IASbaba’s TLP 2016 [22nd February]: UPSC Mains GS Questions [HOT]: Synopsis

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IASbaba’s TLP 2016 [22nd February]: UPSC Mains GS Questions [HOT]: Synopsis

1. A suitable crop insurance plan coupled with social security benefits will go a long way in addressing the agrarian distress in India. In view of the statement, examine the potential of and challenges for the existing schemes of the central government.

Various explanations have been offered for the present agrarian crisis. It has been felt that the present crisis is the result of deflationary public policies and trade liberalization (with falling global prices), which has slowed output growth, contributed to rising unemployment, income deflation for the majority of cultivators and laborers, enmeshing of cultivators in non repayable debt, and loss of assets (including land) to creditors.

Another explanation given for the agrarian crisis is the drastic reduction in state spending on rural development which has led to loss of purchasing power among rural people. Rising unemployment, falling output growth, entrapment of farmers in debt and land loss; the agrarian crisis has found expression in the acute desperation and hopelessness of the farmers, leaving them with no recourse but to take their own lives.

Existing crop insurance schemes:

1) National Agricultural Insurance Scheme(NAIS)-operates on the basis of

Area approach– defined areas for each notified crop for widespread calamities.

On individual basis– for localized calamities such as hailstorms, landslides, cyclones and floods.

Under the scheme, each state is required to reach the level Gram Panchayat as the unit of insurance in a maximum period of 3 years. Agriculture Insurance Corporation of India is implementing the scheme.

2) The Weather-based  Crop Insurance Scheme (WBCIS) is being implemented as component of National Crop Insurance Programme (NCIP). This scheme provides insurance coverage and financial support to the farmers in the event of failure of crops due to Adverse Weather Incidence and subsequent crop loss.  This simply implies that if a farmer did not insure his crop under MNAIS but somehow his crops were damaged due to adverse weather conditions; he is still able to claim insurance if he goes with this component.

New crop insurance scheme–Pradhan Mantri Fasal Bima Yojana, which is a path breaking scheme for farmers’ welfare. The highlights of this scheme are as under:

1. There will be a uniform premium of only 2% to be paid by farmers for all Kharif crops and 1.5% for all Rabi crops. In case of annual commercial and horticultural crops, the premium to be paid by farmers will be only 5%. The premium rates to be paid by farmers are very low and balance premium will be paid by the Government to provide full insured amount to the farmers against crop loss on account of natural calamities.
2. There is no upper limit on Government subsidy. Even if balance premium is 90% it will be borne by the Government.
3. Earlier, there was a provision of capping the premium rate which resulted in low claims being paid to farmers. This capping was done to limit Government outgo on the premium subsidy. This capping has now been removed and farmers will get claim against full sum insured without any reduction.
4. The use of technology will be encouraged to a great extent. Smart phones will be used to capture and upload data of crop cutting to reduce the delays in claim payment to farmers. Remote sensing will be used to reduce the number of crop cutting experiments.

Social Security Benefits: Various social security schemes like Atal Pension Yojana, Rashtriya Swasthya Bima Yojana, National Food Security Mission, Mahatma Gandhi National Rural Employment Guarantee Programme,National Rural Livelihood Mission, National Rural Health Mission, Public Distribution System, etc have been successful to some extent in providing security to the distressed farmers. However, there exist some challenges for the successful implementation of these schemes.

Challenges:

• Misalignment of incentives
• Lack of accountability
• Corruption
• Lack of awareness

Some specific cases:

In MGNREGA, there is widespread corruption, misappropriation of funds, subversion of funds, politicization, lower castes face discrimination and hence, do not enjoy equal rights of employment and wages.

In RSBY, there is lack of awareness of benefits, cards not issued to beneficiaries, hospitals are not well equipped, shortage of funds and face delays

In Old Age Pension scheme, there is rampant corruption and excessive delays in disbursements of funds.

However, cases of successful implementation of schemes in various states like MGNREGA in Kerala, Mid Day Meal scheme in Tamil Nadu, Antyodaya scheme in Rajasthan, etc should be emulated in other parts of the country and thereby help in addressing the agrarian distress in India.

2. Stricter and more prudent banking norms are required to address the issue of high corporate debt in India. Discuss. What possible effects can defaults by the big names of the business fraternity have on the economy? Elucidate.

Why are debts rising?

• Rising NPAs.
• Red tapism, bureaucratic hurdles, non clearance
• Ineffective monetary policies.
• Fiscal consolidation.
• Lenient lending norms by banks.
• Excess loan distribution during economic boom years of 2008-09.

What are the norms present?

• SARFAESI act
• Debt Recovery Tribunals.
• Corporate Debt Restructuring.
• Strategic Debt Restructuring

What can be done?

• Enhance the interbank sharing of debtor information.
• Implementation of PJ Nayak committee reports.
• Setting up of ARCs
• Strict norms based on Basel 3.
• Evaluation and risk analysis of projects before giving loans.
• Controlling crony capitalism and political influence.
• Penal provisions of the Bankruptcy code.
• Implementing Indradhanush policy in banks.

Impacts on the economy

• Volatility to external shocks increases.
• Corporate debts crowd-outs the available credit and double financial repression phenomenon further accentuates on the banking sector.
• Ease of doing business becomes difficult.
• Bank capacity to give loans increases.
• Rates on housing and education sector increases.
• Inflation caused due to supply-demand mismatch. Overall GDP of the country decreases.

Conclusion

Give some recent examples like Kingfisher case etc.

Best answer: TheWhiteDragon

Indian banking industry is headed for a crisis owing to its large quantity of outstanding debts. Most of this debt is owned by public sector banks. The major reasons for this crisis are –

1. Excessive lending during the growth years of first decade of this century.
2. Projects getting stuck due to non clearance from government side.
3. No proper regulation to deal with bad debts.
4. Loans to unfeasible and unpractical projects due to political influence.

The above reasons clearly show that stricter and prudent regulations are needed to uplift the bank from their crisis. This may include-

1. Stricter implementation of SARFAESI ACT without any special preferences.
2. Use of corporate debt restructuring only when the problem does not lie with management but with unforeseen delays. In other cases, use strategic debt restructuring.
3. Proper project analysis before clearing loans.
4. Continuous review by RBI of bank’s balance sheets.

The financial crisis of 2007 was started by the bankruptcy of a leading US bank, so the current situation is definitely a cause of worry. Even though Indian banks do not occupy a position which banks of us or other developed countries hold, failure of Indian banks can wreck havoc for domestic Indian market. Other than that, even defaults from big corporate houses can severely affect Indian economy in following ways-

1. Rise of interest rates slowing down future investments.
2. Increased fiscal deficit due to increased interest payment obligations.
3. Weakening of rupee increasing BoP gap.
4. An overall deflation and unemployment in the market.
5. Flight of foreign money from Indian markets.

Defaults by few major corporate houses can plunge Indian economy into a deflationary spiral impacting its growth and development. RBI and government have a very small window left to tackle this ongoing crisis and improve conditions of Indian banks.

3. Do you think it is high time that rail budget be combined with the annual financial budget? Critically examine.

Why a separate budget?

• Indian railway is a big organization with 20 lakh daily passengers, 1/3 of total cargo, over 11 lakh km. of tracks and the largest employer in the country with 44% of total central govt. jobs.
• China is also having separate railway budget, and they are putting it too good use for both passengers and freight. One of the enabling factors for china’s fast economic growth was budgetary support for railways
• Provides continuous and consistent financial support to undertake infrastructural projects which will be lost /reduced in case of merger
• For more economic output and market expansion I.e, movement of goods and passengers, railway needs to be extended for last of rural areas, which demands separate budget
• Reduces additional burden on finance ministry which already prepares budget for all other departments of GOI

Why not?

• Railway budget has become more of a populist exercise than catering to transportation problems, more trains are launched on the basis of state of railway ministers’ than on objective economic and social criteria
• Colonial era hangover, separate budget made sense during the British when it constituted 85% of country’s general budget whereas now it accounts for 4%.
• Other ministries having bigger budgets will also demand separate budgets
• Majority of the budget support is going towards salaries, pensions etc, which are non productive, labor needs to be rationalized and focus should be on productive aspects
• For overall connectivity and transportation, a unified transport ministry makes more sense than differentiated and fragmented ministries.
• Rakesh Mohan committee and Bibek Debroy committee has also suggested that it should be mergers with general budget in next 5 years
• If private players are to be involved ,then to ensure a level playing field, both budgets should be merged ,as taxpayers money cannot be used to protect inefficiency of railways

Best answer Bhavana

In India, we have a separate budget for railways which estimates expenditures and receipts of ministry of railways only. Separation of railway budget from general budget was done on the recommendation of Acworth panel in 1924.

Why a separate budget?

• Indian railway is a big organization with 20 lakh daily passengers, 1/3 of total cargo, over 11 lakh km. of tracks and the largest employer in the country with 44% of total central govt. jobs.
• A separate budget provides stability and assurance of revenue to railway to undertake infrastructural projects.
• It reduces the burden of finance ministry which estimates revenues and expenditures of GoI.

Need for a combined budget- Vivek Debroy committee recommended for a combined budget.

• It is a colonial hangover as at the time of British rule when the budget was separated the share of railway to GDP, to general budget and to transportation was higher than that is now.
• Some other sectors like health, defense and agriculture can also have separate budget as they are also very significant.
• Even after having a separate budget major infrastructure projects are not undertaken. Though bullet train is a milestone in Indian railways but it has come in picture only recently.
• Misuse of railway revenue led to the insufficiency of the revenue to fulfill the needs of railway, Ex.- recently railway minister wrote letter to finance minister to give him finance to implement the pay hikes recommended by 7th pay commission.

Separation of budget is not bad as it facilitates better implementation of railway reforms. Pakistan and China also have a separate railway budget. But if combined it can be more efficient in project implementation and in better management.