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Discuss the institutional and policy changes that have driven defense indigenization, domestic capital procurement, and defense exports in India. What measures has the Government taken in this regard, and what challenges still remain?
Model Answer India's defense sector has seen significant changes through strategic institutional and policy measures that have facilitated indigenization, domestic capital procurement, and defense exports. 1. Defense Indigenization: The Government of India has taken several steps to reduce relianceRead more
Model Answer
India’s defense sector has seen significant changes through strategic institutional and policy measures that have facilitated indigenization, domestic capital procurement, and defense exports.
1. Defense Indigenization:
The Government of India has taken several steps to reduce reliance on imports and foster indigenization:
2. Domestic Capital Procurement:
India has allocated significant resources to support domestic defense industry growth:
3. Defense Exports:
India has actively promoted defense exports, resulting in a 32.5% year-on-year growth in 2023-24:
Challenges Remaining: Despite these efforts, challenges persist:
Addressing these challenges will require further collaboration between the government, industry, and academia, with enhanced investments in R&D and skill development.
Highlights
- Policy Measures: DPP 2016, DAP 2020, and initiatives for indigenization and procurement from startups.
- Growth in Exports: 32.5% increase in exports in 2023-24, supported by simplified processes and international promotions.
- Challenges: Production limitations, technological gaps, private sector involvement, and skilled labor shortages.
See lessDiscuss the significant challenges faced by the PM-KISAN Scheme despite its benefits to a large number of farmers.
Model Answer The PM-KISAN Scheme, launched in 2019, aims to provide income support of ₹6,000 annually to all landholding farmer families. While over 11 crore farmer families have benefitted from its direct benefit transfer (DBT) mechanism, the scheme faces several significant challenges. Key BenefitRead more
Model Answer
The PM-KISAN Scheme, launched in 2019, aims to provide income support of ₹6,000 annually to all landholding farmer families. While over 11 crore farmer families have benefitted from its direct benefit transfer (DBT) mechanism, the scheme faces several significant challenges.
Key Benefits of the Scheme
Challenges with the Scheme
Conclusion
Despite its transformative potential, the PM-KISAN Scheme struggles with low coverage, compliance hurdles, and fund misallocation. Addressing these challenges by improving beneficiary identification, simplifying processes, and strengthening monitoring mechanisms is essential to maximize its impact. The government’s plan to evaluate the scheme is a positive step toward ensuring its long-term success.
See lessWhat is the middle-income trap, and what strategies can India adopt to avoid falling into it? (200 words)
Model Answer The middle-income trap refers to a situation where a country, after experiencing rapid growth and reaching a middle-income status, struggles to move further towards high-income levels. These economies face challenges from low-cost competitors while lacking the necessary institutional, hRead more
Model Answer
The middle-income trap refers to a situation where a country, after experiencing rapid growth and reaching a middle-income status, struggles to move further towards high-income levels. These economies face challenges from low-cost competitors while lacking the necessary institutional, human, and technological capabilities to advance.
India’s Risk of Falling into the Trap
India has been classified as a middle-income country since 2008, with a per capita Gross National Income (GNI) between $1,086 to $13,205 (World Bank, 2022). The country is at risk of falling into the middle-income trap due to challenges like overreliance on demand from the wealthiest 100 million citizens, rising income inequality, and limited expansion of the demand base among the poor, all of which constrain growth.
Strategies for Avoiding the Middle-Income Trap
India must invest in R&D, manufacturing efficiencies, and human capital development to boost factor productivity. South Korea’s success in leveraging TFP through innovation by conglomerates like LG and Samsung exemplifies this strategy’s potential to elevate a country’s economic status.
Streamlining land acquisition processes and addressing land disputes is crucial. As 66% of civil cases in India are related to land, resolving such disputes could unlock significant investment opportunities, estimated at USD 200 billion.
Labor-intensive manufacturing can diversify India’s economy, create jobs, and enhance competitiveness globally. Successful industrialization strategies in South Korea and Singapore show the importance of foreign direct investment (FDI) and industrial policy in avoiding the trap.
With India ranking 116th in the Human Capital Index (2022), investment in education, skill development, and innovation is essential to bridge income disparities and drive productivity. Countries like Japan and Singapore have avoided the middle-income trap by reskilling their workforce and driving innovation.
Moving up the value chain by focusing on high-value exports such as technical textiles and eco-friendly products could boost India’s export revenues, helping the nation progress towards high-income status.
Policies like GST reduction, enhanced employment creation, and universal basic income can boost domestic consumption, ensuring sustainable economic growth.
Conclusion
To avoid the middle-income trap, India must focus on a diversified economic approach, investing in human capital, manufacturing, and exports while addressing structural challenges. By sustaining its growth momentum for the next 15 years, India can transition to a high-income economy.
See lessDo you believe it is the right time to implement a progressive wealth tax to address the increasing inequalities in India? (200 words)
Model Answer Introduction India faces growing wealth inequality, with the top 5% of the population owning more than 60% of the country's wealth, while the bottom 50% possess only 3%, as per Oxfam's 2023 report. This stark disparity has sparked debates on whether implementing a progressive wealth taxRead more
Model Answer
Introduction
India faces growing wealth inequality, with the top 5% of the population owning more than 60% of the country’s wealth, while the bottom 50% possess only 3%, as per Oxfam’s 2023 report. This stark disparity has sparked debates on whether implementing a progressive wealth tax could address these inequalities.
Potential Benefits of a Wealth Tax
Challenges to Implementing a Wealth Tax
Conclusion
While a progressive wealth tax could address wealth inequality in India, its potential challenges—such as tax evasion, capital flight, and administrative costs—suggest that alternative fiscal policies may be more effective in reversing growing inequalities. Therefore, while the idea of a wealth tax is appealing, careful consideration of its implementation and possible alternatives is necessary.
See lessProvide a brief overview of the different industrial policies that India has implemented since gaining independence. (200 words)
Model Answer Since gaining independence in 1947, India has implemented a series of industrial policies aimed at fostering economic growth, creating employment, and enhancing competitiveness. Here’s a brief overview of these policies: Industrial Policy Resolution, 1948: This policy established IndiaRead more
Model Answer
Since gaining independence in 1947, India has implemented a series of industrial policies aimed at fostering economic growth, creating employment, and enhancing competitiveness. Here’s a brief overview of these policies:
These policies reflect India’s evolving approach to industrialization, balancing state control with market forces to foster economic development.
See lessWhat is the Twin Deficit problem? Explain its impact on the Indian economy. (200 words)
Model Answer The Twin Deficit problem refers to a situation where a country simultaneously experiences both a fiscal deficit and a current account deficit (CAD). 1. Fiscal Deficit A fiscal deficit occurs when a government’s total expenditure exceeds its total revenue, requiring the government to borRead more
Model Answer
The Twin Deficit problem refers to a situation where a country simultaneously experiences both a fiscal deficit and a current account deficit (CAD).
1. Fiscal Deficit
A fiscal deficit occurs when a government’s total expenditure exceeds its total revenue, requiring the government to borrow to cover the gap. This is a measure of a country’s financial health and reflects the government’s borrowing requirements for the year.
2. Current Account Deficit (CAD)
A current account deficit arises when a country imports more goods, services, and capital than it exports, resulting in an outflow of foreign exchange. This imbalance increases the country’s reliance on foreign borrowing or investment to finance the deficit.
Impact of the Twin Deficit Problem on the Indian Economy
When the government borrows heavily to finance its fiscal deficit, it competes with private investors for available capital. This leads to higher interest rates, reducing the resources available for private sector investment and slowing down economic growth.
Source: Monthly Economic Review, Ministry of Finance
A high current account deficit puts downward pressure on the national currency. As the demand for foreign currency increases to pay for imports, the value of the rupee declines. This depreciation makes imports, including essential commodities like crude oil, more expensive.
Source: Ministry of Finance, RBI
A weaker rupee increases the cost of imports, which in turn leads to higher payments in foreign currencies. This drains the country’s foreign exchange reserves, reducing its ability to meet future import obligations or manage external shocks.
Source: RBI
If the current account deficit is not financed by foreign investment, the government must borrow more, leading to rising national debt. This further exacerbates fiscal deficits and increases the burden on future generations.
Source: Ministry of Finance
The depreciation of the rupee and higher import costs, particularly for essential goods like fuel, contribute to inflationary pressures. This reduces the purchasing power of consumers and increases the cost of living.
Source: RBI, Ministry of Finance
A sustained fiscal deficit can harm India’s sovereign credit rating. A downgrade in the rating could make it difficult for the government to raise funds in international markets, reducing foreign investment inflows.
Measures to Address the Twin Deficit Problem
The government must prioritize capital expenditure over non-essential spending to reduce the fiscal deficit.
Adhering to the targets outlined in the Fiscal Responsibility and Budget Management (FRBM) Act, 2003, such as reducing the fiscal deficit to 4.5% of GDP by 2025-26, will help stabilize fiscal health.
Source: Ministry of Finance
Promoting the Aatmanirbhar Bharat initiative can reduce reliance on imports and increase exports, helping to mitigate the current account deficit.
Source: Government of India
The government can enhance tax-based revenues and reduce subsidies, while focusing on disinvestment in public enterprises to control the fiscal deficit.
Conclusion
The Twin Deficit problem poses a significant challenge to India’s macroeconomic stability. By addressing both fiscal and current account deficits through prudent fiscal policies, export promotion, and reducing import dependency, the country can mitigate the negative impacts of this issue. Effective management of public debt and macroeconomic stabilization measures will help achieve long-term economic sustainability.
See lessDiscuss the financial aspect of Centre-State relations with reference to 'One Nation One Tax' regime.
The "One Nation One Tax" regime refers to the Goods and Services Tax (GST) implemented in India, which is a significant reform in the country's tax system. This system was designed to create a unified indirect tax structure across the country, replacing multiple state and central taxes with a singleRead more
The “One Nation One Tax” regime refers to the Goods and Services Tax (GST) implemented in India, which is a significant reform in the country’s tax system. This system was designed to create a unified indirect tax structure across the country, replacing multiple state and central taxes with a single GST. The financial aspects of Centre-State relations in the context of GST can be understood through several key points:
1. Revenue Sharing and Distribution
Revenue Pooling: GST is divided into three main components: Central GST (CGST), State GST (SGST), and Integrated GST (IGST).
Revenue Sharing Mechanism: The revenue collected from IGST is shared between the Centre and the states. This sharing arrangement is crucial in ensuring that states do not suffer revenue losses due to inter-state transactions and that there is financial equilibrium among states.
2. Compensation for Revenue Losses
GST Compensation Cess: To address concerns about potential revenue losses for states due to the transition to GST, the GST Compensation Cess was introduced. This cess was meant to compensate states for any loss of revenue arising from the implementation of GST for a specified period (initially five years, extendable if necessary).
Compensation Mechanism: The Central Government was responsible for compensating the states through the cess collected on certain luxury and sin goods. This mechanism ensures that states have a stable revenue stream, thereby maintaining fiscal stability.
3. Impact on State Finances
Revenue Neutrality: The idea behind GST was to create a neutral tax system where the overall tax burden on goods and services is neither increased nor decreased significantly. However, the actual impact on state finances varied, with some states experiencing revenue growth and others facing shortfalls, especially those with lower-than-average revenue from indirect taxes prior to GST.
Dependence on Central Government: States became more dependent on the central government for their share of IGST revenue and compensation payments. This shift has implications for fiscal federalism and the balance of power between the Centre and states.
4. Economic and Fiscal Integration
Streamlining Taxation: The “One Nation One Tax” regime aimed to simplify the tax structure, reduce cascading effects of taxation, and create a more integrated national market. This integration has economic benefits, including improved efficiency and lower compliance costs for businesses.
Fiscal Integration: The GST system promotes fiscal integration by harmonizing tax rates and regulations across states. This integration helps in reducing economic distortions caused by different state-level tax policies and facilitates a smoother flow of goods and services across state borders.
5. Challenges and Adjustments
Revenue Fluctuations: States faced challenges with fluctuating GST revenue, impacted by changes in economic conditions and compliance rates. Some states experienced shortfalls, which affected their budgetary planning and expenditures.
Compensation Cess Collection: The effectiveness of the compensation mechanism has been a topic of debate, with concerns about the adequacy and timeliness of compensation payments. Disputes over the compensation amounts and delays in payments have sometimes strained Centre-State relations.
In summary, the “One Nation One Tax” regime through GST represents a significant shift in the financial relationship between the Centre and the States in India. While it aims to streamline taxation and enhance economic integration, it also requires careful management of revenue sharing, compensation mechanisms, and fiscal impacts to ensure a balanced and effective federal financial system.
See lessHow are the principles followed by the NITI Aayog different from those followed by the erstwhile Planning Commission in India? (250 words) [UPSC 2018]
Differences in Principles Followed by NITI Aayog and the Planning Commission Introduction The NITI Aayog, established in 2015, replaced the Planning Commission, which had been the cornerstone of India’s planned economic development since 1950. While both institutions aimed at fostering economic growRead more
Differences in Principles Followed by NITI Aayog and the Planning Commission
Introduction
The NITI Aayog, established in 2015, replaced the Planning Commission, which had been the cornerstone of India’s planned economic development since 1950. While both institutions aimed at fostering economic growth, their underlying principles and approaches differ significantly.
Principles Followed by NITI Aayog
NITI Aayog emphasizes cooperative federalism, promoting a more collaborative approach between the central and state governments. It encourages states to take ownership of their development plans, reflecting in initiatives like the State Action Plans for Climate Change.
The NITI Aayog functions primarily as a think tank, providing policy advice and strategic guidance rather than directly implementing plans. For instance, its Aspirational Districts Programme aims to improve socio-economic indicators in the most backward districts by offering targeted support and policy recommendations.
NITI Aayog adopts an outcome-based approach, focusing on results and accountability. This is evident in the Performance Grading Index (PGI) for states, which assesses their performance across various sectors, promoting transparency and accountability.
It encourages innovation and technology in policy implementation. The Digital India initiative, aimed at enhancing digital infrastructure and services, reflects this principle.
Principles Followed by the Planning Commission
The Planning Commission followed a centralized planning model, where the central government formulated and imposed five-year plans on states. The approach was top-down, with limited flexibility for states.
It played a crucial role in resource allocation through the distribution of central funds to states based on planned targets. This often led to a one-size-fits-all approach to development.
The emphasis was on achieving pre-defined targets set in the Five-Year Plans, with less emphasis on results and local context.
States had limited autonomy in planning and were largely dependent on central directives. This often resulted in mismatches between local needs and centrally mandated plans.
Recent Examples
Conclusion
See lessNITI Aayog’s principles, including cooperative federalism, outcome orientation, and emphasis on innovation, represent a departure from the Planning Commission’s centralized, target-driven model. This shift aims to enhance flexibility, efficiency, and effectiveness in India’s development strategies.
Do you agree with the view that steady GDP growth and low inflation have left the Indian economy in good shape? Give reasons in support of your arguments. (150 words) [UPSC 2019]
Steady GDP Growth and Low Inflation: Indian Economy's Status 1. Steady GDP Growth: Positive Indicator: India’s GDP growth has remained robust, with a projected growth rate of around 6-7% for recent years, indicating a strong economic trajectory. This growth supports employment creation and infrastruRead more
Steady GDP Growth and Low Inflation: Indian Economy’s Status
1. Steady GDP Growth:
2. Low Inflation:
Supporting Arguments:
In conclusion, steady GDP growth and low inflation indicate a robust economic environment, although challenges such as structural reforms and global uncertainties remain.
See lessEnumerate the indirect taxes which have been subsumed in the Goods and Services Tax (GST) in India. Also, comment on the revenue implications of the GST introduced in India since July 2017. (150 words) [UPSC 2019]
Indirect Taxes Subsumered in Goods and Services Tax (GST) The Goods and Services Tax (GST) introduced in India on July 1, 2017, subsumed several indirect taxes, streamlining the tax system. The major indirect taxes subsumed under GST include: Central Excise Duty: Previously levied on the manufactureRead more
Indirect Taxes Subsumered in Goods and Services Tax (GST)
The Goods and Services Tax (GST) introduced in India on July 1, 2017, subsumed several indirect taxes, streamlining the tax system. The major indirect taxes subsumed under GST include:
Revenue Implications of GST
The introduction of GST has had mixed revenue implications:
Overall, GST has streamlined the tax system and improved efficiency, but its revenue impact has evolved as the system matures and compliance improves.
See less