Daily Answer Writing

Model Answer

Introduction

The practice of crop residue and stubble burning in North India, particularly in states like Punjab, Haryana, Uttar Pradesh, and Rajasthan, continues to pose a significant threat to the environment, public health, and agricultural productivity. Despite government efforts to curb this practice, it remains a prevalent issue due to the short window between harvesting paddy and sowing wheat. Addressing this problem requires comprehensive and sustainable solutions.

Environmental and Health Hazards

Stubble burning results in the emission of harmful pollutants such as methane (CH4), carbon monoxide (CO), volatile organic compounds (VOCs), and carcinogenic polycyclic aromatic hydrocarbons. These pollutants contribute to severe air pollution, notably in Delhi, where smog has become a recurring problem. The toxic emissions from stubble burning directly affect human health, causing respiratory problems and increasing the incidence of various diseases.

Impact on Soil and Agriculture

Burning stubble also has a detrimental effect on soil fertility. The fire destroys essential nutrients in the soil, leading to reduced fertility and increased soil erosion. Additionally, the heat generated by the fires causes moisture loss and kills beneficial soil microbes, further reducing agricultural productivity.

Holistic Solutions

1. Enzyme-Based Decomposition: Spraying enzymes to break down the stubble into bio-fertilizer is an effective way to recycle the residue, reducing air pollution and enriching the soil.
2. Utilization of Crop Residue: Instead of burning, stubble can be used in various ways, including cattle feed, mushroom cultivation, and even bioethanol production. The establishment of “Rice Bio Parks,” as suggested by M.S. Swaminathan, can help promote these alternatives.
3. Biogas Plants: Setting up biogas plants that run on stubble could provide an environmentally friendly alternative to burning, while also generating renewable energy. Demonstrating the benefits of stubble incorporation in fields could further encourage adoption.
4. Government Incentives and Awareness: Programs like the Balloh village initiative, which offered subsidies for not burning stubble, can be expanded across North India. A coordinated approach involving local panchayats, NGOs, and government agencies is essential to drive long-term change.

Conclusion

To effectively address the problem of stubble burning, a multi-faceted approach is required. It must include technological interventions, government support, and farmer participation. By promoting sustainable alternatives, offering incentives, and raising awareness, it is possible to mitigate the adverse effects of this practice on the environment and public health.

Model Answer

Necessity for Privatization of Public Sector Banks (PSBs)

1. Autonomous Decision-Making

One of the primary reasons for the privatization of PSBs is the need for greater autonomy. Government control often hinders the decision-making process, slowing down the ability to remain competitive. Private banks, on the other hand, can make quick decisions, helping them to stay agile and responsive in a fast-evolving financial environment.

2. Innovation and Expertise

Private sector banks tend to innovate and offer better services due to the capital and expertise they can deploy. The privatization of PSBs could lead to new banking products and specialized services that could enhance customer satisfaction. Private banks also focus on providing quality guidance and innovative solutions, attracting more customers.

3. Efficiency and Debt Coverage

Private banks have consistently demonstrated better asset quality and efficiency in debt coverage. A study from 2015 to 2019 showed that PSBs had higher levels of non-performing assets (NPAs) compared to their private counterparts. This reflects the inefficiency of PSBs in handling their debt portfolios.

4. Human Resource Management

Privatization could lead to the introduction of professional management in PSBs, which would help tackle the human capital deficit present in many public banks today. It could help improve operational efficiency and service delivery.

Concerns Regarding Privatization of PSBs

1. Financial Exclusion

One of the main concerns associated with the privatization of PSBs is the potential financial exclusion of weaker sections of society. Private banks often focus on more affluent customers in urban areas, leaving rural regions underserved. This could deepen inequality and widen the gap in financial access.

2. Safety of Deposits

Currently, PSBs benefit from a sovereign guarantee on deposits, which provides security to customers. Privatization would remove this guarantee, making deposits in private banks less secure. Recent failures of private banks have raised concerns about the safety of household savings in a privatized banking system.

3. Macroeconomic Risks

Privatization could increase the risks of bank failures with less government involvement in recapitalizing private sector banks. The failure of a private bank could have widespread economic consequences, creating instability in the financial system.

Conclusion

While privatization offers benefits such as improved efficiency and autonomy, concerns about financial inclusion and deposit safety need to be addressed to ensure that the reform does not negatively impact vulnerable sections of society. A balanced approach that leverages technology and improves governance in PSBs could help mitigate some of these concerns.

Model Answer

What is Inflation Targeting?

Inflation targeting is a monetary policy framework where a country’s central bank commits to maintaining inflation within a specified range. This target is usually expressed as a percentage change in the Consumer Price Index (CPI). The goal of inflation targeting is to create a stable economic environment that encourages long-term planning and investment, promotes lender confidence, and provides a predictable inflation rate, which benefits both public and private entities.

Inflation Targeting Framework in India

India adopted the inflation targeting framework through the Inflation Targeting Agreement of 2015, which was solidified by the Amendment of the RBI Act in 2016. Under this framework, the Reserve Bank of India (RBI) targets a 4% inflation rate, with an upper and lower tolerance band of 2%. The Monetary Policy Committee (MPC), which is responsible for setting interest rates and making monetary policy decisions, follows specific protocols to ensure the inflation target is met.

Key provisions of the RBI Act (2016) include:

1. Independence of RBI: The RBI must have the autonomy to conduct monetary policy, without being influenced by fiscal policy.
2. MPC Decision-Making: The MPC makes decisions through majority voting, with the Governor having a casting vote in the event of a tie.
3. Reporting and Transparency: The RBI must publish a bi-annual monetary policy report detailing the causes of inflation and inflation forecasts.
4. Failure to Meet Target: If the inflation target is not met, the RBI must report to the central government, explaining the reasons, proposing corrective actions, and providing an estimate of when the target will be achieved.

Additionally, there is an escape clause in the framework, which allows the RBI to exceed the inflation target under exceptional circumstances, such as during a crisis like the COVID-19 pandemic, where it might lower interest rates to stimulate the economy.

Model Answer

Objectives of Government Budgeting

The government budget serves several key objectives aimed at achieving economic stability and welfare for society. The main goals of government budgeting are:

1. Allocation of Resources: The government allocates resources for the provision of public goods and services, such as national defense, infrastructure, and government administration, which are not efficiently provided by the market. These are crucial for the functioning of the economy and society as a whole.
2. Redistribution of Income: Through the budget, the government can collect taxes and make transfers, which affect the disposable income of households. By doing so, it aims to reduce income inequality and ensure a fair distribution of wealth, as deemed appropriate by societal norms.
3. Economic Stabilization: Government intervention is essential to stabilize the economy during periods of insufficient demand or economic downturns. By raising aggregate demand through fiscal policies, the government helps in utilizing resources effectively and restoring employment.

Key Components of the Government Budget in India

The Indian government budget consists of two major components:

1. Revenue Budget:
   • Revenue Receipts: These are the government’s income, including taxes and non-tax revenues, which do not lead to any liability for the government.
   • Revenue Expenditure: This includes expenditure that does not result in the creation of physical or financial assets. It covers the functioning of government services, interest on debts, and grants to other entities.
2. Capital Budget:
   • Capital Receipts: These are funds the government receives through loans or by selling assets. These receipts create future liabilities as loans need to be repaid.
   • Capital Expenditure: It refers to spending that results in the creation of assets or reduction in liabilities. This includes investment in infrastructure, land, machinery, and loans to states or public sector enterprises.

These components together reflect the government’s fiscal strategy to manage the economy.

Model Answer

What is meant by a flexible exchange rate?

A flexible exchange rate is a monetary system where the value of a country’s currency is determined by market forces, i.e., supply and demand in the foreign exchange market. Unlike a fixed exchange rate system, where the government sets the value of the currency, in a flexible exchange rate regime, the government does not intervene directly to control the rate. In this system, the value of a currency fluctuates based on various factors, including international trade, investment flows, and market speculation.

Factors Influencing the Appreciation and Depreciation of the Indian Rupee

1. Speculation
   Speculation plays a key role in exchange rate movements. When investors believe the US dollar will increase in value compared to the Indian rupee, they purchase dollars in anticipation of profits. This increased demand for dollars leads to depreciation of the rupee relative to the dollar.
2. Inflation
   Countries with lower inflation typically have stronger currencies because inflation reduces the purchasing power of money. When India experiences higher inflation compared to other countries, the rupee loses value, leading to depreciation against the dollar.
3. Interest Rates
   Higher interest rates in India compared to other countries can lead to an appreciation of the rupee, as foreign investors are attracted by higher returns on investments. However, if interest rates are excessively high for prolonged periods, inflation may rise, leading to depreciation.
4. Income and Economic Growth
   If India’s aggregate demand grows faster than other countries, it often leads to an increase in imports, which can cause the rupee to depreciate. Conversely, if India’s exports grow faster than imports, the rupee may appreciate.
5. Public Debt
   High levels of government debt can lead to inflation and economic instability, contributing to a depreciation of the rupee as investors lose confidence in the currency.
6. Current Account Deficit
   Countries with large current account deficits (where imports exceed exports) tend to see their currency depreciate, as more foreign currency is needed to pay for imports.
7. Political Stability and Economic Growth
   Strong political stability and robust economic growth attract foreign investment, which can strengthen the domestic currency.

In conclusion, a flexible exchange rate reflects the balance of these factors, and fluctuations in the Indian rupee’s value are influenced by shifts in demand, economic conditions, and market perceptions.