SYNOPSIS- IASbaba’s TLP 2016 [2nd May] – UPSC Mains GS Questions [HOT]

  • May 3, 2016
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SYNOPSIS- IASbaba’s TLP 2016 [2nd May] – UPSC Mains GS Questions [HOT]


1. The Indian government is persistently advised to reduce its ownership in public sector banks (PSBs) to below 50 per cent. It is not ownership but the way banks are structured and run that is important for financial sector health. Do you agree? Comment.

  • Intro:

India’s Public sector banks (PSBs) have written off Rs. 1.44 lakh crores of NPA for in 2013-15. This redirected the focus on reducing government’s stake in PSBs for their better governance.

  • Body:
  1. Financial repression from both demand and supply side on account of priority sector lending (PSL) and SLR norms. It shrinks the fiscal space of banks, as banks will have to have more Provisioning, with less working capital
  2. Frequent government interventions in the form of plethora of social schemes like Startup India, Jan Dhan scheme, etc. adversely affects day to day functioning of banks, as precious labour force is diverted to non-core-operational activities.
  3. Government has not fully liberalized banking sector since economic reforms which results in far and few bank licenses and hasn’t generated requisite competition.
  4. Inadequate structure for recovery of bad loans, multiplicity and lack of clear operational guidelines have resulted in mis-assigning of cases, where even recoverable loans have not been realized, andwill full defaults have increased.
  5. Work force is the banks is not adequately trained, and most of the employees are averse to technological changes, this resistance to change is
  6. Age structure: the experienced older staff is retiring fast, and the recruitment has been more in lower/entry level positions, creating huge gap in the middle management, which is the key link between the policy making higher ranks, and policy implementing young officers, this has led to miscommunication of the policies.
  7. Continuation of sick banks, the government has been reluctant to close down the nonprofit generating banks, and has been infusing capital, which is encouraging them to carry on with their non efficient ways. Recapitalization costs for PSB are very less (0.5% of GDP in two decades) compared to those in private sector (6.8% of GDP).
  • Conclusion:

Write a suitable conclusion.

Best answer: MACHIAVELLI.

Public sector Banks (PSBs) are the most stressed banks in the country as per the financial stability report of the RBI. With less than 7 percent capital to risk weighted assets ratio (CRAR) , more than 10 banks needs immediate reform and solutions ranging from reduced government ownership to restructuring to efficient working are proposed .

Ownership is one of the major criteria that decide the working of a bank and PSBs are no exception. Government ownership has led to lack of accountability and this has resulted in rising NPAs (external factors apart). But changing ownership is not a guarantee for efficiency and transparency as seen is BoB black money remittance case. So the focus must be on restructuring and efficient running.

PSBs are in dire need of restructuring and institutionalizing banking board bureau (BBB) is a step in right direction. With a fixed targets and tenure to Chairman, performance linked incentive; appointing board members from private banks, classifying less efficient and more efficient banks etc. could be possible solutions. Implementing Nayak committee recommendations to improve governance will go a long way in providing a stable infrastructure.

Day to day running of the banks needs reform as well. Greater autonomy to banks, transparent assessment of NPAs, and prudence in corporate lending, exchange information on large accounts, injecting capital on the basis of performance, skilling staff and officers – as per Gopalkrishnan committee on human resource will be very beneficial.

On government front Bankruptcy code and debt recovery tribunal need to be implemented at the earliest. PSBs have associated social functions like priority sector lending which cannot be neglected in a welfare state like India. While ownership dissolution is an option it is like treating the symptoms rather the disease.

2. Recent NSSO data shows, even while the organised sector has lagged behind, the informal sector has shown improvement in productivity, real wages and capital accumulation. Why is it so? What are the problems faced by informal sector and identify some recent initiatives taken by the government in this regard?


Our country’s socio-economic space is overwhelmingly informal whether it is relating to employment or other aspects of our life. However we tend to overlook and underestimate the importance of this sector which is multi-dimensional in its structure.

According to NSSO data, the informal sector is not the residual sector of the economy. In reality, it is the dominant sector. Even while the organised sector has lagged behind, the informal sector has shown improvement in productivity, real wages and capital accumulation.

Reasons: (Your answer should include any of the 3 points from below)

  • Conditions, like poor employment generation in formal sector due to global economic slowdown and jobless growth, are forcing many (both educated and uneducated people) to pick up petty activities in the informal sector.
  • The exclusion of the vast working majority from the formal sector results in hyper-competition in product markets between micro entrepreneurs who are forced to start their own business due to lack of jobs, and between workers in the informal labour market.
  • The informal sector accounts for a sizeable percentage of the total workforce in the country – includes agricultural activity and also other non-agricultural activities. Individuals with poor human and physical capital endowment get residually absorbed in own account enterprises and other small units.
  • With recent improvements in the quality of education, the accessibility to market information, credit facilities, technological knowhow and other information pertaining to the overall macroeconomic and policy changes increasing and hence, the scale of informal operation also expanding.
  • The registration procedure and the labour laws are stringent in the formal sector, thus the units preferring to operate from the informal sector. i.e., Firms are deciding to remain small so that they can take the advantage of the labour market flexibility that the informal sector offers.
  • The formal sector has adopted the informalisation process at various levels – Most of the informal units are receiving work consignments from formal firms (through the contractors)
  • With “e-ecommerce”, “eco-sensitiveness” and “handmade” setting the trends for products across industries ranging from food to clothing to utilities and fashion, informal sector is increasingly becoming the backyard of Indian manufacturing


Problems: (should include any 3-4 points)

  • Labor market flexibility and social protection are two of the great challenges facing the system
  • Suffer fluctuating income and absence of basic rights as workers
  • Lack of proper regulatory framework and stringent laws leads to exploitation of the labour
  • These workers are unprotected by legislation and most of them tend to be poor.
  • Gender discrimination in the wages paid and abuse faced by children and women mostly
  • Even though informal sector has done better than its formal counterparts on economic parameters, they are looked down as stagnant and under performing
  • Poor working conditions, no regular jobs or assured income

Recent initiatives: (should cover 2-3 points from below)

  • National Skill Development Initiative (and Kaushal Vikas Yojana under Skill India) will empower all individuals through improved skills, knowledge, nationally and internationally recognized qualifications to gain access to decent employment and ensure India’s competitiveness in the global market.
  • Atal Pension Scheme and PM Jeevan Bima Yojana schemes to provide social security to informal sector workers.
  • The new Factories Act is made so that the safety of the workers in improved so that voluntarily the authorities can inspect the working conditions even if they receive complaint from a single worker.
  • Protection of Livelihood and regulation of Street Vending Act 2014 for providing safety and livelihood
  • National Commission for Enterprises in the Unorganized Sector (NCEUS) to examine a number of issues including contingencies, eventualities and agenda of social security


Best answer: Aragorn

Defying its very definition, informal sector has formally grown multifold with improvements in productivity, real wages and capital accumulation. More than 50% of GDP comes from the NSSO survey defined informal sector that has 75% rural and 69% urban areas engaged in employment.

  • Less education and low skills for organized employment lead to informal sector engagement
  • With agriculture owing to labour intensiveness, capital investment, natural calamities like floods and drought, Informal sector is the only viable option next for a source of livelihood
  • Factories Act, 1948, does not cover them, so no taxable or legal restrictions
  • With “e-ecommerce”, “eco-sensitiveness” and “handmade” setting the trends for products across industries ranging from food to clothing to utilities and fashion, informal sector is increasingly becoming the backyard of Indian manufacturing

Problems faced by the sector:

  • Lack of stringent laws leads to exploitation of the labour
  • Illiteracy and lack of awareness lead to stagnation of growth levels
  • Gender discrimination in the wages paid and abuse faced by children and women mostly
  • Lack of contracts, paid leave and social security (PF or pension)

Initiatives by the government to support the sector:

  • NCEUS to examine a number of issues including contingencies, eventualities and agenda of social security
  • Make in India, Skill India and Start Up India initiatives – to be given wide publicity and ensure awareness for effective implementation
  • Protection of Livelihood and regulation of street vending act 2014 for providing safety and livelihood
  • PMJJBY, PMSBY and Atal Pension Yojana to provide social security cover

Informal sector in India could be strengthened and included into organized sector slowly to negate its problems and lead to its holistic development.

3. What is the significance of the Pacific region for India? Why is India increasing its engagement with the Island nations of the Pacific region?


With many countries focusing more on the sea and adopting maritime oriented geo-strategies, it is evident that seas would continue to remain a vital part of the well-being of many nations. This is demonstrated by India’s increasing engagement with Pacific islands.
The 14 prominent Pacific island countries are: Fiji, Papua New Guinea, Kiribati, Cook Islands, Nauru, Tuvalu, Tonga, Solomon Islands, Samoa, Niue, Vanuatu, Palau, Marshall Islands and Micronesia.


  • Economic- island nations still developing- scope for India to outsource services, increase export, and explore joint ventures.
  • Energy security- India is energy scarce country, importing majority of oil and gas. Pacific region has rich oil & gas reserves, vast areas still unexplored.
  • Strategic significance- India’s presences in Pacific as rebalance of EAST-WEST powers.
  • Natural resources- plant produce, commercial crops, fisheries, minerals etc.
  • There are many small countries in the region which can be easily persuaded for India’s support in UNSC.
  • It is in line with India’s look east policy.

Reasons for engagement:

(1) TRADE and COMMERCE: It forms an important sea route link between India and Americas.

(2) MINERALS: Islands and coasts located in Pacific region are rich in mineral deposits like rare earth metal, petroleum, natural gas which are important in satisfying India’s energy needs.

(3) MILITARY AFFAIRS: USA, China and European nations are establishing their military bases in these islands. In order to counter them, India needs to establish healthy relationship with Pacific region.

(4) RESEARCH & DEVELOPMENT will get a boost as ocean body provides an excellent source for research impacting India. E.g. Study of phenomenon of El-Nino affecting South West monsoon can be studied rigorously and sophisticated prediction systems can be developed.

(5) CULTURAL exchange can be fostered. The huge Indian Diaspora in the region can be tapped.

(6) Criminal activities can be curbed. These islands host tax havens where black money get accumulate. Greater coordination between Indian regulatory authorities and their system can help identify money laundering.

(7) Budding entrepreneurs and skilled service sector can exploit its market.

(8) TOURISM: Tourism can be developed with various measures.


The Pacific Ocean countries are critical to the Indian foreign policy and the government has energetically pursued towards this objective. With increasing engagement, India would forward its interests and also become a major force in the Asia Pacific region.

Best answer: Ekta Singh


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