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Comprehensive Theory

Indian Economy

An initiative of Group

B I G L E A R N I N G S M A D E E ASY

Civil Services Main Examination 2017

Indian Economy

Copyright © 2017, by NEXT IAS

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First Edition: 2017

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(iii)

Indian Economy

Contents

Chapter 1Budget Reforms ..................................... 1

Advancement of Budget ......................................... 1

Merging of Railway Budget ................................... 2

Zero Budgeting .......................................................... 3

Abolition of Plan & Non-Plan Expenditure ....... 3

Electoral Bonds ........................................................... 4

Chapter 2Fiscal Policy ............................................ 6

Twin Deficits ................................................................ 6

Fiscal Responsibility and Budget Management Act ....................................................... 6

Fiscal Federalism: ....................................................... 7

Goods and Services Tax (GST) ............................... 7

Bitcoins .......................................................................... 8

Chapter 3Banking ................................................ 10

Financial Sector Legislative Reforms Commission (FSLRC): .............................................10

Monetary Policy Committee................................10

Privatizing Indian Banks ........................................11

Merging of Banks .....................................................11

Differentiated Banks ...............................................12

Non-Performing Assets .........................................13

Para Bank ....................................................................13

Chapter 4Donetisation ........................................ 14

Impact on Economy ...............................................14

Cashless Economy: is India Ready .....................14

Impact on Terror Funding ....................................15

Chapter 5Poverty and Unemployment .............. 16

Universal Basic Income ..........................................16

Modifications In Nrega ..........................................16

Chapter 6Agriculture ........................................... 18

Issues ............................................................................18

Agrarian Distress: Bumper Crop Vs Crop Failure ................................................................18

Crop Insurance Scheme: PMFBY ........................18

National Agricultural Market (E-Nam) ..............19

Farm Loan Waiver ....................................................20

Doubling Farmer Income By 2022 .....................20

Planning ......................................................................21

Food Processing Sector .........................................23

Chapter 7Regulatory Bodies ............................... 27

Regulatory Bodies ...................................................27

Mandate of MPC ......................................................28

(iv)

Chapter 8Reforms: IMF and World Bank ............ 30

International Monetary Fund(IMF) ....................30

World Bank: ................................................................31

Chapter 9Investment ........................................... 35

Foreign Direct Investment (FDI) .........................35

Government Initiatives ..........................................36

Chapter 10Intellectual Property Rights (IPR) ....... 39

IPR Policy 2016 .........................................................40

Photocopy: Access to knowledge vs Patent

Protection ...................................................................43

GI tags – a requirement of TRIPS

agreement ..................................................................44

Conclusion: ................................................................44

BUDGET REFORMS

ADVANCEMENT OF BUDGET

Why in news:Budget used to be presented on the last day of February, as it was the practice since colonial era. The budgetary process has been advanced by a month (now presented on Feb 1).

11

Union Budget 2017-18

Rupee comes from

Rupee goes to

Non-debt CapitalReceipts: 3p

Non-tax Revenue: 10p

Service Tax &Other Taxes: 10p

Union ExciseDuties: 14p

Borrowing andOther Liabilities: 19p

Corporation Tax: 19p

Income Tax: 16p

Customs: 9p

Other Expenditure: 13pStates’s Share of

Taxes & Duties: 24p

Finance Commissionand Other Transfers: 5p

Subsidies: 10p

Centrally SponsoredScheme: 10p

Central SectorScheme: 11p

Interest payments: 18p

Defence: 9p

Stages of budget: Budget session goes

through five stages in the Parliament:

• Presentation of budget

• General discussion

• Voting on demand for grants

• Passing of Appropriation Bills

• Passing of Finance Bills

March rush: Funds allocated in a Financial

year lapse, if unspent. So, there would be

unnecessary, extra expenditure in March.

Recently, government has capped expenditure

at 15% of total funds to avoid this rush.

Benefits:• Better execution of projects: Earlier, provisions

made by the budget did not come into effect until May, when Parliament passes the Finance Bill. Therefore, the implementation of schemes was delayed as monsoon made it difficult to implement, say, infrastructure projects.

• Improved quality of expenditure: With advancement of budget session, funds allotted for various schemes reached various departments before monsoon, enabling them to begin the spending programmes right in the beginning of the fiscal. Trend of expenditure in schemes this year reflects that funds would be spent in a balanced manner throughout the year. March rush can be avoided.

• GDP growth: Quality government spending can make a huge difference to revival of investment and boosting consumer demand, thereby improving GDP.

Challenges:• Securing the GDP estimates (for the next

year) a month in advance would be a challenge and the Central Statistics Office, which provides the estimates, will have to be prepared for it.

• Revised estimates will have to be prepared even before the end of the third quarter of the year. If these numbers go wrong, there will be a danger of the deficit estimates for both the years while presenting budget for the next financial year.

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Civil Services Examination

MERGING OF RAILWAY BUDGET:

Why in news:The Government merged Rail Budget with the Union Budget from budget year 2017-18. This merger is based on the recommendations of the Committee headed by Shri Bibek Debroy.

Salient features of merger:• Ministry of Railways will continue to function as a

departmentally run commercial undertaking.

• A separate Statement of Budget Estimates and Demand for Grant will be created for Railways.

• Railways may continue to raise resources from market to finance its capital expenditure.

Some Fact :

India has 66,000 km of railway lines, of which only 17,000 km have been added since Independence.

There is no constitutional or legal requirement for a separate railway budget. On the other hand, Union budget is a Constitutional requirement and is presented under Article 112 of the Indian Constitution, which mandates an annual financial statement.

Operating ratio: Ratio of working expenses to gross earnings. It refers to the money spent to earn every hundred rupees. The lower the ratio the better is the health of Railways. In March 2017, Indian Railways had the worst operating ratio in 16 years at 96.9 per cent.

Benefits:• Small size of rail budget: Rail budget was

introduced on recommendation of Ackworth Committee in 1924, as most of the infrastructure spending by the British government went towards building railway lines. However, now, the railway budget size is quite small at just 6% of India’s overall budget expenditure.

• Saving money: Railways need not pay the annual dividend they had to pay for gross budgetary support from the government every year, saving the financially stressed Railways about Rs.10,000 crore annually. It will also save resources wasted in the process of preparing the railway budget.

• Multimodal transport policy: Integration of the general and railway budgets will enable formulation of a seamless national transportation policy.

• It will help present a holistic picture of the financial position of the Government. No other Ministry has a separate budget and the practice exists in no other country today.

• Political implications: Railways ministry was considered prestigious as it gave an opportunity to the Minister to dole out favours to his constituency by way of new trains and projects.

Criticism:• The annual dividend paid by the railways, is not

only on the budgetary support extended during a year but also on the total “capital at charge” which includes the gross budgetary support (GBS) of previous years. By this merger, a “loan-in-perpetuity” is converted to a grant. So, budget merger is a loan waiver; and loan waivers are granted to individuals or institutions in extreme financial distress.

• Rail budget was an exercise to present a financial report card of the country’s largest public undertaking in the full glare of publicity.

• A separate post-Budget discussion in Parliament on the Railways, as indicated by the Finance Minister, is no substitute, as the focus most likely will be on allotments to various projects, not on financial performance.

• Recently, a new Railway zone was announced to placate a State government as part of a “special package”, which is proof that it is possible to be populist outside a separate budget.

• Unlike other ministries that only spend, Railways earns as well as spends.

• Merging the budget was a way to hide the precarious financial conditions of the Railways, as operating ratio had become more than 1.0, with implementation of 7th Pay Commission.

The way forward:Bibek Debroy Committee recommended the merger of the two budgets not as a stand-alone step, but as part of a slew of measures such as: complete overhaul of the project financing architecture of the Railways, weeding out of unviable/long-pending projects, comprehensive accounting reforms, separation of infrastructure and operations, and setting up of a rail regulatory authority.

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ZERO BUDGETING

Why in news:Maharashtra government is mulling over introducing zero-based budgeting. Also, various economists have suggested that it may be time to implement ZBB.

What is ZBB?• Zero-based budgeting starts from a “zero base”

and every function of the government is analysed for its needs and costs.

• Budget estimates (expenditure as well as receipts) are then built around what is needed for the upcoming period, regardless of whether the Budget is higher or lower than the previous one.

Pros: • The system allows top-level strategic goals to be

implemented into the budgeting process by tying them to specific functional areas.

• Costs can be grouped, and measured against previous results and current expectations.

• Under ZBB, allocations or funding are based on program efficiency and necessity.

• Therefore, more accurate allotment of funds can be done. Each department must justify each line item in order to receive funding.

Cons: • ZBB is a time-consuming process that takes

much longer time than traditional, cost-based budgeting.

• Zero-base budgeting, though looked attractive, had lost its utility gradually because of the complexities and costs involved in implementing it.

• It requires a large amount of paperwork and generates a lot of data. However, there remain doubts about the method’s ability to fully meet its theoretical promises.

• In recent years, the ZBB is making a comeback in the context of fiscal constraints, for its focus on prudent spending during budget formation. Many governments across the world are experiencing the after effects of the worst economic slowdown now and are following the principles of ZBB in the context of tax revenue short falls.

ABOLITION OF PLAN AND NON-PLAN EXPENDITURE

Why in news: • Government has merged plan and non-plan

expenditures as part of budget reform 2017.

• The government now plans to switch to capital and revenue spending classifications. This will help create a clear and effective link between the government’s earnings, spending and outcome.

• An expert committee headed by C Rangarajan had in 2011 proposed that the distinction between plan and non-plan expenditure be abolished for both the Centre and the states.

What was Plan and non-Plan expenditure?• Plan expenditure originally meant and covered

development expenditure such as money spent on government programmes and flagship schemes.

• Non-plan expenditure included spending on defense, subsidies and devolution to states.




What will this achieve?• It was considered a major hurdle in outcome-

based budgeting.

• Unrepresented bodies such as Planning Commission had more say into allocating a major chunk of funds under Plan and non-plan expenditure.

• Instead, the government will now use capital and revenue spending classifications only. In the earlier system, more emphasis was on planned expenditure, but now focus will be on all expenditures of the government, giving a more overall picture.

Revenue expenditure Capital expenditure

Revenue expenditure includes interest payments, subsidies, wages to government employees, pensions, social services and so on.

Capital expenditure includes loans to public enterprises, loans to States, Union Territories and foreign governments and acquisition of valuables.

It includes any expenditure that does not lead to formation of any asset or liability for the government.

It creates some liability/asset for the government.

ELECTORAL BONDS

Why in news:• Electoral Bonds have been proposed as a

way of reforming election funding. The idea is that electoral bonds will prompt donors to take the banking route to donate, with their identity captured by the issuing authority. Budget 2017 has limited the maximum donation to a political party up to Rs.2000 in cash from one person.

Features of Electoral Bonds:• Authorized banks will issue electoral bonds.

Reserve Bank of India Act will be amended suitably.

• A donor could purchase bonds from authorised banks against cheque and digital payments only.

• These bonds shall be redeemable in the designated account of a registered political party within the prescribed time limit from issuance of bond.

• They will resemble a promissory note and not an interest-paying debt instrument.

Benefits:• Bringing in transparency: Currently, political

parties are required to report any donation of over `20,000 to the IT department. However, nearly 70 per cent of the `11,300 crore in party funding over an 11-year period came from unknown sources, according to the Association for Democratic Reforms (ADR). Also, these donations are shown as hard cash. To fix this, the Budget 2017 insists that any amount over Rs.2000 must be paid through cheque or the digital mode.

• Lessening influence of corporates on decisions- Identity of the donor will not be known to the receiver.

• Incentivizing political donations- Investment in electoral bonds will be exempt from income tax.

• Reducing role of black money- Routing of the money through banks will ensure that only tax paid money comes into the political system.

Criticism:• No transparency for voter: While the identity of

the donor is captured, it is not revealed to the party or public. So transparency is not enhanced for the voter.

• Discretionary rather than mandatory: The scheme is left at the discretion of political parties or companies. Political parties will continue to receive funding in cash as well.

• Escaping EC scrutiny: Section 29C of RPA enjoins political parties to report on all contributions above Rs.20000 to the EC for scrutiny. Electoral bonds have been proposed to keep out of the purview of this section. Therefore parties will not have to submit records of electoral bonds received to the EC for scrutiny.



What is a Reserve Bank Bond?

The Reserve Bank handles circulation of currency and regulates credit system in the country. To reduce the debt burden of the Reserve Bank from time to time, Finance Ministry issues various bonds. These bonds are issued with a maturity period of five years. However, even before the maturity of the bonds, they can be sold to extract the invested money in the market.

Only Indian citizens and Non-Resident Indians are allowed to buy these bonds issued by RBI.

The way forward• The scheme should incentivize electoral bonds in

such a way that companies or industrial houses are encouraged to buy these bonds. Similarly, it should encourage political parties to take those bonds.

• Cash payment to political parties can be completely scrapped if black money in political funding is to be stopped.

• RPA provisions requiring parties to declare contributions over Rs.20,000 to the EC should be suitably amended.

FISCAL POLICY 22

TWIN DEFICITS

Why in news: Twin deficits are in check, which along with inflation under control, stable currency, and policy momentum intact, make a case for strong market.

What is twin deficit?• It refers to current account deficit and fiscal

deficit.

• CAD is the difference between a country’s exports and imports, and when imports exceed exports, a country is said to be running a deficit on its current account. Oil and gold are India’s two big imports. Any measures in the budget to slow down imports or boost exports will help the current account deficit.

• Fiscal deficit is the difference between the revenues and expenses of the government that they have to cover by engaging in borrowing from the market.

• Any measures to reduce spending, or generate additional tax revenues or other revenues like disinvestment are aimed to bring the fiscal deficit under control.

Importance of twin deficit: • It is not the deficit which is a problem, but the

magnitude of the deficit. It indicates that the government had to raise money even to pay for their recurring expenses.

• Imports exceeding exports implies that the country has to part with foreign exchange with which it pays for these exports.

Implications of twin deficit under control:`• It indicates that the country’s financial position is

strong.

• Government has room to spend on developing infrastructure, strengthening supply side of the economy.

• This will encourage foreign manufacturers to expand into the country.

FISCAL RESPONSIBILITY AND BUDGET MANAGEMENT ACT

Why in news: N.K. Singh panel submitted its report on review of FRBM Act, with an aim to inspire confidence among rating agencies. Its target of 3% Fiscal deficit is likely to be met next year.

FRBM Act: FRBM law was enacted to limit the government’s borrowing authority under Article 268 of the Constitution. But the target to limit the fiscal deficit to 3% of GDP (by 2009) was abandoned after the 2008 global financial crisis as a liberal stimulus was seen as a way out.

Recommendations of N.K. Singh panel: • Maintain the 3% target till 2019-20 before aiming

for further reduction.

• Fiscal and revenue deficit numbers should be brought down to 2.5% and 0.8% of GDP respectively by 2023.

• Instead of focusing solely on deficits, the panel has called for paring India’s cumulative public debt as a proportion to GDP to 60% by 2023 — from around 68% at present.

• Creation of a Fiscal Council with independent experts. It will judge the need for deviations from targets.

Absolute numbers vs range:• A fiscal deficit range could be targeted instead

of absolute numbers. A fixed number does not have any economic basis per se.



• The range can be fixed keeping in mind global macroeconomic volatility, India’s tax-GDP ratio projections and expected spending thrust areas of the government.

• However, fixing a range would automatically lead to following the upper end of the band.

• Many countries have a system of flexibility in fiscal targets, such that in a slowdown it can borrow more than the average, provided it borrows less than average during expansionary phases. There is a need to respond to the inherent cyclicality of the economy.

The way forward:• The FRBM Act says government cannot borrow

more than 3 per cent of GDP even if banks do have money, even if the private sector does not take it, and even if the economy needs it for growth. The money may lie idle in banks, and yet the law will not allow the government to borrow. Both lack of money supply as well as lack of demand for credit weakens growth.

• Fiscal deficits can be contained through greater resource mobilization or by reducing expenditure. India has followed both the methods with different intensities. But resource mobilization, including increasing tax revenue, has not seen much improvement over time.

• States should be brought on board, as the 60% debt target includes 20% on their account.

FISCAL FEDERALISM:

Why in news:With the passing of GST Bill, the term ‘fiscal federalism’ has been in news. Two other changes which redefine fiscal relations are:

• 14th Finance Commission recommended increasing the share of states in the total divisible tax pool to 42% from the earlier 32%. It will give more autonomy to states in deciding their expenditure.

• Planning Commission was abolished. While the finance commission awards give the broad guidelines for sharing the divisible tax pool, the Planning Commission played allocated resources across states for developmental expenditure.

What is fiscal federalism?• Fiscal federalism deals with the division of

governmental functions and financial relations among levels of government.

• This includes taxation powers, borrowing powers and division of functions. When there is an inherent cooperation between the states and Centre, and also between different states, it is called cooperative fiscal federalism.

GST and fiscal federalism:• GST creates a unified common market, which

promotes greater economic activity.

• GST is a fundamental reordering of federal fiscal relations of India—while states have had to give up their taxation powers and cope with associated insecurities, the Union government has had to sacrifice its own share and its purview of revenues.

• GST Council is made up of state finance ministers, with the Union finance minister as the chairperson. States together account for two-thirds of the votes and the Centre holds only a third. Therefore, a consensus would be the preferred option instead of demanding a vote.

GOODS AND SERVICES TAX (GST):

Why in news:GST is a single, indirect tax, which was introduced on July 1, 2017. It is applicable throughout India. It is comprehensive, multi-stage, destination-based tax that will be levied on every value addition.

This is a typical manufacturing chain:

Background:• Earlier, different taxes such as VAT, Excise

duty etc were levied on each value addition, in different states. Now, GST will be levied on every point of sale.




Significance of GST:• Reducing the cascading effect of taxes: In the

case of Indirect Taxes, a shopkeeper can pass the liability of the tax to the consumer. So, the customer pays the price of the item as well as the VAT.

• Reduce the burden of taxes and prices: GST has a system of Input Tax Credit, which will allow sellers to claim the tax already paid, so that the final liability on the end consumer is decreased.

• Seamless nationwide market: GST will streamline indirect taxation regime. It will help the country’s businesses gain a level playing field.

• Structured and uniform taxes: It will put us on par with foreign nations who have a more structured tax system.

• Boost for economy: GST will improve the collection of taxes. It will also remove the indirect tax barriers between states. Thus, integrating the country through a uniform tax rate.

BITCOINS

Why in news: • There has been a significant growth in bitcoin

market in India.

• Recently, WannaCry malware, which hit hundreds of thousands of networks using Microsoft’s operating system in 150 countries, demanded ransom in bitcoins.

What are bitcoins?• Bitcoins are

c r y p t o c u r r e n y , generated through computer software, which ‘mines’ a certain value of this digital currency, transfers it directly among users and maintains records on a distributed ledger powered by blockchain technology.

• It is both a digital asset and payment system, the users of which can transact directly among themselves without a banking intermediary, bypassing regulators as well.

• If the entire manufacture process is happening in Maharashtra and the final point of sale is in Karnataka, Maharashtra will get revenue in the manufacturing and warehousing stages, but lose out on the revenue when the product reaches the end consumer in Karnataka. Karnataka will earn that revenue on the final sale, because it is a destination-based tax.

GST Categories:There will be 3 kinds of applicable Goods and Service Taxes: CGST, SGST & IGST.

CGST: where the central government will collect the revenue

SGST: where the state governments will collect the revenue for intra-state sales

IGST: where the central government will collect the revenue for inter-state sales

In most cases, tax structure will be as follows:

Transaction New Regime Old Regime Comments

Sale within the state CGST + SGST VAT + Central Ex-cise/Service tax

Revenue will be shared between the Centre and the State

Sale to another State IGST Central Sales Tax + Ex-cise/Service Tax

Only one type of tax (central) will be lev-ied.

Under GST, goods and services are taxed at 0, 5%, 12%, 18% and 28%. There is a special rate of 0.25% on rough precious and semi-precious stones and 3% on gold.



Pros: • No counterfeiting: Bitcoins are digital and

cannot be counterfeited.

• Reduced Possibility of Identity Theft: Bitcoins use a “push” mechanism. It does not require names – just digital wallet IDs.

• Lower Fees: No transaction fees for bitcoin exchanges as the bitcoin miner is compensated by the network with newly issued bitcoins.

Cons:• High risk: Value of bitcoins more than doubled

over the last three months, spurring talk of a bubble. Using the coin for transactions are fraught with dangers of sudden value erosion.

• Financing Illegal and Immoral Activities: The appeal of bitcoin is that it can be used anonymously for illegal or antisocial acts. Bitcoin has built its reputation around being both anti-government and anti-establishment.

• Lack of Security: There is no safety net or perfect way to protect your bitcoins from human error, technical glitches, or fiduciary fraud.

Regulation of bitcoins:• Bitcoins and related transactions have no legal

sanctity. Government is mulling over introducing KYC norms for cryptocurrency transactions.

• A panel formed by the finance ministry has recommended the government to take immediate steps to stop use of Virtual currencies to protect people from potential frauds and curb money laundering.

BANKING 33

FINANCIAL SECTOR LEGISLATIVE REFORMS COMMISSION (FSLRC):

Why in news?FSLRC, constituted by the Ministry of Finance in March 2011, was asked to comprehensively review and redraw the legislations governing India’s financial system.

Recommendations of FSLRC:

Present Proposed Functions

RBI RBI 1. Monetary policy

2. Regulation and supervision of banks

3. Regulation and supervision of payments system.

SEBI, FMC, IRDA, PFRDA United financial agency (UFA)

Regulation and supervision of all non-bank and payments related markets.

Securities Appellate Tribunal (SAT)

FSAT Hear appeals against RBI, the UFA and FRA.

Deposit Insurance and Credit Guarantee Corporation (DICGC)

Resolution Corporation Resolution work across the entire financial system.

Financial Stability Development Council (FSDC)

FSDC Statutory agency for systemic risk and development.

New entities Debt Management Agency Fiscal Redressal Agency

An independent debt management agency. Consumer complaints

MONETARY POLICY COMMITTEE

Why in news: The RBI Act, 1934 was recently amended to provide for a statutory and institutionalized framework for a Monetary Policy Committee.

Aim:To maintaining price stability, while keeping in mind the objective of growth. MPC fixes the benchmark policy rate (repo rate) required to contain inflation within the specified target level. Inflation target for FY2021 has been fixed at 4+_2% by GoI, in consultation with RBI.



Constitution: It has six members- 3 from the RBI and 3 appointed by the Central Government. The meetings of the Monetary Policy Committee shall be held at least 4 times a year.

How is it different from earlier practice followed by the RBI? Earlier, a technical advisory committee constituted by the RBI gave their opinion and suggestions on what the RBI should do. But the governor’s word was final on the rates and the advice of the technical advisors is not binding on the RBI.

PRIVATIZING INDIAN BANKS

Why in news:• RBI deputy governor Viral Acharya has called for

privatization of nationalized banks and sale of their subsidiaries and other assets. Bank recapitalization is akin to throwing good money after bad.

Significance of PSBs (Public sector Banks)• In theory, PSBs are under social obligations-

pressure to protect levels of employment, to extend unprofitable services to poor people and make politically influenced credit decisions.

• Bereft of the profit motive they are engaged in slow, safe lending. PSBs respond to pressure to perform by cutting rates, thereby attract bad borrowers to state banks and undercuts private banks.

• Privatizing such entities will lead to improvement in asset quality and also help increase the productivity.

MERGING OF BANKS

Why in news: • Currently, there are 21 PSU banks in the country,

including State Bank of India. After the merger of SBI and its subsidiaries, government plans to merge certain Public Sector Banks (PSBs) further.

• Government is looking to create 3-4 large banks, some mid-sized banks and 2-3 specialised banks.

• The factors that would be looked into while the government undertakes consolidation exercise include financial burden (including stressed

assets), human resource transition, regional balance, cultural ethos and geographical reach.

• Government has decided to recapitalize only profitable banks with a good performance record.

Pros of bank merger:• It will cut costs and the banks will acquire more

efficiency.• Healthier Banks: This process will enable PSBs

to raise private capital from the market, and not rely on government largesse. This, in turn, will help them stand up to competition from global banks, which will eventually have to be allowed to enter India.

• Competition with private banks: The consolidation of PSBs may be able to avert the inevitable loss of market share to private sector banks/NBFCs to some extent.

• Basel norms compliance: The drive to create larger Indian banks stems from the need to comply with new Basel norms that would kick off by 2018.

Challenges: • Weak bank should not merge a weak bank with

a larger one in a manner which would adversely impact the profitability of the latter. The Narasimham panel was in favour of the closure of weak banks. Minority shareholders of PSBs cannot be burdened with decisions that are not justifiable from the commercial angle.

• If the merged entity faces a financial predicament, it can pose a serious systemic risk, making the entire economy vulnerable.

• Issues such as a bank's work culture and level of integration will have to be taken into consideration before such mergers. Some suggest that regional consolidation of banks should be done.

• It is difficult to redeploy and retrench staff.

The way forward:Technology may not be a big hurdle for mergers as most banks are working on a platform managed by the same vendor but the key to success of any merger will be large-scale shutting of branches in urban centres, reduction in staff strength and exploring the right business synergy and work culture.

India needs more banks. The Narasimham committee had spoken about a large number of regional and local banks at the lowest tier of banking structure.




DIFFERENTIATED BANKS:

Why in news:RBI gave in-principle license to 11 entities for opening payment banks. Both payment banks and small banks are ‘niche’ banks, with the common objective of furthering financial inclusion. It was mooted by Nachiket Mor Committee.

Small Banks can go PAN-INDIA

Payment Banks Small Banks

Who can promote:

• Prepaid card issuers, telecom companies, NBFCs, business correspondent, supermarket chains, corporates, realty sectors co-ops and PSUs.

• To be an advisory body, or a think-tank. The powers to allocate funds might be vested in the finance ministry.

What they must do:

• Have a minimum capital or RS 100cr

• Maintain 75% of deposits in govt bonds

• Maintain 25% of deposits in other banks

• Have at least 26% investment by Indians

• Get listed if net worth crosses Rs 500cr

• Have 25% of branches in unbanked areas

• Be fully networked and technology driven

• Have Rs 1 lakh cap for deposits in one a/c

• Have a minimum capital of Rs 100cr

• Extend 75% of loans to priority sector

• Have 25% of branches in unbanked areas

• Maintain reserve requirements

• Cap loans to individuals and groups at 10% and 15% of net worth

• Have a business correspondent network

What they can do:

• Offer internet banking

• Sell mutual funds, insurance, pensions

• Offer bill payments service for customers

• Have ATMs and business correspondents (BC)

• Can function as BC of another bank

• Self forex to customers

• Sell mutual funds, insurance, pensions

• Can convert intoa full-fledged bank

• Expand across the country

What they can't do:

• Offer credit cards

• Extend loans

• Handle cross-border remittances

• Accept NRI Deposits

• Extend large loans

• Float subsidiaries

• Cannot deal in sophisticated financial products



NON-PERFORMING ASSETS

Why in news:• As in March 2017, stressed assets were close

to 12% of India’s GDP. Level of NPA is highest among BRICS nations.

• NPA has increased due to farm loan waivers. Recently, Lok Sabha passed a Bill to amend the Banking Regulation Act so as to empower the RBI to intervene and trigger insolvency proceedings against the defaulting companies and help the affected banks to recover the soured advances at least partially.

NPA spiral:• PSBs, under political pressure, have been

sanctioning loans for projects on a large scale without exercising due diligence.

• In the guise of “corporate debt restructuring”, banks have allowed the defaulting corporate businesses to have their way.

• Stressed assets prevent bank from further lending. High NPAs also force banks to keep their lending rates high to boost their profits.

Other suggestions to tackle NPA:• RBI has over the past few decades come up with

a number of schemes such as corporate debt restructuring (CDR), formation of joint lenders’ forum (JLF), flexible structuring for long-term project loans to infrastructure (or 5/25 Scheme), strategic debt restructuring (SDR) scheme and sustainable structuring of stressed assets (S4A) to check the menace of NPAs.

• NPA problem has to be tackled before the time a company starts defaulting. This needs a risk assessment by the lenders and red-flagging the early signs of a possible default.

PARA BANK

Why in news: • Economic Survey suggested setting up of Public

Sector Asset Rehabilitation Agency (PARA) to deal with the problem of non-performing loans. It is just a new version of the ‘bad bank’ idea.

• The government can separate the capital infusion exercise from the clean-up exercise.

What is PARA Bank?• PARA will be an independent entity that will

identify the largest and most vexatious NPA accounts held by banks, and then buy these out from them. This will consolidate NPA accounts across banks. Thus, solving two problems.

w It can effect speedier settlements with borrowers by cutting out individual banks.

w As a single large lender, it can drive a better bargain with borrowers and take more stringent enforcement action against them.

• PARA is expected to raise capital for its buyouts by issuing government securities, tapping the capital markets or receiving a capital infusion from the RBI.

How would PARA Works?

• Purchase specified loans from banks.

• Work them out by converting debt to equity and auctioning it or by granting debt reduction.

• Shareholders in the stressed enterprises may need to lose their equity as well.

• Government to recapitalize public sector banks one the loans are off their books.

• Over-indebted enterprises will be able to focus on operations once indebtedness resolved.

• PARA funded by government issue of securities, capital markets and transfer of government securities by RBI to public sector banks and PARA.

DEMONETISATION 44

Impact on economyThe goal of demonetization was to weed black money and counterfeit notes out of the system.

Benefits:• The movement of household savings from

physical to financial will help boost growth.

• Over 33 Lakh taxpayers have been added to tax net.

• Demonetization has also led to better tax compliance (aided by GST), and increased funds for government. The better fiscal position might also allow the government to reduce income tax rates, which would subsequently lead to higher disposable incomes with tax payers. All this would aid the consumption-multiplier effect

• Demonetization was successful at wiping out all of the fake notes that were in circulation. The new 500 and 2000 notes have more security features.

• People were forced to open bank accounts for the first time and to get acquainted with electronic payment systems

• It is also thought that the drive will wipe out a measure of corruption and tax evasion in India’s real estate market.

• Cash economy to digital economy: Prior to demonetization, Indians used cash for over 95% of all payments. Also, 90% of the country’s vendors didn’t have the means to accept electronic payments.

• The leading consumer internet companies in India (Flipkart, Snapdeal, Ola, Oyo Rooms etc) have applauded the move, saying it will pave the way for digital payments, aid the process of financial inclusion and the overall transformation in the economy will translate into long-term benefits for the industry.

• The growth of digital payments will give big boost

to lending and credit as the digital records of merchants will expand and create more demand in the second phase.

Criticism:• Inconvenience to public: The process of

demonetization was not smooth, and ATMs weren’t calibrated for the new sized bills. Many people still did not have bank accounts. Problems were worse in remote areas, where even barter trade began to cope up with cash shortage.

• 97% of the demonetized notes were turned in, meaning that very little black money was caught. Black money is rarely stored in cash in long term; it is rather stored as jewelry or property.

• The informal economy in India, which employs more than a majority of the workers and most transactions are in cash, was hard hit.

• Counterfeits of Rs.2000 notes appeared as soon as they were introduced.

• Instances of ATM frauds have grown, with a lot of public being uneducated and not well versed in digital payment systems.

The way forward: When 86 per cent of a country’s legal tender becomes illegal, finding ‘a new level of equilibrium’ would require time. The smaller short-term risks, especially those emanating from the demand side are to be addressed carefully. The real impact must be assessed in the medium/long term.

CASHLESS ECONOMY: IS INDIA READYTo incentivise the move towards a cashless economy, the government has come up with discounts and freebies on digital transactions. State Bank of India finding says there was no surge in cash withdrawals despite banks lifting all limits.



Advantages of going cashless:• Convenience: One need not carry wads of

cash, plastic cards, or even queue up for ATM withdrawals. It’s also a safe and easy. Transactions can be done at any time.

• Discounts: The recent waiver of service tax on card transactions up to Rs.2000 is one of the incentives provided by the government to promote digital transactions. Reward points and loyalty benefits could cut costs for consumers marginally.

• Lower risk: If stolen, it is easy to block a credit card or mobile wallet remotely, but it’s impossible to get your cash back.

• Benefits for the poor: Cash can facilitate exploitative practices because of the control moneylenders and bosses have over laborers. With everyone having a bank account, government can make cashless payments mandatory.

Drawbacks of going cashless:• Higher risk of identity theft: With the rising

incidence of online fraud, the risk of hacking will only grow as more people hop on to the digital platform.

• Given the tedious process and poor grievance redressal, people will have no easy recourse if they lose money online. There is no stringent legal process to deal with this kind or scale of fraud.

• Only about 27% of Indian populace has smartphones. Low penetration of internet makes it difficult to shift an entire generation to digital economy.

The way ahead:A high penetration of the digital payment system is contingent on the fact that the same amount of cash does not come back into circulation. If it does, people are more likely to switch back to the former ease of using cash as it is a habit that they may find difficult to break.

Impact on terror funding: ‘Hawala' cash transfers to terrorists in Kashmir, which were mostly made using the defunct bills, have dried up. Demonetization made it harder for them to pay young people to stage violent protests.

According to intelligence inputs, Left-wing extremism has been hit hardest by the currency ban. Over 469 of LW extremists did so on or after November 8. However, demonetization cannot be seen as panacea for these evils.

POVERTY AND UNEMPLOYMENT

55

UNIVERSAL BASIC INCOME:

Why in news:• The Economic Survey 2016-17 proposed the

concept of Universal Basic Income as an alternative to various social welfare schemes in an effort to reduce poverty.

• Jammu and Kashmir became the first state to commit to Universal Basic Income for all citizens living below the poverty line.

• Last year, Switzerland rejected a proposal in a referendum to guarantee every adult citizen and long-term resident 2,500 Swiss francs per month.

• Recently, Finnish government has piloted the idea with 2000 of its citizens with very positive results.

Need:• Robot to worker ratios are rising rapidly across the

world. It is already 4.78 robots per 100 workers in Korea and 3.14 robots per 100 workers in Japan. As their numbers increase, cost of their labour/implementation goes down.

• Over 69% jobs in India are at risk due to automation. This affects all sectors of the economy- construction labourers, fast food cooks, farm labor, etc.

• Universal Basic Income has been proposed as a solution to this conundrum.

What is UBI?• Under UBI, every citizen receives a certain

amount, at a level sufficient for subsistence, every month without any requirements to fill in forms or actively seek work.

• In India, government is mulling over UBI for BPL only. While the reasons for providing UBI in western countries, where the idea was originally developed, are stagnant wages and an effective demand collapse, in India, the idea is to provide

financial security to the poor.

Benefits:• UBI is seen as a solution to the mass

unemployment that might result from automation. Even with a GDP growth of over 6.5% in the last decade, unemployment is on the rise.

• It will act as a basic income, replacing the existing anti-poverty programmes the government carries out. In a way, it will eliminate households living below poverty line.

• Some see it as a way to distribute fruits of technological advancement fairly.

• There are positive externalities such as reduction in malnourishment among children.

Criticism: • Since UBI is an unconditional benefit, it would

disincentivize productivity and work.

• Governments will not be able to secure the funds to be able to fund UBI in perpetuity.

• At a macroeconomic level, it will lead to inflation.

• Whether UBI will be over and above subsidies is debatable.

The way ahead:With at least half the population not included in the formal banking system, a UBI scheme cannot be fully implemented. In the absence of working and effective infrastructure, cash transfers cannot ensure that the poor will get the quality of life they deserve. The resources would be better used if there was an effort to close the gaps and fill the voids through education, training and skill development.

MODIFICATIONS IN NREGA:

Background• NREGA guaranteed a minimum 100 days of

employment out of the 365 days in a year to



every willing household. Inability to provide employment within 15 days from the requisition date had to be compensated through an unemployment allowance.

• In the initial years, MNREGA caused rural wages to climb and there was a decline in migration to urban centres.

• A NCAER study of 2015 showed that the Act helped in lowering poverty by almost 32 per cent between 2004-05 to 2011-12 and prevented almost 14 million people from falling into poverty.

• However, a CAG report pointed the inefficiencies and corruption in NREGA scheme. Only 20 per cent of total funds allocated under the scheme was released for Bihar, Maharashtra and Uttar Pradesh where almost almost 46 per cent of India’s rural poor reside.

• The government tried to limit the coverage of NREGA to few extremely poor districts. However, two consecutive droughts; interspersed with a historic low in farm prices due to slump in the global commodities market, forced the government to bring it back.

Various changes were brought about in NREGA to make it more efficient and effective:• Convergence with irrigation schemes: The

government wants to construct 0.5 million farm ponds and dugwells and 1 million vermicompost pits every year in the rural areas through MGNREGA.

• It has been decided to maintain a 60:40 wage-material ratio for the MGNREGA now at the district level instead of the panchayat level as was the case earlier. This will ensure creation of good quality assets in rural areas.

• The scheme’s convergence with related programmes in the department of agriculture, irrigation, animal husbandry and even road transport is being planned.

LOW SKILL MANUFACTURING

Why in news:Budget talks about reclaiming job creation through low skill manufacturing. Meeting the challenge of jobs may require paying attention to labor-intensive sectors such as apparel and leather sectors.

Why apparel and leather sectors?• These provide opportunities for creating jobs

(especially for women).

• Opportunities for exports and growth, as there is a worldwide demand for these goods. Take-off in economic growth in East Asia has been associated with rapid expansion in clothing and footwear exports. Around 7-10% of GDP growth rate was associated with 20-50% growth in apparel and 25% in footwear industry exports.

• Rising labor costs in China affords India an opportunity to fill up the vacuum.

Challenges:• Bangladesh and Vietnam in case of apparels,

and Vietnam and Indonesia in case of leather and footwear, are fast taking over the space ceded by China.

• To gain competitiveness in these sectors, India requires easing restrictions on labor regulations, negotiating FTAs with major partners such as the EU and UK, and ensuring that the GST rationalizes current tax policy that can discriminate against dynamic sectors.

• Unavailability of abundant cattle for slaughter hampers leather industry.

• Problem of logistics: The costs and time involved in getting goods from factory to destination are greater than those for other countries.

Steps taken by government in this regard:• Apparel exporters will be provided relief to offset

the impact of state taxes embedded in exports, which could be as high as about 5 per cent of exports.

• Government will contribute to the employers’ 12 per cent contribution to the Employee Provident Fund (EPF) in textile firms.

• Taxation regime under GST will not discriminate in the case of apparels against the production of clothing that uses man-made fibers; and in the case of footwear against the production of non-leather based footwear.

Thus, India’s comparative advantage can be utilized well to make inroads into these sectors, and reclaim low skill manufacturing to generate jobs and have wider, economy-wide benefits.

AGRICULTUREISSUES

66

AGRARIAN DISTRESS: BUMPER CROP VS CROP FAILURE

Why in news:• 2017 is marked by bumper crop, and hence an

erosion in farmer’s earnings.

• Agrarian distress is evident from low growth, poor earnings and distress behaviour such as large-scale internal migration and disproportionately high suicides in agrarian India.

Causes of agrarian distress:• Weather vagaries make agricultural yield

unreliable. Other issues: fragmented land holding, depleting water table levels, deteriorating soil quality, rising input costs, low productivity.

• Demonetisation affected purchase of seeds, fertilizers etc. in time for sowing.

• Cattle, as a source of dependable liquid asset, has become unreliable, as uncertainty surrounds the trade of livestock.

• The rate of decline of the population dependent on agriculture has been low since employment outside of agriculture has not been growing fast enough.

• Good harvest year leads to reduction in prices, as a result of the supply-demand imbalance that increased production resulted in.

• In good harvest years, minimum support prices are not increased adequately to ensure a floor price that covers costs and offers a remunerative return.

• Presence of intermediaries often leads to lower prices earned by farmers, even as increasing cost for consumer.

• Support systems such as availability of cold storage, adequate linkage between field-factory, farm credit, insurance etc. are missing. This forces farmer to sell his produce at whatever

price it fetches.

What needs to be done?• Investment in agriculture needs to be encouraged

to raise productivity. This can be in the form of irrigation facilities, rainwater harvesting structures etc.

• Government has to balance the needs of consumers with those of producers.

• There is a need to encourage multi-farming, not as a means of subsistence, but as a means of economic security and increased income.

• Bumper crop years: There is a need for policy intervention that stabilises prices, along with adoption of redistributive measures such as subsidies to rein in costs. This year, government was aware of the possibility of a bumper crop. If the government chose to use its Price Stabilisation Fund, it could subsidise crops such as onions, which have bumper produce.

The way forward:There is a need to be prepared well in advance for both extreme events in agriculture- crop failure as well as bumper crop.

CROP INSURANCE SCHEME: PMFBYWhy in news: • The sums insured under National Agriculture

Insurance Scheme (NAIS), modified NAIS, and Weather Based Crop Insurance Scheme (WBCIS) were too low, as premiums were kept low. Compensation was so meager that governments used the National Disaster Relief Funds to address the situation. Consequently, PM FASAL BIMA YOJANA was introduced.

• Recently, state governments were asked to set up their own insurance companies for better



implementation of the crop insurance scheme. At present, both public and private insurers are implementing the PMFBY. More companies will enhance the competition.

Performance of PMFBY:• Compared to a normal kharif year, say 2013,

the number of farmers opting for the scheme increased by 210 per cent in kharif 2016, and the area covered increased by 126 per cent.

• In the whole process of claim settlement, farmer has no role. If states delay notifications, or payment of premiums, or crop cutting data, there is no way companies can pay compensation to the farmers in time.

The way forward: There is an urgent need to link the insurance database with Core Banking Solution (CBS) so that when premium is deducted from a farmer’s bank account, the bank sends him a message informing about the premium, sum insured and name of insurance company.

NATIONAL AGRICULTURAL MARKET (e-NAM):

Why in news: e-NAM was launched in April 2016. It will operate through an online portal which is being linked to the mandis of the States. Its software will be provided to all the willing states without cost. It is a step towards doubling the farmers’ income by 2021. It is a step towards transparency and “one nation, one market”.

Benefits of NAM: NAM would essentially be a common electronic platform allowing farmers to sell their crops to buyers anywhere in the country and vice versa. The benefits to buyers (large retailers, processors or exporters) are-

• They can log into the platform and source from any mandi in India connected to it.

• They don’t need to be physically present or depend on intermediaries with trading licenses in those mandis.




However, benefits to farmers are limited, as they often sell their produce to intermediaries.

The way ahead:Farmers can benefit a lot through e-NAM if they were to find ways for aggregating produce on their own, bypassing the arhatiya (produce aggregator) and even the local mandi in the process. This is where farmer producer organisations and cooperatives can play a role. They can facilitate aggregation and creation of volumes of produce.

FARM LOAN WAIVER:

Why in news:Due to farmer agitations and farmer suicides, state governments are forced to announce farm loan waiver.

Negative aspects of farm loan waiver:• It undermines an honest credit culture and

impacts credit discipline. It also entails transfer from taxpayers to borrowers.

• It blunts incentives for future borrowers to repay. • If on account of this, overall government

borrowing goes up, yields on government bonds also are impacted. Thereafter it can also lead to the crowding out of private borrowers as higher government borrowing can lead to an increase in cost of borrowing for others.

• The larger worry is of the fiscal health of state governments or their finances.

Why farm loans should be waived:• The policy framework for farm loans has a

provision that when the Centre declares a drought, farm loans in affected districts are rolled over, initially for a year, up to a maximum of three years.

• However, farmers’ problems in 2016-17 have been influenced by demonetisation: there was no clear geographical demarcation, and there has been no rolling over of loans.

• Therefore, farmers across the country have to either agitate or face the prospect of default.

• Agricultural loans by banks in India are compulsorily insured by the Agricultural Insurance Company of India (AIC), whose liabilities are back-stopped by the Centre through budgetary support.

• Hence, even if loans aren’t waived, there is no loss to banks. Waivers are borne by states, and defaults are borne by the Centre.

• A non-waiver will force farmers towards moneylenders, which will initiate a vicious cycle of poverty for him.

The way ahead:Farm loan waiver is only a temporary measure. The Centre and states need to work together to evolve a farm loan model which protects both farmers and banks without bringing politics into it. This is the essence of “cooperative federalism”. Until such time, farm loan waivers need to be viewed less ideologically and with more compassion.

DOUBLING FARMER INCOME BY 2022:

Why in news: Central government has decided to double farmers’ income by 2022 through a slew of measures. The idea is also to reduce input cost of farmers and increase farm productivity in areas which have not experienced the benefits of key schemes.

4 point Action Plan of NITI Aayog:The four-point action plan includes the following measures:

• Remunerative prices for farmers by reforming the existing marketing structure- Agriculture Produce Marketing Committee (APMC) need to move towards Model APMCs in order to reduce the role of middlemen and ensure remunerative prices to farmers for their produce.

• Raising productivity- substantive investment in irrigation, seeds & fertilisers and new technology coupled with a shift into high-value commodities such as horticulture, poultry and dairying to double incomes.

• Reforming agriculture land policy- so that small farmers who wish to lease their land to tenant farmers do not face hurdles. This will enable them to access credit and insurance from the government.

• Relief measures



Steps already taken:• Irrigation infrastructure across the country have

been developed under elements of 'Pradhan Mantri Krishi Sinchai Yojana', such as Accelerated Irrigation Benefits Programme, Har Khet Ko Pani, etc.

• Distribution of soil health cards to farmers

• Streamlining farm credit facilities

• making efforts for second Green Revolution in eastern India

The way ahead: Earlier strategy focused on raising farm output and improving food security. Farmer’s income was never a focus area per se. Doubling farmer’s income is a mammoth task, but a much needed one.

Planning

Niti (National Institution for Transforming India) Aayog & Its Critical Analysis

Background:• For Planning Purpose in India, Planning Commission

was established in 1950 as an advisory institution to form five-year plans in the country on the line of USSR (former Soviet Union).

• Functions of the Planning Commission: w Estimate the physical, capital and human

resources of the country.

w To prepare plan for making effective and balanced utilization of human resources.

w To determine various stages of planning and to propose the allocation of resources on priority basis.

Why NITI Aayog Replaced Planning Commission? • In due course of Existence of Planning

Commission, It had Institutionalised itself in the form of a policy making as well as Resource/ Fund allocation body.

• PC had become very bulky and its own survival needed a lot of expenditure.

• PC took a top-down approach with a one-size-fits all plan.

• The states had little direct say in policy planning, which was the purview of the Planning Commission.

• Due to all this drawbacks & Arm chair attitude, a new organisation was needed and hence Niti Aayog was born to replace PC.

• NITI Aayog was formed on January 1, 2015. NITI Aayog via a resolution of the Union Cabinet. It is the premier policy ‘Think Tank’ of the Union Government.

Aims and Objectives of Niti Ayog• NITI Aayog is essentially an advisory body that

seeks to provide critical directional and strategic inputs across spectrum of key elements of policy to the centre as well as states.

• It also seeks to put an end to the slow and tardy implementation of the policy by fostering inter-ministry, inter-state and centre-state coordination.

• Strong states make a strong nation, is the core idea; and the Ayog will foster cooperative federalism by evolving a shared vision of national development priorities.

• It has been envisaged to follow the bottom-top development approach whereby, it would develop mechanisms to formulate credible plans to the village level and aggregate these progressively at higher levels of government.

• It would also pay attention to the weaker sections of the society that may not have benefitted from economic progress.

• It would create a knowledge, innovation and entrepreneurial support system via a community of national and international experts, practitioners and partners.

• It would serve as a platform for resolution of inter-sectoral and inter-departmental issues in order to accelerate the implementation of the development agenda.

• It will also monitor and evaluate the implementation of programmes, and focus on technology upgradation and capacity building.

Composition of NITI Aayog• Chairperson: Prime Minister

• Governing Council: Its members are Chief Ministers and Administrators of the Union Territories

• Regional Councils: These would be created as per need and its members would be chief ministers and administrators of UTs of respective regions.




Difference between Planning commission and NITI Aayog

Planning Commission NITI Aayog

Enjoyed the powers to allocate funds to ministries and state governments.

To be an advisory body, or a think-tank. The powers to allocate funds might be vested in the finance ministry.

The last Commission had eight full-time members The number of full-time members could be fewer than Planning Commission

States' role was limited to the National Development Council and annual interaction during Plan meetings.

State governments are expected to play a more significant role than they did in the Planning Commission.

Secretaries or member secretaries were appointment through the usual process

Secretaries to be known as the CEO and to be appointed by the prime minister.

Full Planning Commission had no provision for part-time members.

To have a number of part-time members, depending on the need from time to time.

The commission reported to National Development Council that had state chief ministers and lieutenant governors.

Governing Council has state chief ministers and lieutenant governors.

Had deputy chairperson, a member secretary and full-time members

New posts of CEO, of secretary rank, and Vice-Chairperson. Will also have five full-time members and two part-time members. Four cabinet ministers will serve as ex-officio members.

Policy was formed by the commission and states were then consulted about allocation of funds.

Consulting states while making policy and deciding on funds allocation. Final policy would be a result of that.

Had power to decide allocation of government funds for various programmes at national and state levels.

No power to allocate funds

Imposed policies on states and tied allocation of funds with projects it approved.

NITI is a think-tank and does not have the power to impose policies.

• Vice-Chairperson: The Vice-chairperson of the Niti Ayog will be appointed by Prime Minister. The first Vice-Chairperson of Niti Ayog is Arvind Panagariya.

• Further, the Niti Ayog has full time members (number unspecified), part time members (maximum 2 , these would be scholars from universities and research institutions).

• Ex-officio members (maximum 4, these are ministers from Union Council of Ministers)

• Special Invitees (appointed by PM for fixed tenure.

• Finally, there is a Chief Executive Officer (CEO) of the Niti Ayog, who is appointed by Prime Minister and has a rank similar to Secretary to the Government of India

Niti Aayog in News• Arvind Panagariya (64) has resigned as Vice

Chairman of NITI (National Institution for Transforming India) Aayog and announced to return to academics.

• The NITI (National Institution for Transforming India) Aayog has approved 6 transport proposals of the transport ministry exploring options to



improve public transport. It includes high-tech mass rapid transportation technologies such as Metrino, hyperloop, pod taxis, stadler buses, hybrid buses and freight rail road.

• NITI Aayog has launched SATH-‘Sustainable Action for Transforming Human capital’ with the State Governments for furthering the agenda of cooperative federalism. SATH initiative plans to identify and build three future ‘role model’ states for health systems. SATH program will be implemented by NITI Aayog along with McKinsey & Company and IPE Global consortium.

• NITI Aayog task force to come up with a methodology to generate timely and reliable employment data.

• The National Institution for Transforming India (NITI) Aayog and Confederation of Indian Industry (CII) jointly launched India Innovation Index.

• The NITI (National Institution for Transforming India) Aayog along with Union Ministry of Health and Family Welfare has rolled out Performance on Health Outcomes index to rank States on the basis of their performance on measurable health indicators.

• Niti Ayog has launched Lucky Grahak Yojana to encourage consumers and Digi Dhan Vyapar Yojana to encourage merchants for transition to to digital payments

• Union Government’s think-tank NITI Aayog has devised a short-term and medium-to-long term action plan to help India achieve 50 medals in 2024 summer Olympics.

Success and Failure of NITI Aayog:• NITI Aayog is still at infancy, role of think tank is

not an easy one. It has to give suggestions to the State Governments and Government of India. It is trying to perform this role. It will be still early to comment whether it has performed its duty as Think Tank well or not.

• Any think tank has to be slightly distant from the Government. The members and Vice Chairman of NITI Aayog have been defending Government on all issues which is actually the role of various ministries of the Government. If that role is taken by the think tank, then there is a conflict between justifying Government and giving advice to the Government on right issues.

• NITI Aayog has done some good work in the areas of land acquisition, whether PSUs should work as Government department or as a commercial organization, digital economy etc.

• As far as demonetization is concerned, NITI Aayog had no role in conceptualizing this move, affirming this policy or implementation.

• Even on MDGs, NITI Aayog could not generate a Report as to why India could not achieve them in 2015.

• Job creation needs immediate focus. NITI Aayog needs to study the trends of jobs in last few years in India as past few years were those of jobless growth.

Conclusion• Any criticism that leads to improvement or

transformation is welcome.

• More studies are required to be done along with accountability.

• The institution is expected to serve the purpose of co-operative federalism.

• NITI Aayog should make evaluations of the flagship programmes being run by the Government and help in delivering those programmes on ground.

• It has a role in governance and its larger role is to align with the Government policies and give them suggestions.

• To make it strong, some powers should also be vested in them.

Food Processing Sector

Overview of the food processing sector: • A well-developed food processing sector with

higher level of processing helps in

w Reduction of wastage,

w Improves value addition,

w Promotes crop diversification,

w Ensures better return to the farmers,

w Promotes employment,

w Increases export earnings.

• This sector is also capable of addressing critical issues of food security, food inflation and providing wholesome, nutritious food to the masses.

• India ranks no 1 in the world in the production of Milk, Ghee, Ginger, Bananas, Guavas, Papayas and Mangoes.




• India ranks no 2 in the world in the production of Rice, Wheat and several other vegetables & fruits.

• Abundant supply of raw materials, increase in demand for food products and incentives offered by the Government has impacted food processing sector positively

Statistics• Annual Growth Rate of Food Processing

Industries sector during 2015-16 was 7.00 per cent as compared to around 4.90 per cent in Agriculture and 8.06 per cent in Manufacturing.

• The sector constitutes as much as 8.80 per cent of GVA in Manufacturing and adds 8.39 per cent to the GVA of Agriculture sector.

• Annual survey of Industries (ASI) is the main source of data on the number of units, employment, output and investment in fixed capital for Registered Food Processing units

• Food Processing Industry is one of the major employment intensive segments constituting 11.69 per cent of employment generated in all Registered Factory sector in 2013-14 followed by Textile and Wearing Apparel sector.

• According to the latest Annual Survey of Industries (ASI) for 2013-14, the total number of persons engaged in registered food processing sector was 17.41 lakhs

• Unregistered food processing sector supports employment to 47.9 lakh workers as per the NSSO 67thRound, 2010-11.

• During 2015, India’s Share in world exports of processed food products was about 2.36 per cent

• 100% FDI is permitted under the automatic route in food processing industries.

• 100% FDI is allowed through approval route for trading, including through e-commerce in respect of food products manufactured and/or produced in India.

• With 268.9 Million Tonnes of horticultural production in 2012-13, India is second largest horticultural producer after China.

• At the same time, India is disappointingly ahead in loss of vegetables and fruits.

• As per APEDA (Agricultural and Processed Food Products Export Development Authority), India loses Rs. 13,000 to 15,000 Crore every year on waste of fruits and vegetables.

• The key reason for higher wastage of fruits and vegetables is non-availability facilities of temperature controlled storages. Only 2% of the perishable produce has that facility.

Global Food Processing Industry• The global processed food industry is estimated

to be valued around USD 3.4 trillion and accounts for three-fourth of the global food sales.

• However, only 6 percent of processed foods are traded across borders compared to 16 percent of major bulk agricultural commodities.

• The United States and European Union together account for over 60 percent of total retail processed food sales in the world.

• Trade liberalization policies through multi-lateral and regional trade agreements have led to a rapid growth in food processing.

• In the Asian region, Japan is the largest food processing market, but India and China are likely to grow at a faster rate in the next decade.

Types & Segments• According to Food and Agriculture Organization

(FAO), processed foods can be classified into three types viz. Primary, Secondary and Tertiary.

• The primary processing includes basic cleaning, grading and packaging as in case of fruits and vegetables.

• Secondary processing includes alteration of the basic product to a stage just before the final preparation as in case of milling of paddy to rice.

• Tertiary processing leads to a high value-added ready-to eat food like bakery products, instant foods, health drinks, etc.

• Dairy Segment: Pasteurized and packed milk, Whole milk powder, Skimmed milk powder, Condensed milk, Ice cream, Butter, Ghee and Cheese etc.

• Fruits and Vegetables segment: Beverages, Juices, Concentrates, Pulps, Slices, Frozen and Dehydrated products, Potato Wafers/Chips, etc.



• Grains and Cereals: Flour, Bakeries, Starch Glucose, Cornflakes, Malted Foods, Vermicelli, Beer, Grain based alcohol.

• Fisheries: Frozen and Canned products mainly in fresh form.

• Meat and Poultry: Frozen and packed-mainly fresh form.

• Consumer Foods: Snack food, Namkeen, Biscuits, Ready to eat food, Alcoholic and Non-alcoholic beverages.

Potentials for Food Processing Industry• Rapid growth in organized retail, a catalyst for

the food industry.

w Increased consumer spend as organized retail and hypermarkets can drive cost down by 35-40%

w Employment generation and higher tax revenue

w Productivity gains across entire supply chain through dis-intermediation and superior technology

• Consumer trend towards convenience and ‘enjoying life’ driven by demographic trends in age, income-levels and more women in the workforce

w Explosion of convenience foods, value-added foods and eating-out

w Increasing willingness to pay premium for quality products

• Global shift to outsourcing from India across products/ services including food

w High-margin businesses possible in niche export markets (e.g. organic foods, herbal products)

w Quality improvement and spill-over to domestic markets, as producers meet stringent export requirements

w Investments in cold chain and transport infrastructure

• De-regulation and liberalization of the Indian economy, driven by central and state governments

w Ease of entry for new businesses and capacity addition

w Demand-growth from economy growth and rising incomes

w Potential to bring in global technology, know-how and investments

Roadblocks & Challenges• Supply Chain infrastructure gaps

• Lack of primary processing & Distribution (Cold Chain Infra)

• Inadequate link between production & processing (Forward- Backward Linkage)

• Seasonability of operation & low capacity utilisation

• Inadequate focus on quality & safety standards

• Lack of product development & Innovation

• Supply chain institutional gaps (procurement dependence on APMC Markets)

• Lack of new Technology

• Lack of Trained Manpower

• Lack of farm & Lab connectivity

• Extra focus on Wheat & Rice due to Imbalance Minimum Support Price

• Small farm holding

Government Scheme, Support & Initiatives• Make in India

• Mega Food Park Scheme

• Scheme For Cold Chain And Value Addition Infrastructure

• Setting Up/ Modernization Of Abattoirs

• Scheme For Technology Up-Gradation/ Establishment/ Modernization Of Food Processing Industries

• Setting Up/ Upgradation Of Food Testing Laboratories

• National Mission on Food Processing

• Tax Incentives

• Credit Availability

• Export Promotion through Fares

• Setting up Institutes like NIFTEM, IICPT etc

• Food Safety and Standards Authority of India (FSSAI)

Latest Scheme• Scheme for Agro-Marine Produce Processing

and Development of Agro-Processing Clusters (SAMPADA) for food processing sector.




w It will help to create infrastructure for linkage of entire supply chain.

w SAMPADA is an umbrella scheme that will include ongoing schemes like mega food parks and cold chain projects and new schemes.

w It has an outlay of Rs. 6000 crore and will be implemented by 2019-20.

• The ministry will also launch three new schemes to create infrastructure for improving the entire food supply chain.

w These three schemes are ‘Creation/ Expansion of Food Processing and Preservation Capacities’, ‘New Agro-Processing Clusters ‘and ‘Backward and Forward Linkages’.

w Moreover, government is taking steps to boost food processing sector to bring down post-harvest losses preferably to zero level, provide quality food to consumers at cheaper price and double of farmers’ income.

Regulatory Bodies

77

Regulatory Bodies• Regulatory body is an organization set up by

the Government to monitor, guide and control a particular sector such as banking, insurance, education or healthcare.

• The number of regulatory bodies in India has increased greatly after the economic liberalization of 1991 when the government gradually transformed itself from player to umpire. Today, we’ve independent regulators for most of the areas of business, economy, higher education or healthcare.

• The notion of the regulatory agency was initiated in the USA and it has been basically an American establishment

• They have Executive, Legislative as well as Judicial function combined in one body

Important Regulatory bodies are as under:• Advertising Standards Council of India

• Competition Commission of India

• Biodiversity authority of India

• Press council of India

• Directorate General of Civil Aviation

• Forward Markets Commission

• Inland Waterways Authority of India

• Insurance Regulatory and Development Authority

• Reserve Bank of India

• Securities and Exchange Board of India

• Telecom Disputes Settlement and Appellate Tribunal

• Telecom Regulatory Authority of India

• The Food Safety and Standards Authority of India (FSSAI)

• Central pollution control board

• Financial Stability and Development Council

• Medical Council of India

• Pension fund regulatory and development authority

Why Regulatory bodies are in News?• Issue of RBI Autonomy with respect to Monetary

Policy Committee

• Formation of Real Estate Regulatory Authority

• Formation of Insolvency & Bankruptcy board of India

RBI Monetary Policy Committee• In India, the monetary policy is responsibility of

RBI

• The main objectives of the monetary policy in India are to maintain the price stability, securing the financial stability and to ensure the adequate flow of credit.

• Before establishment of Monetary Policy Committee, the final decision on interest rates would come from RBI Governor’s desk.

• Recommendations to set monetary policy committee in India had come from Urjit Patel panel report.

• Prior to this, the B N Srikrishna headed Financial sector legislative reforms Commission (FSLRC) had also suggested framing a MPC to meet the challenge of the growing complex economy.

Setting up of MPC• The Monetary Policy Committee was set up in

2015 after amending the RBI Act.

• Before that, Government and RBI made an agreement via which Government tasked RBI with the responsibility for price stability and inflation targeting.

Composition of MPC• Monetary Policy Committee is an executive body

of 6 members.




• Of these, three members are from RBI while three other members are nominated by the Central Government.

• Each member has one vote. In case of a tie, the RBI governor has casting vote to break the tie

Mandate of MPC• The core mandate of MPC is to fix the benchmark

policy interest rate {Repo Rate} to contain inflation within the target level.

• In that context, RBI is mandated to furnish necessary information to the MPC to facilitate its decision.

• Government also, if wishes to convey its views, can do so in writing to MPC.

Issue with the new Arrangement• Critic say, this arrangement is a dilution of

RBI Autonomy and a direct interference of Government in RBI Functioning.

• Historically RBI is an autonomous organisation functioning under an arrangement of agreement with Government.

• On one hand Government issued RBI with a mandate of Targeting Inflation within range of 4%+- 2% whereas on the other hand, Government is not letting RBI give a free hand in setting Policy rates,

• So ultimately RBI will be held responsible for non-achieving of inflation target without having complete autonomy in fixation of policy rates.

Real Estate Regulatory Authority• The Real Estate Act which aims to protect

the interests of homebuyers by ensuring transparency has come into effect.

• The Ministry of Housing and Urban Poverty Alleviation (HUPA) has asked all the states and Union Territories to implement the Act with letter and spirit.

• Since land is a state subject, real estate sector comes within the ambit of the state governments.

• The Real Estate (Regulation and Development) Bill, 2016 was passed by Parliament in March last year.

Salient Provisions • Buyers and developers of real estate property

can seek relief by approaching Real Estate Regulatory Authorities against violation of the

contractual obligations and other provisions of the Act.

• The act provides for the mandatory registration of projects and real estate agents.

• The act mandates depositing 70% of the funds collected from buyers in a separate bank account for construction of the project.

• The funds could be withdrawn only for construction purposes.

• The act prescribes penalty on developers if the project is delayed.

• The project developers are required to disclose the project details on the website of the regulator and need to provide quarterly updates on construction progress.

• Under the act, the Regulatory authorities are required dispose of complaints in 60 days and Appellate Tribunals will be required to adjudicate cases in 60 days.

Significance • The act will ensure transparency and

accountability in the real estate sector.

• It will enhance the consumer confidence and will benefit the whole sector.

• It will help to attract more investments into the real estate sector and may also open gates for FDI.

About Insolvency and Bankruptcy Board of India (IBBI) • IBBI has been tasked to regulate functioning

of insolvency professionals, insolvency professional agencies and information utilities under Insolvency and Bankruptcy Code 2016.

• The Code was notified by the Union Government in May 2016 replacing existing bankruptcy laws.

• It seeks to consolidate and amend laws relating to reorganisation as well as insolvency resolution of corporate persons, individuals and partnership firms in a time-bound manner.

• Under this new law, employees, creditors and shareholders will have powers to initiate winding up process at first sign of financial stress such as serious default in repayment of bank loan.

• It attempts to simplify the process of insolvency and bankruptcy proceedings and speed up the resolution process for stressed assets in the country.



• It has chairman and 10 members. Present chairman is M S Sahoo. There four government-nominated members.

Problems related to Regulatory Bodies in India• Too Many regulators create confusion with

respect to Jurisdiction, we have seen in respect with ULIPs between SEBI & IRDA

• Interference of Government with respect to Administrative & Financial Control also lead to day to day control

• Ineffectiveness of these bodies due to Excessive Interference by Judiciary

• Issue of corruption like in AICTE, MCI etc

• No Accountability to Parliament

Suggestion or Way Forward• Creation of Super Regulators by merging various

regulatory bodies according to sector like one for financial, one for education etc

• Clear cut identification of Jurisdiction

• Transparent appointment of professionals in these bodies

• They should be made accountable to parliament

Reforms: IMF and World Bank

88

Reforms: IMF and World Bank• It was July 1944, toward the end of second

world war, when representatives of Great Britain, United States, Russia, France and 40 other countries met at Bretton Woods, to lay down the groundwork for the post-war financial order of the world.

• So, it is officially called as Bretton Woods conference or United Nations Monetary and Financial Conference. This conference created the World Bank and International Monetary Fund (the IMF) to prevent economic crises and to rebuild economies, devastated by the war. The main purpose of the conference was to create a framework for development and economic cooperation that would lead the world economy to a more stable and prosperous economy.

• While these goals are central to both institutions, their work is continuously evolving in response to the new challenges of world economy.

International Monetary Fund(IMF)• International Monetary Fund (IMF) was created

in December 1945 with its Headquarters at Washington (USA). The International Monetary Fund (IMF) is a group of 189 countries, working to secure financial stability, foster global monetary cooperation, sustainable economic growth, facilitate international trade, reduce poverty around the world, and promote high employment.

• The IMF provides technical assistance and policy advice and promotes international monetary cooperation to help countries build and sustain strong economies.

IMF Role:The Bretton Woods Conference laid down various function that act as guiding principles for the IMF:

• To act as a watch dog of international economic relations.

• To monitor the policies and activities of major economic powers and trading nations as these are always the determinations of international economic relations.

• IMF helps in liberalization of trade, and help countries to increase their real income while lowering unemployment.

• It monitors fiscal deficits and budgetary deficits of states as these collectively indicate the health/weakness of their financial prudence.

• Some countries may not be in position to repay the debt until and unless they go for some structural changes. So longer term loan facilities are made available.

• It provides loans to states.

• Help stabilize exchange rates between countries. Particularly after the great depression of the 1930s, it was considered vital to establish currencies that could hold their value.

• To monitor currency valuation and devaluation.• To check the economic problem of nation.

• It ensures that countries must spend at least one half of their revenue.

Every year, the IMF directs economists to each of its member nation to examine the country's economic reality. The team examines general macroeconomic stability, fiscal and monetary policy, performance of currency, and any associated policies, such as trade policy, labor policy, and social policy. The real purpose is to provide an outside surveillance on national policy or decisions that might affect the international economic system. It acts as an international economic organization for guiding and assisting the nations in respect of their monetary needs, assets and liabilities. It provides strategies to the nations for strengthening their financial health’s as well as helping them in overcoming their financial problems.



Why there is need for reform in IMF:• The IMF remained dominated by the rich,

developed and powerful nations, mainly; by the USA which has almost 17% voting power.

• The big Countries like India & Russia have only 2.5% quota where G7 group contains more than 40% quota in IMF. Higher IMF quota is directly related to high voting rights and greater borrowing permissions under IMF. Quota define the amount of assistance a country will get out of contingency fund of IMF, as well as the power of a country to influence the lending decisions and tap into the funds themselves.

• Some countries are over-represented in the IMF and very much guide the decision making of IMF in his personal interest. That’s why emerging countries are against this quota scheme of IMF. The decisions of IMF are always guided by the wishes of developed nations.

• Most of the time the policies and decision it suggests to the developing or underdeveloped nations are actually in the interest of rich and dominant capitalist countries

• Due to dissatisfaction with IMF, BRICS nations establish a new organization called BRICS bank. The purpose of establishment of this bank is to reduce the dependence on IMF. International financial institutions should change the way they work to reflect the needs of emerging and developing economies.

• In this era of globalization which is being guided by a strong movement in favor of free flow of goods, services, knowledge and manpower across national frontiers, the IMF appears to be an outdated institution.

• The critics of the IMF, and their number is quite large, advocate the need for change in this international economic organization to make it better and serve the new global financial and trade needs of the nations.

What reform are demanded:• The first demand of the developing nation is to

restructure the voting rights/powers in the IMF

• Since magnitude of international trade has increased, the number of countries that will approach to IMF and number of situation to approach IMF have multiplied. Hence IMF today needs more resource.

• Developing countries have accused IMF of introducing conditionality. Hence countries want restructuring of IMF.

• Increase the role of emerging nations like India and China.

• Reduction in the role for developed European states.

• IMF Chief is always from European countries, this should be based on Merit

• End of the US domination of the IMF.

• Long term Crisis management rather than just short-term solutions.

The IMF itself should come forward and take bold decision to serve the global need. Making the relations between the developing and developed countries, equitable, fair and more productive for the betterment of the developing nations. Reform in IMF work is not just a demand rather than its requirement of globe.

Recent reforms• Emerging and developing nation gained more

influencing power in the governance planning of the International Monetary Fund (IMF)

• Chinese renminbi (RMB) to be included in SDR basket as fifth currency starting October 1

• India’s voting rights increase from the current 2.3 % to 2.6 %, and China’s, from 3.8 % to 6 %

• More than six per cent of the quota shares will transfer from the U.S. and European countries to developing and emerging nations.

• The reform also increased the financial position of the IMF. The permanent capital resource of IMF increased to SDR 477 billion (about US$659 billion), almost double

• One of the important reform is, IMF’s Executive body will consist of entirely elected Executive Directors. This will bring an end to the category of appointed Executive Directors which is appointed by the five largest quota-holders.

World Bank:The World Bank was established in December 1945 having Headquarters at Washington. The main objective of world bank is to help the developing nation in raising their standards of




living by channelizing financial resources from developed countries. It promotes long-term economic development and poverty reduction by providing financial and technical support. It helps the countries to reform particular sectors or implement specific projects for their betterment.

Functions of World Bank:• To assist reconstruction and development of

members by facilitating investment of capital for productive purposes.

• Generate private financial investment for country.

• To work for long term growth of international trade

• To facilitate borrowing of loans.

• To monitor facilities for international investments.

• Gives interest free loans to needy governments

• To finance projects for development of infrastructure facilities in the developing countries.

• To assist Poverty Alleviation Programs and raise productivity level.

Examples of the programs the World Bank funds include:• In Bangladesh, the World Bank provided an

assistance of $59.8 million credit to provide health services and nutritional enhancements to children and their mothers.

• In Peru, the World Bank provided financial support for the Peru Rural Roads Program.

• In Brazil, the World Bank has provided funds to the government to run the Rain Forest Pilot Program to reduce deforestation.

• In China, the World Bank gave support to the Chinese government's National Iodine Deficiency Elimination Program by providing aid for upgrading physical plants for iodized salt production, packaging, and distribution.

Need for reform in World Bank:• The World Bank continues to function as an

important international financial institution. However, several critics of the institution is advocating for a change in the functions and structure of the World Bank group.

• In 2008 developing and underdeveloped countries like India, China, Brazil etc. countries began a “voice reform” process to increase representation

of developing countries. Recognizing that “the restructuring of shareholding is important for the legitimacy of the institution”.

• Some of the critics also advocating that the World Bank is really catering the agenda of World Capitalism in the grab of its “Structural Adjustment Program” and continues to be dominated by rich nations.

• There is every need to free these from the control of the rich and developed countries, the USA and the Western European countries in particular.

Reform demanded• The very first reform demanded by the nation is

change in the governance structures of the World Bank. It should shift its focus from the need of US and European nation to those of underdeveloped or developing nation by reforming the voting system. It will serve the real purpose of its creation.

• Developing nation should get greater representation in Executive board that is generally dominated by developed nation.

• Reform decision-making through the introduction of double majority voting system, where agreement requires both shareholder and member state majorities, thus giving developing countries a larger part in decision-making

Recent reforms in World Bank:• Recently the voting power of Developing and

Transition countries (DTCs) at IBRD, increased by 3.13 percentage point, bringing them to 47.19 percent.

• An increase in the voting power of Developing and Transition Countries at IFC to 39.48 percent.

• An increase of in capital for the International Bank for Reconstruction and Development (IBRD) by $86.2 billion.

• $200 million increase in the capital of the IFC.

• There will be review of IBRD and IFC shareholdings in every five years with a commitment to equitable voting power between developed countries and DTCs over time.

New Challenges:• There is no alternative to reforms of the global

multilateral institutions and make them work more broadly for the member states.



• The World Bank and IMF chiefs are traditionally appointed from the US and Europe respectively, while the head of the Asian Development Bank is appointed by Japan, it clearly reflects the dominance of industrialized countries in the funding and voting rights of the institutions

• Frustration with this dominance among developing nations resulted in support for the new China-led Asian Infrastructure Investment Bank, a rival to the World Bank and the ADB. Also, there have been calls that IMF chief should be from the developing world, and RBI ex-governor Mr Rajan seems a likely future candidate.

• “Legitimacy is important,” Mr Rajan said. “Legitimacy is not just about quota, not just about who appoints the boss of the organization, it’s about sharing agendas, it’s about transparency on the issues that come to the table, about giving everybody a chance to place those issues.”

• The formation of the Chinese led Asian Infrastructure Investment Bank (AIIB) and the New Development Bank (NDB) by the BRICS nations will break the monopoly of the IMF and World Bank and make their functioning more democratic.

New Development Bank:• In 2012, in the fourth summit of BRICS nation,

the leaders of India, Brazil, China, Russia and South Africa decided to setup a new Development banks to mobilize the resources for sustainable development project and infrastructure project for the BRICS nation and other developing economies.

• In 2014, During the sixth Summit of BRICS nation in Fortaleza, all the leaders of BRICS nation signed the Agreement establishing the New Development Bank (NDB). It provides financial assistance to public and private projects via loans, guarantees, equity participation etc.

• The initial authorized capital of bank is $100 Billion and initial subscribed capital is $50 billion. Initial subscribed capital is equally distributed among the five members, $10 billion each. Voting power of each member is same which is in contrast to quota system of IMF and World bank.

• Headquartered in Shanghai, Mr. K. V. Kamath of India has been appointed as first President of NDB. In 2015, it has funded five projects each

of its member nation, all the project was related to renewable energy.

Asian Infrastructure Investment Bank (AIIB):• The Asian Infrastructure Investment Bank

(AIIB) is a new multilateral financial institution founded to bring countries together to address the daunting infrastructure needs across Asia. The bank currently has 56-member states while another 24 countries are looking to be member.

• Among major economies US and Japan are not participants. It aims to support the building of infrastructure in the Asia-Pacific region. The authorize capital of the bank is $100 billion, about half that of the World Bank and two-third of ADB.

• The allocation of shares is based on member country's economic size (calculated using GDP Nominal (60%) and GDP PPP (40%)), and the number of shares determines the fraction of authorized capital in the bank.

• There are three categories of votes, namely - Basic votes, Share votes and Founding Member votes

• The basic votes which constitute 12% of the total votes are equal for all members and the share votes are equal to the number of shares members are allocated

• At the same-time each Founding Member gets 600 votes extra. A departure from quota system of World Bank and IMF.

• China, India and Russia are the three largest shareholders of AIIB, taking 30.34%, 8.52%, 6.66% stake respectively. Their voting shares are 26.06%, 7.5% and 5.92% respectively

Some of the project financed by AIIB:• It provided $ 165 million dollars loan for Power

Distribution System Upgrade and Expansion Project to Bangladesh.

• In Indonesia AIIB along with World Bank provided $ 216.5 million dollars loan for a National Slum Upgrading Project.

• It provided $100 million dollars loan for Shorkot-Khanewal Section of National Motorway M-4.

• In Tajikistan, for the Dushanbe-Uzbekistan Border Road Improvement Project, it provided $ 27.5 million assistance.




Conclusion:IMF and World Bank, since last 7 decades worked very hard for the improvement and betterment of financial

condition of developing and developed nation. But due to its biased nature developing nation is looking for

structural and functional reform in the institution. And because of its inclination toward developed nation,

developing nation is looking for alternative source of funding like AIIB and NDB. There is dire need to reform

in World Bank and IMF so that it will be in the position to hold its status and serve the function for which they

were created.

Investment 99

Foreign Direct Investment (FDI)• Foreign direct investment (FDI) is critical catalyst

of economic growth, apart from being a chief source of non-debt financial resource for the economic development of India.

• Foreign companies invest in India to take advantage of relatively lower wages, special investment privileges such as tax exemptions, etc. India in return benefit from foreign investments by achieving technical know-how, technology transfer, best management practices and generating employment.

• The Department of Industrial Policy & Promotion (DIPP) is the nodal Department for formulation of the policy on Foreign Direct Investment (FDI). It also maintains and manages data on inward FDI into India, based upon the remittances reported by the Reserve Bank of India.

• The FDI policy is reviewed regularly to making it more and more investor-friendly to attract more FDI. The Government is liberalising FDI policy by permitting up to 100% FDI, under the automatic route, in most sectors/activities.

• Significant changes have been made in the FDI policy regime in recent years, to ensure that India remains an increasingly attractive investment destination.

• DIPP plays an active role in the liberalization and rationalization of the FDI policy. For that, DIPP constructively engages in extensive stakeholder consultations on various aspects of the FDI policy.

• The government has recently made significant changes to the Foreign Direct Investment (FDI) policy regime by enhancing FDI limits in various sectors like Defence, Civil Aviation etc. The FDI limit is not uniform for all sector/activities. Earlier, FDI was allowed through two different routes

namely, Automatic and through the Foreign Investment Promotion Board (FIPB).

• In the automatic route, foreign entities did not require the prior approval of the government to invest. But, they need to inform the RBI about the amount of investment within a stipulated time period.

• In specific sectors, FDI is allowed through the FIPB or the Government route where the FIPB has to approve each foreign investment. But, with abolition of FIPB, this job will be done by concerned ministries.

FDI investment figures• According to Department of Industrial Policy and

Promotion (DIPP), the total FDI investments India received during April 2016-March 2017 rose 8 per cent year-on-year to US$ 60.08 billion.

• Data for April 2016-March 2017 indicates that the services sector attracted the highest FDI equity inflow of US$ 8.69 billion, followed by telecommunications – US$ 5.56 billion, and computer software and hardware – US$ 3.65 billion. Most recently, the total FDI equity inflows for the month of March 2017 touched US$ 2.45 billion.

• During April 2016-March 2017, India received the maximum FDI equity inflows from Mauritius (US$ 15.73 billion), followed by Singapore (US$ 8.71 billion), Japan (US$ 4.71 billion), Netherlands (US$ 3.37 billion), and USA (US$ 2.38 billion).

Key Differences Between FDI and FII• Foreign Direct Investment or FDI is defined

as the investment made by a company in the company situated outside the country. Foreign Institutional Investor or FII is when investors, most commonly in the form of institutions that invest in the country’s financial market.




• FII is a way to to make quick money, the entry and exit to the stock market are very easy. On the other hand, the entry and exit are not easy in FDI.

• FDI brings long-term capital in the investee company whereas FII may bring long or short-term capital in the country.

• In the case of FDI, there is the transfer of funds, resources, technology, strategies, know-how. Conversely, FII involves the transfer of funds only.

• FDI increases job opportunities, infrastructural development in the investee country and thus leads to economic growth, which is not in the case of FII.

• FDI results in the increase in the country’s productivity. As opposed to FII that results in the increase in the country’s capital.

Government Initiatives• The Government of India has scrapped the

Foreign Investment Promotion Board (FIPB), which would enable the foreign investment proposals requiring government approval to be cleared by the ministries concerned, improving the ease of doing business in the country.

• The Union Cabinet has approved to raise bonds worth Rs 2,360 crore (US$ 365.63 million) by the Indian Renewable Energy Development Agency (IREDA), for various renewable energy projects in FY 2017-18.

• The Government of India has approved 100 per cent foreign direct investment (FDI) in other financial services carried out by non-banking finance companies (NBFCs), which will attract more foreign capital into the country.

• The National Highways Authority of India (NHAI) is offering a risk cover to foreign investors who are willing to invest in government owned operational national highways, which would cover risk associated with the possibility of structural design fault, sub-standard quality of construction, and loss of traffic.

• The Department of Industrial Policy and Promotion (DIPP) has allowed 100 per cent foreign direct investment (FDI) in asset reconstruction companies (ARC) under automatic route to tackle the issue of declining asset quality of banks.



• The Government of India has amended the FDI policy regarding Construction Development Sector, which includes easing of area restriction norms, reduction of minimum capitalisation and easy exit from project. For boosting low cost affordable housing, it has removed conditions of area restriction and minimum capitalisation for cases committing 30% of the project cost towards affordable housing.

• The government raised the FDI cap in insurance from 26 to 49% through a notification issued by the DIPP. However, the limit is composite in nature subsuming foreign investment in the form of foreign portfolio investment, foreign institutional investment, qualified foreign investment, foreign venture capital investment, and non-resident investment.

• The government also cleared a proposal to allow 100 % FDI in railway infrastructure, excluding operations. Though the initiative does not allow foreign firms to operate trains, but allows them to invest in areas such as creating the network and supplying trains for bullet trains etc.

Foreign Investment Promotion Board (FIPB)

FIPB Abolished: The Cabinet has approved a proposal to abolish the Foreign Investment Promotion Board (FIPB).

Why FIPB was abolished?• The government has liberalised FDI regime

with 100% via automatic route in majority of the sectors.

• Also, in the last three years, around 95% of FDI that came into the country was through automatic route. The remaining that needed approval were restricted to just 11 sectors includes defence, retail and telecom.

• So, it made economic sense to abolish FIPB and let foreign investment proposals considered by the concerned ministry in consultation with the DIPP (Department of Industrial Policy & Promotion).

• Sectors concerning security, FDI proposals will also need Home Ministry approval. FDI proposals over `5,000 crores will still require final approval from the Cabinet.

• Now individual departments will be empowered to clear FDI proposals in consultation with DIPP which has to issue the standard operating procedures for processing applications.

• A strict timeline will be fixed for approving applications regarding FDI by competent authorities and a rejection by the department concerned will need mandatorily concurrence of DIPP. However, all FDI from Pakistan and Bangladesh and FDI proposals requiring approval in private security agencies and manufacture of small arms will be approved by the ministry of home affairs.

With India’s GDP growth, gross fixed capital formation and index of industrial production (IIP) slumped lately, why it still remained a sweet spot for foreign direct investment (FDI)?• Basic macroeconomics states that if GDP growth

is slowing down, a lesser number of jobs will be created, which in turn will reduce disposable income in hand, thereby result a slowdown in demand.

• GDP growth in January-March 2016-17 was 6.1% (lower than the provisional figure of 7%) and the fall in GVA growth was even steeper at 5.6%.

• The subsequent fall in demand is visible to a certain extent in our IIP numbers (an index by which factory output is measured), which slowed down to 3.1% in April 2017 from 6.5% last year. All the constituents of IIP – manufacturing, mining and power – slowed down.

• Gross fixed capital formation data indicates a lower off-take of capital goods and consumer durables.

• Obviously, if firms can’t sell outputs, they will recruit less, resulting in fewer jobs created. This explains India’s jobless growth. During 2015 and 2016, employment generation in the organised sector has fallen to less than two lakh jobs a year, which is less than 25% of the annual employment generated before 2011.

• Still, in terms of FDI inflow, India continues to be among the top ten countries globally, and fourth in developing Asia.

• India’s FDI inflows have increased to $44 billion in 2015 as compared to $35 billion in 2014.




Reforms ushered through the ‘Make in India’, ‘Digital India’ and ‘Start-up India’ initiatives – appear to be bearing fruits.

• The implementation of GST, allowing 100% FDI in limited liability partnership and easing regulations for setting up offices in India may have also contributed.

Where exactly is this FDI flowing towards when the economy as a whole is largely slowing down?• Data reveals that FDI inflows are growing

because foreign investors are increasing stakes in the Indian start-ups and brownfield ventures.

• Unlike a greenfield investment, where the parent company constructs new production facilities and builds distribution hubs, in brownfield investment the foreign company or government entity purchases or leases existing production facilities to launch new production activity.

• Foreign direct investment in India is growing because foreigners are eagerly increasing their stake in Indian firms.

• Gone are the days when Indian firms were going abroad and buying out foreign firms. Now, the trend has reversed.

This is partly due to the fact that over the last few years, the FDI limit in the brownfield projects in various sectors has sharply increased.• The government has allowed up to 74% FDI in

brownfield pharmaceutical companies through automatic route, and 100% in brownfield pharmaceutical projects through government approval route.

• Similarly, to upgrade existing airports, norms have been relaxed for overseas investments in brownfield airports to 100% via automatic route.

• The start-ups are no exception. Foreign investors are given red carpet treatment when it comes to entering the e-commerce and online retailing space.

• There has been a surge in FDI into brownfield ventures in the past couple of years like Alibaba-Paytm (claiming a 40% stake in Paytm’s e-commerce business for $200 million in 2017), SoftBank-Paytm ($1.4 billion in 2017), SoftBank/Tiger Global/DST Global-OLA (1.3 billion in

2016), Tencent-Hike ($175 million in 2017), Ctrip-MakeMyTrip ($180 million in 2017), Beijing Miteno Communication Technology-Media.net ($900 million in 2016), Xander Group Inc./APG Asset Management NV purchase of IT SEZ in Chennai from Shriram Properties ($350 million in 2016) etc.

• Though a cap on foreign ownership in the start-up and e-commerce sector exist, there is exception under which FDI, including through e-commerce, is allowed up to 100% in B2B (business-to-business) segment, and also in B2C (business-to-consumer) segment, conditional to the items processed or manufactured in the country. Recent developments revels that the brownfield FDI in start-ups has been the norm, rather than being an exception.

• FDI inflow into the Indian start-ups is good too as it supports their growth and expansion and eases financial and technical constraints. But there are a few downsides.

w There is asymmetry in inflow of FDI into the start-ups. Investments have poured into select few successful/promising start-ups leaving many others with limited financial backup.

w This could lead to market distortions in the start-ups through a wave of consolidation and acquisition.

w Failure to attract FDI in the greenfield projects raises questions about their role in job creation and foreign exchange earnings.

w Majority of FDI in the start-ups are coming only in the metro cities, with a small portion left for rural India. This may increase the already prevailing rural-urban gap.

• Though efforts of the government to attract more and more FDI is admirable, the nature and distribution of FDI inflows across sectors need a closer observation. Also, a liberal FDI regime through the automatic route may fail to achieve the larger socioeconomic objectives of job creation and may actually quite opposite widen the spatial income inequality. The conditions attached with FDI therefore need to be tailor-made aiming creation of jobs, and preferably with stiffer domestic sourcing requirement clause.

Intellectual Property Rights (IPR)

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What is Intellectual Property?• Intellectual property (IP) refers to creations

of the mind, such as inventions; literary and artistic works; designs; and symbols, names and images used in commerce.

• IP is protected in law by, for example, through patents, copyright and trademarks, that enable people to earn recognition or financial benefit from their invention or creation.

• The IP system tries to formulate an environment in which creativity and innovation can flourish by striking a fine balance between the interests of innovators and wider public interest.

Types of intellectual property and related legislation in India• Copyright: Copyright is a legal term used to

describe the rights that creators have over their literary and artistic works. Works covered by copyright range from books, music, paintings, sculpture and films, to computer programs, databases, advertisements, maps and technical drawings. The Copyright Act, 1957 as amended in 1983, 1984 and 1992, 1994, 1999

• Patents: A patent is an exclusive right granted for an invention. Generally speaking, a patent provides the patent owner with the right to decide how - or whether - the invention can be used by others. In exchange for this right, the patent owner makes technical information about the invention publicly available in the published patent document. The Patents Act, 1970 as amended in 1999, 2002 and 2005

• Trademarks: A trademark is a sign capable of distinguishing the goods or services of one enterprise from those of other enterprises. Trademarks date back to ancient times when craftsmen used to put their signature or "mark" on their products. The Trade Marks Act, 1999

• Industrial designs: An industrial design constitutes the ornamental or aesthetic aspect of an article. A design may consist of three-dimensional features, such as the shape or surface of an article, or of two-dimensional features, such as patterns, lines or colour. The Designs Act, 2000

• Geographical indications: Geographical indications and appellations of origin are signs used on goods that have a specific geographical origin and possess qualities, a reputation or characteristics that are essentially attributable to that place of origin. Most commonly, a geographical indication includes the name of the place of origin of the goods. The Geographical Indications of Goods (Registration and Protection) Act, 1999

• Semiconductor Integrated Circuits Layout Design: Semiconductor Integrated Circuit Layout-Designs and for matters connected therewith or incidental thereto. Semiconductor Integrated Circuits Layout-Design Act 2000.

• Plant Variety Protection: Protection granted for plant varieties, the rights of farmers and plant breeders and to encourage the development of new varieties of plants. The Protection of Plant Varieties and Farmers’ Rights (PPV&FR) Act, 2001.

Note :

All types of IPRs except Plant Variety Protection is administered by Department of Industrial Policy and Promotion, Ministry of Commerce and Industry. Plant Variety Protection is administered by Protection of Plant Varieties and Farmers’ Rights Authority, Ministry of Agriculture.




The World Intellectual Property Organisation (WIPO)• WIPO is the global forum for intellectual

property services, policy, information and cooperation. It is a self-funding agency of the United Nations, with 189-member states.

• Its mission is to lead the development of a balanced and effective international intellectual property (IP) system that enables innovation and creativity for the benefit of all. Its mandate, governing bodies and procedures are set out in the WIPO Convention, which established WIPO in 1967.

• WIPO, along with Cornell University and INSEAD publishes ‘Global Innovation Index (GII)’ which ranked India 60th out 130 most innovative countries in the world. In previous two years, it was 66th (2016) and 81st (2015) position.

IPR Policy 2016“Creative India; Innovative India”

The National IPR Policy is a vision document that encompasses and brings to a single platform all IPRs. It views IPRs holistically, taking into account all inter-linkages and thus aims to create and exploit synergies between all forms of intellectual property (IP), concerned statutes and agencies.

It sets in place an institutional mechanism for implementation, monitoring and review. It aims to incorporate and adapt global best practices to the Indian scenario.

The Policy recognizes that India has a well-established TRIPS-compliant legislative, administrative and judicial framework to safeguard IPRs, which meets its international obligations while utilizing the flexibilities provided in the international regime to address its developmental concerns. It reiterates India’s commitment to the Doha Development Agenda and the TRIPS agreement.

Vision Statement: An India where creativity and innovation are stimulated by Intellectual Property for the benefit of all; promotes advancement in science and technology, arts and culture, traditional knowledge and biodiversity resources; where knowledge is the main driver of development, and knowledge owned is transformed into knowledge shared.

Mission Statement: Stimulate a dynamic, vibrant and balanced intellectual property rights system in India to: (a) foster creativity and innovation and thereby, promote entrepreneurship and enhance socio-economic and cultural development, and (b) focus on enhancing access to healthcare, food security and environmental protection, among other sectors of vital social, economic and technological importance.

The Policy lays down the following seven objectives:• IPR Awareness: Outreach and Promotion - To

create public awareness about the economic, social and cultural benefits of IPRs among all sections of society.

• Generation of IPRs: To stimulate the generation of IPRs.

• Legal and Legislative Framework - To have strong and effective IPR laws, which balance the interests of rights owners with larger public interest.

• Administration and Management - To modernize and strengthen service-oriented IPR administration.

• Commercialization of IPRs - Get value for IPRs through commercialization.

• Enforcement and Adjudication - To strengthen the enforcement and adjudicatory mechanisms for combating IPR infringements.

• Human Capital Development - To strengthen and expand human resources, institutions and capacities for teaching, training, research and skill building in IPRs.

Salient Features:• Cell for IPR Promotion and Management

(CIPAM): A professional body under aegis of DIPP to coordinate with agencies at State level and with the various Ministries/ Departments of the Union Government. The data generated at CIPAM shall serve as a valuable resource for future policy.

• Awareness Campaign: To be launched in schools, institutions of higher education like engineering colleges and law schools, centres of skill development, industry clusters etc, it aims to foster an IP culture in the country by creating awareness about the economic, social and cultural benefits of IPRs among all sections and



enabling people to realize the value of their IPs as also respect for other IPRs. Syllabi and suitable course materials to emphasize importance of IPRs, shall be formulated for educational institutions at all levels.

• IP Cells: IP cells shall be created in key Ministries/ Departments of the Govt of India, which are vital the field of IPRs, as well as in State Governments, Industry associations and clusters and major academic institutions. CIPAM shall coordinate with the Cells.

• Generation, registration and commercialization: The Policy aims to encourage creativity and innovation, leading to generation of IPs and their protection through IPRs. Registration of Geographical Indications (GIs) shall be encouraged through support institutions. Action shall be taken to encourage R&D as well as to improve IPR output from Govt laboratories and organizations, with special focus on national priority areas.

• Traditional Knowledge Digital Library (TKDL): TKDL’s ambit is to be expanded to include other fields besides Ayurveda, Yoga, Unani & Siddha. The possibility of using TKDL for furthering R&D by public research institutions and private sector will be explored.

• The Policy recognizes the importance of effective coordination between Patent office and National Biodiversity Authority for speeding up the disposal of patent applications using biological resources and associated TK.

• Cadre Management in IP Offices: The Policy recognizes the crucial role of a motivated work force in productivity enhancements. The organizational and cadre structure of the Indian IP Offices shall be studied and reviewed with a view to enhance efficiency and productivity.

• Access to Medicines: Access to affordable medicines and other healthcare solutions is becoming a challenge for all countries. India too faces a growing challenge on this count. The Policy recognises this and aims to enhance this by (a) encouraging cross-sector partnerships between public sector, private sector, universities and NGOs; (b) promoting novel licensing models, and (c) developing novel technology platforms.

• Piracy/ Counterfeiting: Offline and online piracy is a serious concern and needs to be combated

through public awareness as also legal and enforcement mechanisms.

• Assistance to smaller firms: Smaller firms need assistance for protection of their IPRs internationally. Schemes such as DeitY's Support for International Patent Protection in Electronics and IT (SIP-EIT) are to be enhanced.

• Judicial Awareness & Resolution of IP disputes: Since IPRs are a specialised discipline, awareness amongst the judiciary is crucial since judicial precedents set the tone of the country’s IP regime. For this, IP modules for judges to be formulated, including regular IP workshops at the judicial academies. Commercial Courts set up at appropriate levels will be responsible for adjudicating IP disputes. Resolution of IP cases through Alternate Dispute Resolution methods shall reduce burden on judiciary and provide speed and inexpensive resolution of disputes. Mediation and conciliation centres need strengthening, and ADR capabilities and skills in the field of IP developed.

• Review: A detailed review of IPR Policy shall be undertaken every five years. Continuous and regular Review will be done by a Committee to be constituted for this purpose under the Secretary, DIPP.

• Government aims to place before the world a vibrant and predictable IP regime, which stimulates creativity and innovation across sectors and facilitate a stable, transparent and service-oriented IPR administration in the country.

TRIPS, TRIPS Plus and Doha Agreement• Trade-Related Aspects of Intellectual Property

Rights (TRIPS) Agreement is set the minimum standards, which allows the members to provide more extensive protection to intellectual property if they wish to.

• Members are left free to determine the appropriate method of implementing the provisions of the Agreement within their own legal system and practice.

• It came into force on 1 January 1995 and is binding on all members of the World Trade Organization (WTO).

• The TRIPS Agreement sets minimum standards so that the member countries of WTO agree to




certain common standards like, patents be given for a minimum of 20 years; patents may be given both for products and processes; and pharmaceutical test data be protected against ‘unfair commercial use’.

• But what deserves patent is entirely left to countries to decide. The Agreement only urges that patents should be granted for new, inventive and useful inventions - without defining it.

• For example, whether a new formulation (producing a pill version of a drug that formerly came as a powder) or a new combination (combining two or more existing molecules into a new pill) deserves a new twenty-year patent or not depends upon laws of countries, and is not defined by the WTO.

• So, the countries should determine which innovation deserves patents in the area of pharmaceuticals, taking into account their own social and economic conditions. Some governments, such as Brazil, Thailand or India, have done precisely that which are contested by pharmaceutical firms.

The Doha Declaration: redressing the imbalance• Implementation of the intellectual property

standards under TRIPS Agreement has a substantial impact on access to medicines and public health.

• By limiting competition and local manufacturing, it may lead to higher drug prices and even worsen the access to medicines crisis.

• Within TRIPS framework, life-saving medicines are considered at par with consumer goods and the devastating effect of high prices of medicine has been mostly ignored.

• The fine balance between the private interests of the patent holder and the larger interests of society got severely skewed.

• At the annual ministerial meeting of the WTO in 2001 at Doha, Qatar, countries agreed to redress this imbalance, and resolutely reaffirmed the primacy of health over commercial interests.

• The Doha Declaration reiterated countries’ right to use TRIPS safeguards such as compulsory licences or parallel importation to overcome patent barriers for providing access to affordable medicines, and guided countries to use them.

• Another significant success of Doha was extension of the deadline by which the least developed countries had to grant and enforce pharmaceutical patents, from 2006 to 2016. This deadline needs to be further extended or they will face the same difficulties that other developing countries already had in providing access to affordable medicines and health care.

TRIPS Plus: going beyond TRIPS• Even after the Doha Declaration, many developing

countries came under extreme pressure to enact or implement tougher or more restrictive conditions in their patent laws than required by the TRIPS Agreement – so called “TRIPS Plus” provisions.

• Countries weren’t under any obligation by international law for that but they had no choice but to adopt them, as part of trade agreements with the United States or the European Union which resulted into disastrous impacts on access to medicines.

• TRIPS plus provisions include extending the term of a patent longer than the twenty-year minimum based on some conditions (termed as Patent extension), or introducing provisions that limit the use of compulsory licences or that restrict generic competition; and Data Exclusivity which refers to exclusive rights granted over the pharmaceutical test data submitted by companies to drug regulatory authorities for obtain market authorisation. This information concerning safety and efficacy of drug is kept confidential for a period, say, five or ten years.

• If a generic manufacturer wants to register a drug in that country, it is not even allowed to show the therapeutic equivalence of their product to the originator product. Rather, it must either wait for the exclusivity period, or take the route of repeating lengthy clinical trials to demonstrate the safety and efficacy of the drug – trials that have already been undertaken.

• This happens even when the originator product is not patented. So, data exclusivity is a door-lock to prevent competition. Even when product is not protected by a patent, a pharmaceutical company will receive a minimum period of market monopoly when they will artificially price it higher.



• Data exclusivity and other TRIPS plus provisions are frequently pushed as a part of free trade agreements between developed and developing countries.

UN High – Level Panel on Access to medicines: New Deal to for Health innovation and access• Whether the higher price of the medicine, or new

outbreaks of diseases, like Ebola, Zika and yellow fever, the rising costs of health technologies and the lack of new and innovative tools to tackle health problems, like antimicrobial resistance, concerns the rich and poor countries alike.

• UN High-Level Panel on improving access to medicines, urged the world to take new approaches to health technology innovation, ensuring equitable access so that all can be benefitted from the medical advances that dramatically improved the lives of millions around the world in the last century.

• The misalignment between the right to health and intellectual property vis-a-vis trade has created tension. It recommended to improve R&D in health technologies and people’s access to vital therapies which are currently priced beyond reach of patients and governments as well.

• The higher cost of health technologies is putting a strain on both rich as well as poor countries.

• With no market incentives, there is an innovation gap in diseases that predominantly affect neglected populations, rare diseases and a crisis particularly with antimicrobial resistance, which poses a threat to humanity.

• Governments should negotiate global agreements on the coordination, financing and development of health technologies to complement existing innovation models, including a binding R&D Convention to delink the costs of R&D from end prices.

• The Panel examined how flexibilities under the WTO Agreement on TRIPS has facilitated access to health technologies, and how WTO members can tailor national intellectual property law, competition law, government procurement and drug regulatory laws and regulations to fulfil public health obligations.

• It strongly felt that political and external pressure undermines the government’s efforts to meet their

human rights and public health obligations and violates the integrity and legitimacy of the Doha Declaration.

• The Panel was also critical of the lack of transparency surrounding bilateral free trade and investment negotiations.

• It views transparency as a core component of robust and effective accountability frameworks needed to hold all stakeholders responsible for the impact of their actions on innovation and access.

• A paradigm shift in transparency is required to ensure that the costs of R&D, production, marketing, and distribution, as well as the end prices of health technologies are clear to consumers and governments.

• Governments must legislate manufacturers and distributors of health technologies to disclose these costs and the details of any public funding received in the development of health technologies, including tax credits, subsidies, and grants.

• The Panel also recommended the UN General Assembly convene a Special Session no later than 2018 on health technology innovation and access to agree on strategies and an accountability framework that will accelerate efforts towards promoting innovation and ensuring access in line with the 2030 Agenda for Sustainable Development.

Photocopy: Access to knowledge vs Patent Protection• Photocopying of copyrighted material for use “in

the course of instruction” that is allowed under Section 52(1)(i) of the Copyright Act would include all copying done for academic use in a university, as long as the text being copied was “justified by the demands of the course”.

• The Division Bench of Delhi High Court upheld the expanded scope of interpretation of “course of instruction” under Section 52(1)(i) to include the entire academic exercise from the setting of the syllabus to the actual classroom teaching

Implications• Legal experts agree that the judgment is

likely to have “unforeseen and far reaching consequences” for the industry and copyright law.




• In this context, one need to ponder over two vital questions.

1. Fairness of use: When a copyrighted work is used for educational purposes – by students or teachers – how should one judge if the use is fair or not?

2. Publishers’ interests: Does this use of copyrighted (instructional) work by students actually adversely hurt the publishers?

• Some say the judgment took into account the “societal purpose” of the Copyright Act, and would have a bearing on the issue of access to educational material for academics.

• Others say the judgment seemed to have used the “emotional connect” to education as an “intellectual duty” in the Indian tradition instead of looking into the efforts put in by the authors and publishers. They argue the judgment had “ignored” provisions relating to licensing policy, and may “discourage” publishers from issuing “India editions”.

• Finally, it is up to the government how they upheld the social obligation of Right to education via access to course material while protecting publisher’s interest when they are facing stiff challenges from digital replication of such books over internet.

Digital rights• While digital contents are protected by copyright

laws, web policing and catching law-breakers is too difficult in era of sophisticated advanced technology. Digital rights management (DRM technology focuses to make stealing content impossible, a better way than apprehending online poachers.

• Digital rights management (DRM) is a systematic approach for copyright protection of digital media. It prevents unauthorized redistribution of digital media and restrict the ways consumers can copy content they've purchased.

• DRM products have been developed due to the rapid increase in online piracy of commercially marketed material, which proliferated with peer-to-peer file exchange programs.

• DRM embeds a code to prevent digital piracy, specifies a time period in which the content can be accessed or limits the number of devices the media can be installed on.

GI tags – a requirement of TRIPS agreement• India, as a member of the World Trade

Organization (WTO), enacted the Geographical Indications of Goods (Registration & Protection) Act, 1999 has come into force with effect from 15th September 2003

• Darjeeling Tea was the first Indian product to get the geographical indication tag in 2004.

Conclusion:Intellectual property protection is crucial for fostering innovation, without protection of ideas, businesses and individuals would not reap the full extent of benefits from their inventions and would focus less on research and development. But at same time it should be fair and transparent so that interest of the overall society is also not compromised fulfilling their social obligation.

State-wise compilation of Geographical Indications

State Articles

Andhra Pradesh Srikalahasthi Kalamkari, Kondapalli Bommalu, Machilipatnam Kalamkari, Budiiti Bell & Brass Craft, Andhra Pradesh Leather Puppetry, Uppada Jamdani Sarees, Tirupati Laddu, Guntur Sannam Chilli, Venkatagiri Sarees, Bobbili Veena, Mangalagiri Sarees and Fabrics, Dharmavaram Handloom, Pattu Sarees and Paavadas




State Articles

Assam Assam (Orthodox) Logo, Muga Silk of Assam (Logo), Muga Silk

Bihar Madhubani paintings, Applique – Khatwa Patch Work of Bihar, Sujini Embroidery Work of Bihar, Bhagalpur Silk

Chhattisgarh Bastar Dhokra, Bastar Wooden Craft, Bastar Iron Craft, Bastar Dhokra (Logo), Champa Silk Saree and Fabrics

Goa Fenni

Gujarat Tangaliya Shawl, Surat Zari Craft, Gir Kesar Mango, Bhalia Wheat, Kachchh Shawls, Patan Patola, Sankheda Furniture, Kutch Embroidery

Haryana Phulkari (Also in Punjab and Rajasthan)

Himachal Pradesh Kullu Shawl (Logo), Kangra Tea, Chamba Rumal, Kinnauri Shawl

J & K Kashmir Papier Mache, Walnut Wood Carving, Khatamband, Kani Shawls, Kashmir Pashmina

Karnataka Byadgi chilli, Kinnal Toys, Mysore Agarbathi, Bangalore Blue Grapes, Mysore Pak, Bangalore Rose Onion, Coorg orange, Mysore silk, Bidriware, Channapatna Toys & Dolls, Mysore Rosewood Inlay, Mysore Sandalwood Oil, Mysore Sandal Soap, Kasuti Embroidery, Mysore Traditional Paintings, Mysore betel leaf, Nanjanagud Banana, Mysore Jasmine , Udupi Jasmine, Hadagali Jasmine, Ilkal saree, Navalgund Durries, Karnataka Bronze Ware, Molakalmuru Sarees, Monsooned Malabar Arabica Coffee, Monsooned Malabar Robusta Coffee, Coorg Green Cardamom, Dharwad Pedha

Kerala Aranmula Kannadi, Alleppey Coir, Balaramapuram Sarees and Fine Cotton Fabrics, Brass broidered coconut shell craft of Kerala, Cannanore Home Furnishings, Central Travancore Jaggery, Chendamangalam Dhoties & Set Mundu, Chengalikodan Banana, Kasaragod Sarees, Kuthampally dhoties and set mundu, of Palakkad, Payyannur Pavithra Ring, Pokkali Rice, Screw Pine Craft of Kerala, Vazhakulam Pineapple, Gandhakasala Rice, Wayanad Jeerakasala Rice, Navara rice, Palakkadan Matta Rice Agriculture, Spices Alleppey Green Cardamom





State Articles

Madhya Pradesh Chanderi Fabric, Leather Toys of Indore, Bagh Prints of Madhya Pradesh, Bell Metal Ware of Datia and Tikamgarh (Logo), Bell Metal Ware of Datia and Tikamgarh, Maheshwar Sarees & Fabrics

Maharashtra Solapuri Chaddar, Solapur Terry Towel, Nagpur Orange, Puneri Pagadi, Nashik valley wine, Paithani Sarees and Fabrics, Mahabaleshwar Strawberry, Nashik Grapes, Kolhapur Jaggery

Manipur Shaphee Lanphee, Wangkhei Phee, Moirang Phee

Nagaland Naga Mircha

Odisha Kotpad Handloom fabric, Orissa Ikat, Konark Stone Carving, Pattachitra, Pipili Applique Work, Khandua Saree and Fabrics, Gopalpur Tussar Fabrics, Ganjam Kewda Rooh, Ganjam Kewda Flower, Dhalapathar Parda & Fabrics, Sambalpuri Bandha Saree & Fabrics, Bomkai Saree & Fabrics, Habaspuri Saree & Fabrics, Berhampur Patta (Phoda Kumbha) Saree& Joda, Odisha Pattachitra (Logo)

Punjab Phulkari (Also in Haryana and Rajasthan)

Rajasthan Kota Doria, Blue Pottery of Jaipur, Molela Clay Work, Kathputlis of Rajasthan, Sanganeri Hand Block Printing, Bikaneri Bhujia, Kota Doria (Logo), Phulkari (Also in Haryana and Punjab), Bagru Hand Block Print, Thewa Art Work, Makrana marble

Tamil Nadu Salem Fabric, Kancheepuram Silk, Bhavani Jamakkalam, Madurai Sungudi, Coimbatore Wet Grinder Manufactured, Thanjavur Paintings, Temple Jewellery of Nagercoil, Thanjavur Art Plate,E. I. Leather, Kovai Cora Cotton, Silk Handicraft, Swamimalai Bronze Icons, Eathomozhy Tall Coconut, Thanjavur Doll Handicraft, (Orthodox) Logo, Virupakshi Hill Banana, Sirumalai Hill Banana, Madurai Malli, Pattamadai Pai (‘Pattamadai Mat’), Kuthuvilakku (‘Nachiarkoil Lamp’), Chettinad Kottan, Toda Embroidery, Thanjavur Veenai

Telangana Pochampally Ikat, Silver Filigree of Karimnagar, Nirmal toys and craft, Nirmal furniture, Nirmal paintings, Gadwal Sarees, Haleem, Cheriyal Paintings, Pembarthi Metal Craft, Siddipet Gollabhama, Narayanpet Handloom Sarees




State Articles

Uttar Pradesh Allahabad Surkha, Lucknow Chikan Craft, Mango Malihabadi Dusseheri, Banaras Brocades and Sarees, Banaras Brocades and Sarees (Logo), Hand made Carpet of Bhadohi, Agra Durrie, Farrukhabad Prints, Lucknow Zardozi, Kalanamak Rice, Firozabad Glass, Kannauj Perfume, Kanpur Saddlery, Moradabad Metal Craft, Saharanpur Wood Craft, Handmade Carpets of Mirzapur, Handmade Carpets of Banaras, Agra Petha, Mathura Peda, Nizamabad black clay pottery, Varanasi Wooden Lacquerware &Toys

West Bengal Darjeeling Tea (word & logo), Nakshi Kantha, Laxman Bhog Mango, Himsagar(Khirsapati Mango), Fazli Mango, Santipore Saree, Baluchari Saree, Dhaniakhali Saree

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