paribus, to lead to efficientallocation of factors of production thus bringing about gain in GDP andexports. This would translate into enhanced economic welfare and higher returns to the factors of production, viz. land, labour, and capital. However, in the near term, as GST replaces a number of state-level and central taxes, revenue gains may not be significant.

CONVERTIBILITY OF CURRENCY : EASY ACCESS TO FOREX

 Vashistha Ray

Convertibility of currency (Rupee) implies freedom to convert our currency into foreign currency at market exchange rate without limit and government permission. It means our freedom to buy foreign currency in any amount at market-exchange rate .it also implies our freedom to sell Indian rupee against foreign exchange. Under convertibility of currency, those who have foreign currencies can get them converted into Indian rupee and vice-versa at market rate of exchange.

                Convertibility of currency is necessary to promote foreign trade and capital flours among nations. Without convertibility of currency, foreign trade and capital flows can not take place among different countries of the world. It is also required t o promote tourism and movement of people across globe.

EXCHANGE CONTROL

Exchange control implies lack of freedom to convert our currency into foreign currency at market rate of exchange. It means restriction or prohibition on acquiring foreign exchange without government permission. Under exchange control, people are not allowed or allowed in a limited way to buy foreign currency at market exchange rate, what so ever the purpose may be.

                India pursued a policy of exchange control for a longer period of time, despite the fact that India had been one of the founding members of the IMF which aims to remove exchange control and promote multi-lateral payment system.

                In Pre-reform period (before 1991) the government exercised exchange control using FERA provisions and imposing restrictions as foreign trade and capital flows. Imports were controlled and imports of “unnecessary” goods were not allowed. All external payments had to be made through the authorized dealers of RBI and exports earnings had to be surrendered to RBI to obtain rupee in return.

                Exchange control was exercised by the government in order to prevent the wasteful uses of foreign currencies and put them to the purchase/ import of capital goods (plants & machines) from other countries, So that the production capacity of our economy could be augmented.

                However, the policy of exchange control made importers, exporters and general people miserable. Restriction  on imports deprived the citizen of the country of a variety of goods and services. Exporters had to give up their earned foreign currency to government at a very low value in exchange for rupee. And, the general people could not make frequent trips to foreign countries for want of foreign exchange.

PARTIAL CONVERTIBILITY OF THE RUPEE ON CURRENT A/C

During 1992-93, the Government of India introduced dual exchange rate system. Under this system:

(a)    The GOI accepted the existence of two exchange rates in the country- the official rate of exchange (which was controlled) and the market rate of exchange (which was free to move and fluctuate according to market conditions).

(b)   All foreign exchange earned either through exports or through remittances were allowed to be converted is the following manner.

-          60 percent of the export earning could be converted at the free market determined rate: and this amount could be freely used for current A/c transaction and payments (i.e for import of goods, remittances, trade etc.)

-          40 percent of the export earning should be sold to RBI through authorized dealers at the official rate of exchange; this amount of foreign exchange would be made available by RBI for financing preferred and bulk imports, such as plant & machinery.

The Introduction of dual exchange rate system paved the way for the partial convertibility of rupee. This enabled the exports to convert at least 60% of their export earning at the market rate of exchange which was much higher than the official exchange rate.

                Before the introduction of dual exchange rate system, all export earnings were required to be converted into rupee at official rate of exchange which was very low.

FULL CONVERTIBILITY OF THE RUPEE ON CURRENT A/C

The partial convertibility of the rupee boosted India’s exports and our foreign currency reserve increased from $5.8 billion to  $25.2 billion between 1990-91 and 1994-95.

                However, the incentive was not sufficient to promote exports and increase foreign exchange reserve to a significant degree. The existence of the partial convertibility of the rupee hurt exporters and Indians working abroad who had to surrender 40 percent of their earnings at the official rate which was lower that market rate.

                It was to remove this defect, the then Finance Minister Dr.Manmohan Singh announced full convertibility of rupee on trade account in March 1993 while presenting the budget for 1993-94.

                Full convertibility of Rupee on trade account implies that now Indian exporters and people working abroad could convert their 100 percent earning at market rate of exchange. It also means that these earning could be freely used for import payments. Importers could also convert Indian rupee in any quantity into foreign currency to make import payments without government permission.

                Full convertibility of rupee on trade A/c was a solid step towards full convertibility of the rupee on current A/c , which was announced by the GOI on 28^th Feb 1994. With the full convertibility of Indian Rupee on current A/c, now rupee has become fully convertible into foreign currencies for all current transactions such as export, import, foreign travel, education, medical expenses and remittances etc.

CONVERTIBILITY OF RUPEE ON CAPITAL A/C

Current A/c consists of all transactions of current nature such as export and imports of goods and services, foreign travel, education, medical expenses and remittances. Capital A/c consists of all financial transactions of long-term nature among countries of the world. It includes external lending or borrowing, inflows and outflows of FDI/FPI, NRI deposits etc. freedom to convert rupee into foreign currencies and vice-versa at market rate of exchange for these purpose is called convertibility of rupee on capital A/c.

                Thus, under capital A/c convertibility, those who bring in foreign capital to lend or invest in Indian market (FDI/FPI) can freely convert their currencies into Indian rupee. Likewise, interest, return or dividend earned through these investment can be converted back into foreign currencies and sent back to foreign countries. Indian people, institutions and firms can also freely convert Indian rupee into foreign currencies in order to invest or level in foreign countries.

BENEFITS: -

Convertibility of rupee on capital A/c removes all barriers on international flow of capital. Inflow and outflow of capital becomes rapid and frequent. The benefits of CAC can be listed as below:-

i.                     Availability of large funds to supplement domestic resources and there by promote economic growth.

ii.                   Improved access to international financial markets and reduction in cost of capital.

iii.                  Incentives for Indians to acquire and hold foreign securities & Assets.

PROBLEMS: - 

i.                     Convertibility of a currency makes it highly volatile. Further, operates by speculators make it more volatile. When a currency depreciates due to speculative activity, the confidence in the economy is shaken and this is capital flight from the country. Inflow of capital is also discouraged as due to depreciation of the currency profitability of investment in the economy is also adversely affected.

ii.                   Since market rate of exchange is higher than official exchange rate, imports of essential commodities become costlier.

iii.                  The real benefits of CAC in terms of more inflow of capital occur when currency is appreciated. But appreciation of currency leads of erosion in competitiveness of Indian exports, resulting in wider CAD.

CAPITAL ACCOUNT CONVERTIBILITY (CAC) : TARAPORE COMMITTEE (1997)

When the convertibility of the rupee on the current accou8nt was successful and when RBI accumulated over $25 billion forex reserves it was ready to take the next of India appointed in 1997 the Committee on capital account convertibility with Mr. S.S. Tarapore, former Deputy Governor of RBI, as its chairman. The Tarapore Committee defined CAC as “the freedom to convert local financial assets with foreign financial assets and vice-versa at market determined rates of exchange”.

PRECONDITIONS FOR CAC

                The Tarapore Committee recommended that, before adopting CAC, India should fulfill three crucial preconditions :

(i)                  Fiscal deficit should be reduced to 3.5 percent. The Government should also set up a consolidated sinking fund (CSF) to reduce Government debt.

(ii)                The Government should fix the annual inflation target between 3 and 5 percent – this was called mandated inflation target – and give ful freedom to RBI to use monetary weapons to achieve the inflation target.

(iii)               The Indian financial sector should be strengthened – for this, interest rates should be fully deregulated, gross non-paying assets (NPAs) should be reduced to 5 percent, the average effective CRR  should be reduced to 3 percent and weak banks should either be liquidated or be merged with other strong banks

A part from these three essential pre-conditions, the Tarapore Committee also recommended that :

(a)    RBI should have a monitoring exchange rate band of 5 percent around Real Effective Exchange Rate (REER) and should intervene only when the REER is outside the band;

(b)   The size of the current account deficit should be within manageable limits and the debt service ratio should be gradually reduced from the present 25 percent to 20 percent of the export earnings ;

(c)    To meet import and debt service payments forex reserves should be adequate and range between $ 22 billion and $ 32 billion ; and

(d)   The Government should remove all restrictions on the movement of gold.

The major difficulty with the Tarapore Committee recommendation was that it would like the CAC to be achieved in a 3 year period -1998 to 2000. The period was too short and the pre-conditions and the macroeconomic indicators could not be achieved in such a short period.

        Basically, the committee failed to appreciate the political instability in the country at that time, and the complete absence of political will and vision to carry forward the process of economic reforms and economic liberalization. The outbreak of Asian financial crisis at this time was also responsible for shelving the recommendation of Tarapore Committee.

SECOND TARAPORE COMMITTEE ON FULLER CAPITAL ACCOUNT CONVERTIBILITY

                RBI constituted the “Committee on fuller Capital Account convertibility” with S.S Tarapore again as chairman. The Tarapore Committee submitted its report in September 2006 (more commonly called the Second Tarapore Report or Tarapore II).

RECOMMENDATIONS

                As a fresh move, the Tarapore II has made many important recommendations.

                The Tarapore II contends that capital outflows by residents, corporate and banks are a strong confidence building measure but at the same time the Committee asserts that net inflows should not drop. In this connection, the Tarapore II has suggested that :

(a)    The distinction between non-resident Indians (NRIs) and foreigners be narrowed down;

(b)   Foreign corporate to be allowed to invest in Indian equity and debt; this will  help to deepen the Indian stock market ;

(c)    Multilateral institutions and corporate to be allowed to raise Rupee Bonds in India subject to overall upward mobile ceiling ;

(d)   Liberal external commercial borrowings to be  permitted by corporate (i) with the removal of cap on 10 year loans and (ii) raising the automatic approval of such loans to $ 1 billion by 2011;

(e)    Import-linked short term loans should be monitored in a comprehensive manner; however, the over-all limit of external commercial borrowings (ECB) should be gradually raised but keeping (i) the cap 4 18 billion, and (ii) automatic approval limit of up to $ 500 million for an entity for the year 2006-07.

These suggestions were accepted and were being implemented by the RBI and Finance Ministry. However, Tarapore II has made two radical suggestions, which may be accepted by RBI but may be rejected by the Finance Ministry. They are:

Ban Participatory Notes (PNs)

Discriminating Treaties Should Go

Even nine years after the submission of Tarapore II committee report, capital account convertibility is yet to see the light of the day. We have only partial convertibility of Rupee on capital account. However, with the RBI Governor Raghuram Rajan and minister of finance for states Jayant Sinha advocating for its early implementation, a new hope has been rekindled. Is India really ready for integrating herself with the rest of the world through CAC?

Vashistha Ray.

RATIONALE FOR RATE-HIKE BY FED

Vashistha Ray

Would Federal Reserve, the central bank of the U.S, raise its policy rate sooner than expected? This is difficult to answer and no unanimity can be reached on this. Some believe that time is not ripe enough for the Fed to execute the rate-hike and it would hold on till September; while others find it imminent.

The rate-hike expectation led stock markets across Asia to crash on Monday. The expectation of rate-hike gained momentum after the latest data from the U.S last week showed that unemployment rate had fallen to 5.5% which is the lowest since May 2008. A selling- spree of stocks was seen following this report which resulted in tumbling of markets across Asia.

Indonesia’s Jakarta Composite, Taiwan’s Taiex and South Korea’s Kospi each declined by 1%. Benchmark indices of Indian stock market also fell by 2.1%. The 30-share Sensex lost 604.17 points to close at 28,844.78 while the broader Nifty declined 181 points to 8756.75. Monday fall was the highest in Indian stock market Since January 6.

The expectation –led crash of stock markets left the policy makers off- guard and they could do little to salvage the market. However, the development has sent a note of caution to them. They are now discussing a course of action that could be taken to protect the economy and market when expectation of rate-hike materializes and consequent capital flight to the U.S from Asian countries starts. The Governor of R.B.I Raghu Ram Rajan has also expressed his concern over this issue.

To what extent the fear or expectation of rate-hike by the Fed is justified?

Most of the major economies of the world such as Euro-zone, Japan and China are in recession. They are implementing expansionary monetary policy to spur growth and employment. The European Central Bank launched its pre-announced Quantitative-Easing (QE) program whereby it intends to purchase government bonds of euro-zone countries worth 60 billion euro each month. The exercise would continue till September,2016 when the target of bond purchase worth 1.1 trillion euro is achieved. Interest rate in Japan is already near zero per cent and it further intends to ease money supply in order to tackle its long-drawn recession. Chinese economy is also in trouble. Employment, export, and aggregate demand are sagging. Sentiments of investors are gloomy. People’s Bank Of China has thus decided for a monetary easing. Besides these economies, policy rate cut has been seen in various countries of the globe including India, Australia and Indonesia in recent past.

In such a time when the U.S economy is surrounded by a host of under-performing economies, any decision with regard to rate-hike may spell trouble for the economy. The move would appreciate the already over-valued greenback and raise the prices of American goods and services relative to her trade-partners. This would leave American goods less competitive in world market. With her trade-deficit rising each year, the U.S could ill-afford to hike the rate.

The major deterrent could be from ‘new normal’ of china which shifts focus of the government to structural reforms from growth. Apart from the largest exporter of the world, China is also the second largest importer country. It imports most of the services from the U.S economy. ‘New normal’ of china would sufficiently reduce its quantum of imports from the US. If the greenback further shot-up against Yuan following rate –hike by the US, China may be triggered to spur its service industry to replace imported services from the US.

So, external economic reasons may dissuade the Fed at this juncture to take this critical decision of rate-hike. However, the Fed may not work purely on external considerations. It has equally strong and valid domestic reasons to raise the rate sooner than later. The latest job data released by the US last week shows that unemployment in US has fallen to 5.5% which is the lowest since May, 2008. The Fed has expressed satisfaction at this rate of unemployment and with rising employment; it is fast loosing its ground for holding policy rate near zero percent. So far as recession in other countries is concerned, the US may ignore it before taking the decision of rate-hike. This is so because the US is self-contained and relatively a closed economy and only 30% of its GDP consists of foreign trade.

Most of the members of Monetary Policy Committee of The Federal Reserve, which decides about the policy rate, have articulated their views in favour of rate-hike. The Fed Governor MS. Janet who has till now been showing a ‘patience approach’ would find it difficult not to succumb to the pressure of other members of the committee when it meets to decide about a much-awaited rate- cut.

Dutch Disease In America

    

A long bout of inertia seems to have ended in the U.S. Economic activities are picking-up. People are finally out in search of jobs and they are succeeding in getting them. With unemployment vanishing and economic indicators improving, a mood of optimism & jubilation prevails all over the country. Technically, the U.S. is out of recession and it is treading on recovery-path. However, this path of recovery is not smooth. It is still fragile and threatened by a number of factors.

Of all the factors that may derail the process of recovery of American economy, the immediate threat is from ‘Dutch Disease’ the economy is slowly heading towards.

Dutch disease is an economic phenomenon which occurs when an industrial nation begins to exploit domestic natural resources that it previously imported. It is the result of resource boom or heavy production of natural gas, petrol, coal etc. Contrary to the popular belief that exploitation of own resources causes economic progress, Dutch Disease, if a nation is in its grip, may result in contraction in industrial and agricultural output and even de-industrialization of the economy. Let us understand how it happens:

Discovery and use of domestic natural resources by a nation may

1.     Obviate its need to import costly natural resources from other countries. This result in reduction in import bill and, hence, a reduction in supply of its currency in international market.

2.     Increase the earnings of the nation by exporting resources, if it is in excess of domestic requirements.

 This would put an upward pressure on currency and it value would appreciate. Appreciation of currency has its own disadvantage. It makes domestic goods costlier than foreign goods. Consequently, export of the country falls and import increases, resulting in reduction in demand for domestic goods. The export-based industries, thus, suffer in terms of loss of revenue and employment.

The term ‘Dutch Disease’ was coined in 1977 by ‘THE ECONOMIST’ to describe the decline of the manufacturing sector in the Netherland after the discovery of large natural gas field in 1959 and its consequent fall in its currency, Florin.

There are, however, several instances of occurrences of this phenomenon in the world economy. Cairns was the first to document Australian Gold Rush in 1859 and its possible impact on its currency. The UK and Norway became the victim of this disease when they extracted substantial quantities of petroleum from the North Sea during 1975-1990. Chile’s currency also appreciated in the late 2000, due to boom in mineral commodities prices.

And, now the US is slowly moving towards embracing the disease after shale gas revolution.

According to Energy Information Administration of US, crude oil production has increased by a little more than 61% since 2010. It is now producing 9.1 million barrel per day and the production is forecast to rise by 300,000 barrel a day during the next year.

Shale gas revolution in America has significantly reduced its dependence on imports from other countries. According to Energy department of US, the country consumed 20.8 million barrel per day in 2005. Out of this, 12.5 million or 60 % of total consumption was imported. In 2013, its total consumption was 19.0 million barrel / day and import was 6.6 million barrel or 35% of consumption. It is estimated that in 2015, the US would consume 19.1 million barrel per day and import only 4.1 million barrel per day (only 21% of consumption).

If these figures are to be believed, the US is able to reduce its import by (12.5-4.1)= 8.4 million barrel on daily basis as compared to a decade back. The dollar value of 8 million barrel at $ 60 per barrel is $ 480 million.

It, thus, implies that the US is saving this huge sum of money and consequently, supply of dollar has reduced by $ 480 million/ day, leading to its appreciation.

The US currency has been gaining strength against major currencies of the world for some time now. Its rise, while not extraordinary, is certainly significant. As this is being written, on a year-to-date basis, the dollar is up 8.8% versus the euro, 3.2% against the British pound and 2.4% against the Yen, with almost all of the gains coming since May.

At a recessionary time when euro-zone, Japan and China are offering heavy discount to overseas buyers to promote their export, appreciation of greenback has certainly hampered the global competitiveness of the USA. This has reduced its export and increased imports as is clear from given table:

Export/Imports of Goods	November, 2014	December, 2014	Direction
Export value	$193.4 billion	$194.9 billion	Down by $ 1.5 billion
Import value	$236.1 billion	$ 241.4 billion	Up by $ 5.3 billion

Source: Bureau of Economic Analysis

Goods and service deficit of the US has also increased from $ 39.8 billion in November to $ 46.6 billion in December and from $ 476.3 billion in 2013 to $505 billion in 2014.

Reduction in aggregate demand of US goods has caused industrial & agricultural output to fall. A comparison of industrial performance of US in 3^rd quarter, 2014 with that of 2^nd quarter, 2014 has been shown below graphically.

The graph shows that except mining, finance & insurance and real estate, all other segment of the industry has shown downward trend. Agriculture, forestry, fishing and hunting increased at 14.2% in 2^nd quarter as compared to only 7.6% only in 3^rd quarter. The performance of non- durable industry is very dismal in 3^rd quarter: from a positive 5% growth rate in 2^nd quarter, it entered the negative territory at around -6% in 3^RD quarter.

Though there could be other reasons also for dollar-appreciation, trade-deficit of US and its declining performance of industry, there is no denying the fact that dollar has shown an upward trend since the nation started reducing its imports of petroleum products.

The Fed decision, therefore, to hike the rate may further aggravate the global competitiveness of US.

 Though the ‘Dutch Disease’ poses real threat to the economy, it also offers an opportunity for them to set a path for long-term growth& development by promoting savings and utilizing funds in health and education sector.

As the price of crude oil has started moving in an upward direction, it would be interesting to see how the US economy manages its resource curse paradox.

                                                                                                                      

MODEL ANSWER: CIVIL SERVICE MAIN EXAM,2014, G.S-3 ?( ECONOMIC DEVELOPMENT) BY VASHISTHA RAY

 Q.4. “ In the villages itself no form of credit organization will be suitable except the cooperative society.”----  All India Rural Credit serve rural clients?

 Discuss this statement in the background of agricultural finances in India. What constraints and challenges do financial institutions supplying agricultural finance face? How can technology be used to better reach and serve rural clients?

Ans: Almost all the committees or working groups constituted to report on rural credit system in India since Royal Commission On Agriculture (1928) have opined that from the point of view of structural appropriateness, there is no alternative to cooperatives for provision of rural credit. The given observation made by All India Rural Credit Survey also reaffirms this opinion. The survey highlights the importance of cooperatives and shortcomings of other financial institutions supplying agricultural finances in India. These institutions are making strident efforts to cope with the credit requirements of the farmers. However, there are certain serious constraints and challenges faced by these institutions. They are as follow:

A.     Inadequate Availability

Availability of credit is inadequate compared with its requirement. Undoubtedly, the value of flow of credit has substantially increased over time. Yet, it continues to be less in relation to demand. There has been an exponential growth in demand for agricultural credit over time. It is partly because the farmers are shifting from non-institutional to institutional sources of credit. It is also because of expansion of commercial agriculture and a substantial rise in prices of modern agricultural inputs.

B.      Dismal Recovery

The recovery of credit has been far from satisfactory. This impedes the process of further lending. Nearly 40-42 per cent of the loans have remained unrecovered during the last 4 years.

C.      Marginalization Of Small Holders

In the matter of availability of credit small holders are often marginalized. This is owing to their low capacity to offer collateral for the loans. Accordingly, even when availability of credit has multiplied over time, those in dire need are often left high and dry.

D.     Unproductive Use

While on the one hand funds are scarce, on the other, unproductive use of credit continues to be a serious menace. The farmers in India are accustomed to make huge expenditure on family functions. This significantly reduces the very purpose of various agencies engaged in agricultural finances.

E.      Red –Tapism

Red- tapism has become a standard practice in official matters. Formalities are so cumbersome in obtaining institutional loans that the farmers are often compelled to divert upon to the non-institutional sources.

F.       Ignorance Of Farmers

Ignorance of farmers and lack of awareness among them has always worked as a serous impediments to serve rural farmers.

Technology can be used to educate and identify poor farmers. Delivery of funds to them can also be made speedy and efficient using technologies such as mobile banking. Farmers should be issued pass books linked to their aadhar- card showing details of their land and fixed assets . This will streamline the procedure for the grants of loans, avoiding much of red-tapism.

                                                    Vashistha Ray.

MODEL ANSWER: CIVIL SERVICE MAIN EXAM, 2014, G.S-3( ECONOMIC DEVELOPMENT) BY VASHISTHA RAY

Q.3. There is also a point of view that Agriculture Produce Marketing Committees (APMCs) set up under the state acts have not only impeded the development of agriculture but also have been the cause of food inflation in India. Critically examine.

Ans:  The given point of view clearly highlights the failure of APMCs in supervising and monitoring the activities of regulated market and thus in protecting the interests of farmers. 

APMCs have been set up by various states to monitor the activities of regulated market. The committee has representatives of state government, farmers, traders, commission agents and local body. The chairman of the committee is always a farmer. The main objective of this committee is to protect the farmers from the misery of distress sale to middlemen.

                 The committee has been entrusted with the task of providing storage facilities to farmers in regulated market. The committee also ensures that no broker or middlemen operates in regulated market. Only registered traders are allowed to purchase agriculture produce from farmers and that too at pre-announced prices. Weights & measures of traders operating in regulated market are always inspected and farmers are provided training by APMC to conduct business in regulated market.

                 Regulated market structure set up in India by respective state governments since 1951 under their respective APMCs acts has over the years brought discipline in the marketing of agriculture produce and taking care of various problems relating to malfunctioning of agricultural market.

          But over the years, it has been found that APMCs have failed to discharge their responsibilities. Farmers are not adequately informed about prevailing prices, weight & measures are not regularly inspected and training program conducted to increase the efficiency of market is irregular and unsatisfactory. There have been reports of collusion among various members of committee leading to rampant corruption in regulated market. All these along with the inefficiency of APMCs, farmers are denied fair and remunerative prices at the cost of agricultural development.

 The APMC act is also responsible for food inflation as it has created monopolies and distributional inefficiencies by not permitting private players and unregistered traders to set up the wholesale market in areas designated as regulated market by states. The committee also charges heavy mandi  fee from traders as well as farmers of regulated market. This  also becomes the cause of inflation. Since the time fruits and vegetables have been brought under the ambit of regulated market, food inflation has increased further.

 However, under model APMC acts,2003, private players have been allowed to purchase agricultural produce and develop agricultural infrastructure such as cold storage. Farmers are also sponsoring their own market in various states. These developments have brought in competition in agricultural market and thereby increasing the efficiency of APMCs. Vashistha Ray.

MODEL ANSWER: CIVIL SERVICE MAIN EXAM,G.S. -3(ECONOMIC DEVELOPMENT) BY VASHISTHA RAY

Q.2.While we flaunt India’s demographic dividend, we ignore the dropping rates of employability. What are missing while doing so? Where will the jobs that India desperately needs come Q.2. While we flaunt India’s demographic dividend, we ignore the dropping rates of from? (UPSC, CIVIL SERVICES MAIN EXAM, 2014, G.S -3 BY VASHISTHA RAY)

Ans: India found a much needed solace with the size of its population when the term ‘demographic dividend’ started gaining currency. Demographic dividend refers to benefits of having large population or labour force. india can certainly be the beneficiary of its demographic size as almost 63% of its population falls in the age group of 15-64 which are considered to be working population and developed and large economies of the world is going to face adequate labour shortage in days to come because of their negative population growth. However, the euphoric discussion of demographic dividend ignores dropping rates of employability in India. This is due to the following factors:

A.     Skill-deficiency

India’s employability is seriously handicapped by skill deficiency. Availability of jobs at domestic and international level requires educated and skilled labour-force. But unfortunately,  India has been a house of churning-out uneducated and unskilled labour-force. This is due to our inappropriate education system and inadequate on-job-training program. We have also failed to preserve and develop our traditional skills in handicrafts, artisans, astronomy and preparation of medicinal compound which could have been the source of employment.

B.      Complex Tax Structure

        The complex tax structure in our country has given birth to frequent disputes between government and investors or companies. This has worked as a disincentive to industrial growth and FDI. The protracted tax dispute between central government and Vodafone sent wrong signal to foreign investors and tarnished the image of India as investors’ friendly country. It was due to only  tax dispute with government that the largest plant of Nokia at Chennai employing thousands of Indian workers had to be shut-down.

C.      Structural Bottlenecks

        Structural bottlenecks in terms of red-tapism , delay in critical policy decisions , poor conditions or non-availability of infrastructure and complex labour laws have significantly discouraged entrepreneurs to initiate business enterprises. This has also reduced our employability.

D.     Low Level Of Competitivenes

  We are also losing outsourced jobs from advanced countries to china and other countries. This is primarily due to lack of suitable policy measures and low level of competitiveness in acquiring such jobs.

India can generate lots of jobs by developing its manufacturing sector which has ample potential to absorb unskilled, semi-skilled and skilled labour simultaneously. It can also get the required jobs from small-scale industries which are labour-oriented. Development of export based industries may have key to generation of job opportunities in India. We can also get jobs from FDI and outsourcing by developed countries.  Vashistha Ray