Think Learn & Perform (TLP): GS Mains Synopsis [Day 40]

TLP: GS Mains Synopsis [Day 40]

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Q.1) Inclusive growth without rural development would be a misnomer. Comment.

The Top Answer for this Question is written by – The Credible Hulk

Ans) Inclusive growth refers to one which results in an overall rise in the standard of life of an average citizen and fills the chasm of developmental disparity across regions.

A growth that leaves behind the rural areas and only makes urban areas more urbanised would be a pseudo-success.

– More than 3/4th of the country’s population still live in rural and semi-rural areas.

– A huge part of the unorganized sector that accounts for more than 4/5th of the country’s total GDP resides in these areas.

– Agriculture is still the dominant occupation here which has kept us self-sustained.

– Backward rural areas cause increased migration that leads to over-burdening of urban civic amenities.

Hence, following steps need to bridge the difference in the pace of development between rural and urban regions –

– Integrated agriculture encouragement measures like advanced farming technologies, credit and crop-loss insurance facilities and ICT support.

– Encouragement to rural industries and entrepreneurs for employment generation and rurbansation, through schemes like PMKVY, Udaan, MUDRA Bank, etc.

– Investment in education and health availability through proper implementation of SSA and NRHM.

– Upgradation of public infrastructure like roads, railways, communication, etc to provide linkage to adjoining urban areas.

Q.2) The global crude oil prices are on downturn due to shale exploration and other geo-political factors. How will it affect rural economy of India?

The Top Answer for this Question is written by – Annapurna Garg

Ans) Crude oil prices have seen an unprecedented fall in prices in recent time driven by various factors such as shale exploration, economic slowness in Europe and China, increase in crude production by Saudi Arabia and recently concluded pact with Iran. It is a major event in global platform which has important ramifications for India rural economy.

Positive impacts:

1. It has led to easing of inflation. This will lead to increase in purchasing capacity of households and improved household savings.
2. It has and would further reduce government’s subsidy burden, thus reducing fiscal deficit. This would facilitate greater public investment in rural economy.
3. Reduced transport cost and fertiliser prices would reduce the input costs for agriculture, thus benefitting farmers.
4. Booming rural economy would reduce banks’ reluctance to lend to rural people. This might shed and lead to greater financial inclusion furthering rural growth.

Negative impacts:

1. Crude oil price fall is due to economic slowness which has led to reduced commodity prices. This has brought doom for Indian farmers. For example rubber farmers of Kerala have suffered massive losses.
2. Demand for agro exports is lacklustre.

Thus, international events have affected many lives in varied ways. National policy should aim at leveraging the opportunity and minimising the adverse affects.

Q.3) The condition of farm sector and farmers is stubbornly stagnated despite several support measures. What could be the possible reasons for it? Analyze each reason and suggest alternative, if any.

The Top Answer for this Question is written by – Monk Who Sold His Nano

Ans) Despite employing highest share of workforce, agriculture is the slowest growing sector. The following reasons may be cited for stagnation-

Historical –

1. a) British exploitation of farmers due to cash crops and famines of 60s made government averse to commercial farming and only cereals were targeted under green revolution. Having resolved the hunger problem cereals still remain the priority of our agricultural production
2. b) Poor implementation of land reforms have led to scattered land holdings, and increasing proportion of small and marginal farmers.
3. c) The continuing legacy of GR of cheap electricity, diesel and fertilizers have caused ecological problems of land degradation in Punjab, Haryana and Western UP

Financial –

1. a) little or no financial literacy + financial exclusion (unavailability of institutional credit)–> easy exploitation by moneylenders
2. b) no insurance coverage –> the capricious monsoon destroys crops –> no financial coverage for next crop cycle
3. c) irrational subsidies, MSP and random debt waiver due to vote bank politics –> cripples financial institutions –> grow averse to lending and investing in agricultural sector

Infrastructural

1. a) poor transportation and storage infrastructure –> leakages and corruption
2. b) electricity, internet and in some cases even telecom networks don’t reach villages.
3. c) canal irrigation projects are stalled

Institutional

1. a) poor investment in research(only limited to HYV seeds)
2. b) lower yields of farms due to promotion of unscientific practices and poor infrastructure
3. c) the disparity based approach (growth pole approach) adopted during Green revolution is being persisted
4. d) reduced market access due to monopoly of APMCs

Alternate solutions-

1. a) financial inclusion (JAM trinity + post offices as small banks + kisan credit cards + insurance cover)
2. b) digital + analog penetration (NOFN + kisan TV)
3. c) rationalization of subsidies and agroclimatic cropping (using extension services& soil health cards)
4. d) land reforms (chakbandi); promoting cooperative farming
5. e) initiating contract farming for commercial crops + NAM (reduce hegemony of APMCs)

Q.4) Few economists have argued that the frequent policy cut by RBI will further draw chasm between rich and poor. Do you agree?

The Top Answer for this Question is written by – The Rock

Ans) Policy cuts by RBI promote private investments and consumer spending , which may cause inflation. Thus, arguments that frequent policy cuts by RBI will further draw chasm between rich and poor needs consideration

Arguments for policy cuts

1. Promote investments , thus increasing employment opportunities and infrastructure
2. Increases government revenues via taxation , thus reducing fiscal deficit and increases spending on welfare schemes and subsidies
3. Cheaper credit to farmers and MSMEs , where most of the poor are employed
4. Higher growth has led to reduction in poverty from 37 to 22% since 1991

Arguments against

1. Inflation impacts the poor most adversely because of limited consumer spending choices
2. Excessive borrowing increases Non performing assets of banks, thus reducing credit flow towards poor
3. Decreases savings rate in banks, which is the only source of investment for poor
4. High Gini coefficient reflects increasing inequality against poor

In this regard , FSLRC recommendations of setting an independent monetary policy committee to determine such rates can be considered . Thus , rate cuts must be driven by balancing the needs of growth , stability and inclusiveness and RBI should act as facilitator for promoting private investments and welfare of poor.

Q.5) Payments banks are the new buzzword in the banking sector. Comment on it’s need, objective and potential.

The Top Answer for this Question is written by – SK

Ans) A major shift in the Indian banking system will be witnessed from large-scale public sector banks to small- scale “Payment Banks” with the RBI granting “in principle” licenses.

Need for Payment Banks – It is becoming economically unviable to provide financial services to the marginalized sections who are scattered in the hinterlands. Physical branches can’t be set up everywhere due to operational costs. Hence Payment Banks are needed.

Objective – To provide low-cost financial services like small savings, payments, and remittances to low income households, migrant labourers and others.

Potential

1. Payment Banks provide transition from cash-based transaction to cash-less transactions. This can help curb black money.
2. They operate mainly using mobile phones. This will pave the way for penetration of mobile internet in the future, contributing to Digital India.
3. They can be useful for direct benefit transfers by integrating with JAM trinity. This would help arrest leakages and thereby achieve fiscal consolidation.
4. Payment banks are allowed foreign shareholding. Huge proliferation in future may attract foreign investment in them, thereby contributing to appreciation of Rupee.
5. Payment banks can lend only to govt or other banks. Thus, sources of finance for govt can be diversified at cheap rates.

However, one concern with Payment Banks is that they eat into the market share of public sector banks which are sitting on huge piles of NPAs. Their future is at stake now.