Daily Answer Writing

Model Answer

Key Features of Goods and Services Tax (GST)

The Goods and Services Tax (GST) is a comprehensive indirect tax that was implemented in India on July 1, 2017, replacing several existing taxes such as excise duty, VAT, and service tax. It is levied on the supply of goods and services and follows a destination-based taxation model. Some of the key features include:

• Dual GST System: India follows a dual GST structure, where both the Central GST (CGST) and State GST (SGST) are levied on the same taxable event. For inter-state transactions, Integrated GST (IGST) is applied.
• Destination-Based Taxation: Unlike the origin-based taxation system, GST is applied at the point of consumption rather than the point of production.
• Tax on Supply: GST is applied on the supply of goods and services, rather than on the sale or manufacture of goods or provision of services.

Achievements of GST since Implementation

Since its introduction in 2017, GST has contributed significantly to India’s economy:

1. Widened Tax Base: The number of GST registrants grew from 66.25 lakh to 1.28 crore between 2017-2021, effectively doubling the tax base.
2. Ease of Compliance: GST simplified indirect tax compliance by consolidating multiple taxes and reducing the need for businesses to deal with various authorities.
3. Increased Logistics Efficiency: The implementation of e-way bills and the removal of interstate barriers has reduced transit time by over 50%.
4. Reduced Transaction Costs: GST eliminated the Central Sales Tax, cutting down the additional 2% cost on interstate transactions.
5. Enhanced Transparency: The GST portal allows taxpayers to track their tax payments and compliance, improving transparency.

Challenges Faced by GST

Despite its achievements, GST still faces several challenges:

1. Overestimation of GST Collections: Actual collections have often fallen short of initial estimates, raising concerns about the system’s effectiveness.
2. Complex Tax Slabs: The multiple tax slabs and frequent revisions lead to confusion and unethical practices.
3. Complicated Filing System: The cumbersome return filing process demands numerous documents, making compliance burdensome.
4. Conflicting AAR Judgments: Discrepancies in Advance Ruling Authority decisions across states lead to inconsistencies.
5. Tax Evasion and Fraud: The use of fake invoices and e-way bills contributes to significant revenue losses, estimated at Rs. 40,000 crore.

Conclusion

While GST has led to substantial reforms, including widening the tax base and improving compliance, its full potential can only be realized with ongoing reforms, such as simplifying the return filing process and addressing tax evasion issues.

Model Answer

Digitization of Land Records: Advantages and Challenges

Introduction

Access to land is crucial for economic growth and poverty reduction. Digitization of land records offers transformative benefits by improving transparency, reducing conflicts, and enhancing land utilization. However, it faces several challenges that require comprehensive solutions.

Advantages of Digitization of Land Records

1. Reduction in Litigations and Court Burden

• Land disputes in India take 20 years on average to resolve, as per a NITI Aayog report.
• Digitization minimizes disputes by offering clear and updated ownership records, reducing the burden on courts.

2. Enhanced Agricultural Credit

• Farmers can use digitized land records as collateral for loans, leading to faster disbursal of agriculture credit.
• Online equitable mortgage creation further simplifies this process.

3. Infrastructure Development

• Projects often face delays due to unclear records. Digitization ensures availability of encumbrance-free land, accelerating project implementation.

4. Urbanization and Housing

• Provides clarity over ownership for slum dwellers and unauthorized colonies, enabling urban local bodies to deliver services effectively.

5. Curtailing Benami Transactions

• The Standing Committee on Finance (2015) emphasized that digitized records eliminate non-transparent transactions, reducing black money.

Challenges in Digitization of Land Records

1. Legal Framework and Historical Legacy

• The Zamindari system has led to fragmented records. India lacks a guaranteed ownership framework for land.

2. Lack of Unified Manpower

• Shortages of skilled staff hinder the continuous updating of records.

3. Poor Coordination Across Departments

• Revenue, survey, settlement, and registration departments lack synergy, affecting record accuracy.

4. Digital Divide

• Rural areas face challenges due to digital illiteracy and limited internet penetration.

5. Resistance to Surveys and Compensation Issues

• Landowners often resist joint surveys and demand higher compensation, causing project delays.

Conclusion

While digitization of land records is a commendable initiative that can unlock India’s developmental potential, its success depends on addressing legal, administrative, and infrastructural challenges. A holistic and technology-driven approach will ensure its effective implementation.

Model Answer

What are Non-Performing Assets (NPAs)?

A Non-Performing Asset (NPA) refers to a loan or advance for which the principal or interest payment is overdue for more than 90 days. In India, for agricultural loans, overdue payments are determined based on cropping seasons. NPAs are further categorized into:

1. Sub-standard Assets: Loans classified as NPAs for less than 12 months.
2. Doubtful Assets: Loans classified as NPAs for over 12 months.
3. Loss Assets: Loans where loss is identified by the bank, auditors, or the RBI, but not fully written off.

As per RBI data, gross NPAs of scheduled commercial banks peaked at ₹9.5 trillion in FY19 but reduced to ₹8 trillion by September 2021.

Recent Measures to Address NPAs

1. Recognition of NPAs

• Asset Quality Review (2015): Introduced to identify NPAs transparently.
• Central Repository of Information on Large Credits (CRILC): Tracks large credits to spot early signs of borrower distress.
• Prompt Corrective Action (PCA) Framework: Strengthens banks with weak financial metrics.

2. Recapitalization of Banks

• Mission Indradhanush (2015): Infused ₹3 trillion in public sector banks to meet capital norms.
• National Asset Reconstruction Company (NARCL): Established in 2021 to acquire ₹2 lakh crore of stressed assets with a ₹30,600 crore government guarantee.

3. Insolvency Resolution

• Insolvency and Bankruptcy Code (IBC, 2016): Ensures time-bound recovery of insolvent accounts.
• Project Sashakt: Focuses on resolving high-value assets with specific strategies based on loan amounts.

4. Banking Reforms

• Enhanced credit risk management with stricter provisioning and sectoral analysis.
• Expanded RBI powers to intervene in failing banks.
• Initiated reforms in public sector banks (PSBs) with online platforms and third-party data usage.

Conclusion

The Indian government’s multi-pronged approach under the 4R strategy has improved the NPA situation, ensuring a healthier financial system. These reforms have also strengthened the banking sector’s resilience and governance structure.

Model Answer

The Fiscal Responsibility and Budget Management (FRBM) Act, 2003 was established to enforce fiscal discipline and ensure long-term macroeconomic stability in India. The main objectives of the FRBM Act are as follows:

1. Inter-generational Equity: The government aims to maintain fiscal policies that do not burden future generations with excessive debt.
2. Macroeconomic Stability: The Act targets achieving a revenue surplus to ensure long-term economic stability.
3. Remove Fiscal Obstacles to Monetary Policy: By controlling fiscal deficits, the Act ensures that fiscal policies do not interfere with effective monetary policy by the Reserve Bank of India (RBI).
4. Effective Debt Management: The FRBM Act aims to manage India’s debt effectively by limiting deficits and borrowing.
5. Inflation Control: The Act gives the RBI flexibility to address inflationary concerns in India.
6. Equitable Debt Distribution: The goal is to ensure a more balanced distribution of India’s debt across different periods.

Key Features of the FRBM Act

The key features of the FRBM Act include:

1. Deficit Reduction Targets: The government is required to reduce fiscal and revenue deficits, with the aim of eliminating the revenue deficit by 2009 and achieving an adequate revenue surplus thereafter.
2. Expenditure Cuts: If deficits cannot be reduced through tax revenues, the government must cut expenditures.
3. Exceptional Circumstances: The Act allows for deviations from deficit targets in cases of national security threats, natural calamities, or other exceptional situations specified by the government.
4. Borrowing Limits: The government cannot borrow directly from the RBI, except for temporary advances to cover short-term cash flow issues.
5. RBI’s Role: Starting from 2006-07, the RBI is prohibited from subscribing to the primary issuance of central government securities.
6. Transparency: The government must ensure greater transparency in fiscal operations, providing three key reports to Parliament: the Medium-term Fiscal Policy Statement, Fiscal Policy Strategy Statement, and Macroeconomic Framework Statement.
7. Quarterly Reviews: A quarterly review of trends in receipts and expenditure must be submitted to both Houses of Parliament.

The NK Singh Committee, in 2016, reviewed the Act and suggested updating targets, including reducing the debt-to-GDP ratio to 60% by 2023, with 40% for the Centre and 20% for the states. It also recommended adjusting the fiscal deficit target to 2.5% by 2023, introducing a range of fiscal targets with escape clauses for emergencies.