UPSC Economy Prelims 2016

TOPICS IN INDIAN ECONOMY
TERMS IN INDIAN ECONOMY
PLANNING
POVERTY & UNEMPLOYMENT
DEMOGRAPHICS
INFRASTRUCTURE & INVESTMENT MODELS
AGRICULTURE SECTOR
INDUSTRIAL SECTOR & SERVICES
FISCAL POLICY
MONETARY POLICY
EXTERNAL SECTOR
MISCELLANEOUS

TERMS IN INDIAN ECONOMY
ECONOMICS (How to produce,distribute & consume
goods/services using finite & scarce resources)
ECONOMY (Economics of a particular unit)
TYPES- SOCIALIST,CAPITALISTIC, MIXED ECONOMY
MICROECOMY (Decision making at indl entity)
MACROECONOMY (Behaviour of aggregates)
GDP (Monetary value of all goods & services produced in a
country in a yr)
NDP (GDP-Depreciation)
GNP (incl intl trade in GDP)
NNP (GNP- Depreciation)
GREEN GNP (GNP-nat resources & degradation of envt)

TERMS IN INDIAN ECONOMY
CAPITAL (Factor of production which is not entirely consumed in
production process)
FISCAL POLICY (Govt spending & taxation)
SUSTAINABLE DEVELOPMENT (Devlt without compromising
needs of future generation)
INCLUSIVE GROWTH
CRONY CAPITALISM
INDICATIVE PLANNING (Flexible plg system in which
Govt decides about targets, but no compulsion &
achievement through inducement to pvt sector)
BoP(Overall statement of country’s economic transaction
with rest of the world)
 TERMS FROM MONETARY POLICY,FISCAL POLICY DEMOGRAPHY,
INTLTRADE, INFLATION, BUDGET, ETC

PLANNING
Meaning of planning
Types- Imperative/ Centrally Planned Economy & Indicative Plg
Indian Plg Background- Various Plg models in 1930s & 1940s(M
Visweswarayya, Bombay plan, MN Roy’s People’s Plan,Gandhian
Plan,FICCI Plan
-Nehruvian Socialistic background
- Drained wealth of Indian Economy & rising aspirations
 Objectives- Eco growth,poverty reduction, empl generation, self
reliance, modernization.
 Const provisions- Social & Eco plg,Centre- State relations,Welfare
State.
 Agencies- PC, NDC, NITIAAYOG
 Central Plans- 5Yr Plans, 20 Point Pgme & MPLADS .
 Multilevel plans- Central, State, Dist, Block,Village Plan

PLANNING
1st
Five yr plan (1951-56)- Background of agri
distress,poverty,unemployment; focus on agri,irrgn.
2nd
Five yr plan (1956-61)- Focus on heavy & basic industries.
3rd
Five yr plan (1961-66)- Characterised by diversion of funds
due to two wars in 1962,1965 & famine;couldn’t achieve targets
Annual Plans (1966-1969)
4th
Five yr plan (1969-1974)- Focus on Self reliance and
modernization
5th
Five yr plan (1974-1979)- Focus on Poverty alleviation; Started
Politicization of planning as Planning Commission as a central
tool; change of Congress rule
6th
Five yr plan (1980-1985)- Focus on poverty alleviation

PLANNING
7th
Five yr plan (1985-90)- Focus on growth,
modernisation,equality and social justice;BOP crisis, inflation
&fiscal deficit
- Focus on energy sector
- Perspective plan for 1985-2000
• TwoAnnual plans
• 8th
Five yr plan (1992-97)- Focus HRD,
- LPG;Rethinking on role of State;Thrust on social sector
- 9th
Five yr plan (1997-2002)-
- Issue of fiscal consolidation became top priority;reducing
subsidies,decentralisation
• 10th
Five yr plan (2002-07)-
- Monitorable targets(27 targets, 6 areas)

PLANNING
11th
Five yr plan (2007-12)– Towards faster & Inclusive Growth
10% growth rate, FRBM
12th
Five yr plan (2012-17)– Towards faster, Sustainable & more
Inclusive Growth ;8% growth rate
ROLE OF PSUs-
Temples of modern India
Profit,Infrastructure, Empl generation,Welfare state-Social
Responsibility,ModernTech, Regional balanced Devlt
Disadv- Non profitable, Regional Imbalance of devlt, Lack of
autonomy & efficiency
Navratnas, Maharatnas, Miniratnas.

ECONOMIC REFORMS
• Meaning- Minimizing role of State & increasing role of pvt sec
• Background- Scepticism amongst Developing countries against
foreign investments as they feared their dominance & rule of
colonisers
• Components: 1. Macroeconomic stabilization
measures(Boost aggregate demand of economy either domestic
or external, domestic by incresing purchasing power of masses by
gainful &quality empl opportunities)
2.Structural Reform measures (Boost aggregate supply of
goods & services , mostly by capitalists)
• LPG : Liberalization shows Direction of Reforms;
Privatization shows path of Reforms & Globalization shows
the Ultimate goal of Reforms.

ECONOMIC REFORMS
• Liberalization- Pro-capitalistic or Pro- market inclination of an
economy; decreasing traits of a state economy; liberalising from
shackles of restrictions/regulations of a state economy
• Privatization-
- Denatiolization-Tfr of State ownership of assets to pvt sector
to the tune of 100%
-Disinvestment- Denatiolization of state owned enterprises of
less than 100% ownership to pvt sector
- All the economic policies of State which directly or indirectly
promote expansion of role of pvt sector or mkt(deregulation,
reducing subsidies,permission to FDI)
• Globalization- Increase in economic integration among nations
-Unrestricted cross border movement of goods,services, capital or
labour force is Globalization(WTO)

ECONOMIC REFORMS
• FIRST GENERATION REFORMS(1991-2000)-
Promotion to pvt sector; Ext sector Reforms like
FDI,abolishing QR on imports; Public Sector Reforms to
make PSU efficient,profitable,disinvestment; Financial Secor
Reforms like Insurance, Banking; Tax Reforms to avoid tax
evasion,simplify, broadbase tax.
• SECOND GENERATION REFORMS(2001 Onwards)-
Factor Mkt Reforms where dismantlingAdministered Price
MechanismPromotion (Remaining Urea, K oil, LPG), Public
Sector Reforms for greater autonomy to PSU,disinvestment;
Adm Reforms where State from Controller to Fascillitator;
Legal Sector Reforms like Labour laws, Company laws;
Critical Areas Reforms in Health care,education, agri like R &
D in agri,corporate farming.

ECONOMIC REFORMS
• THIRD GENERATION REFORMS-
PRI(Panchayat Raj Instn)so that development reaches grass
root level; Factor of Inclusiveness
• FOURTH GENERATION REFORMS-
IT- enabled reforms
- Reforms is a simultaneous and continuos process and is a mean to
an end.

POVERTY
Types- Absolute poverty & Relative Poverty
Measures- Gini Coefficient & Lorenz Curve
1. Lakdawala Committee (1984-89)2400 C (Rural)& 2100C (U)
2. Tendulkar Committee (2005-09)-Per Capita Exp per
mnth(Only counts Expenditure on food, health, education,
clothing); 816(R) & 1000 (U) i.e. 27&33 resp per day- PCE per
month; 27 cr poor
3. Rangarajan Committee(2012-14)- per mth exp for fam of five
(food + nonfood items such as education, healthcare, clothing,
transport (conveyance), rent. + non-food items that meet
nutritional requirements)
4860 (R) & 7035 (U)i.e. 32 & 47 resp per day; 37 cr poor
ICMR recommendation for calories, proteins & fat- 2155
C,48gm & 28gm Rural and 2090C,50 gm & 26 gmUrban+-10%

POVERTY
4. Saxena Committee for BPL Census in Rural area(2009)-
Automatic exclusion like double the avg agri land of dist,four or
three wheelers , mechanised farm eqpt like
tractorthresher,salary 10000, ITR
Automatic inclusion like primitive tribal group,mahadalit, family
head as minor or destitute or disabled or single woman.
5. Hashim Committee for BPL fam in Urban Areas
 Schemes-MNREGA, Urban and Rural livelihood
missions
 Scheme#1: MNREGA Act 2005
 under Rural Development ministry
 Promises minimum 100 days of unskilled manual work
 To each rural household. (not to each person)
 In a financial year (1st
April to 31st
March)

1/3rd
women participation
Unemployment allowance, if you can’t get work within
15 days
State governments have to appoint district level
ombudsman to hear complaints
Wages: Material ratio = 60:40
MNREGAWages are linked with CPI inflation for
Agricultural laborers
MGNREGA performance
for the year 2013,Average work days 46; women
participation 52.9%
MNREGA Reforms already taken
Individual bank/PO accounts forAll women

Scheme #2: NRLM / Aajeevika
Who? Rural Development Ministry
1999: Swarnjayanti Gram SwarozgarYojana (SGSY).
Later renamed to National Rural Livelihood Mission
(NRLM). Finally renamed toAajeevika.
Wants to lift rural families from abject poverty
How?
By 2024, get one person (preferably woman) from each
household, into an income generating Self-help groups (SHG).
By Giving (Bank loans + subsidy + training) to those SHG.
Economic Survey observation:
Scheme worked fine for agarbatti, pottery, tailoring and other
small business activities.

But at some places, Government made too much infrastructure
investment compared to scope of the given business activity.
Aajiveeka: Budget 2014
UnderAajiveeka,Women-SHG in backward districts get
loans at cheaper interest rate.
Budget 2014 increased the number of backward districts
under this scheme.
More districts to get Cheaper SHG-loans
Loan interest rate
Before 2014
after
4%
In 150 most backward district

Scheme #3: National Urban Livelihood mission
Who? Ministry of Housing & Urban poverty alleviation.
Earlier called Swarnajayanti Sahari SwarojgarYojana.Then
renamed into National urban livelihoods mission, with following
features
self-help groups: bank credit + subsidies + skill training
street vendors also get easy loans and skill training
Shelters for the homeless.

UNEMPLOYMENT
TYPES- 1. INVOLUNTARY (No Demand)
2. STRUCTURAL (Tech Change)
3. CYCLICAL (Unempl during downtrend)
4. FRICTIONAL (Change of job)
RURAL UNEMPLOYMENT- 1. SEASONAL
2. DISGUISED
3. UNDEREMPLOYMENT

INFLATIONDef- General rise in price of goods & services over a period of time in
an economy
Terms:
Stagflation:Increased Unemplmt & Incr Inflation(contrary to Philips
curve on longer term)
Deflation & Disinflation:Reverse of Infl is Deflation & slowdown
in rate of inflation is Disflation.
Slowdown, Recession (for 2 consecutive qtrs –ve growth rate )&
Depression( 2 successive yrs –ve growth rate)
Inflation spiral-Wages press prices up & prices pull wages up
Reflation- Deliberately brought by Govt to decrease unempl &
increase demand by increasing public exp & decreasing tax rates
Philips Curve- Inverse reln betn inflation & unemployment; In
shorter term, inflationary policies of Govt lead to employment;longer

INFLATION
Types- Based on rate, CTG RH
Creeping (1-5%),Trotting (6-10%),Galloping(11-20%),
Runaway (21-40%), Hyperinflation (>100%)
Based On cause, Demand Pull (Dem-pul)
Supply Push / Structural
1. Dem- Pul: Rt ward shift of Demand curve;
Increased purchasing power of masses
Increased public exp;Increased pvt exp by new pvt
projects;Decreased taxation;Increased poulation;Deficit financing;
Black money;Increased exports making less domestic goods; changed
consumption patterns
2. Supply Push:
Increased indirect taxation;Decreased factors of prod;Natural
calamities;Industrial unrest;Hoarding of goods;Infrastructural

INFLATIONEffects-
Inefficiencies in mkt & difficult to budget on long term; Decreased
investment & savings;Negative BoT;Decresed currency exchanges
value; Increased IT rates.
• Measures – Monetary: By RBI in terms of
Credit Control thru BR, CRR, SLR, RR,RRR.
Demonetisation of currency (stripping)
Issue of new Currency
Fiscal : (Decreased money in mkt) thru
Redcn in unnecessary Exp;Increased taxes;Increased savings
thru bonds; Surplus budget,public debt
• Urjit Patel Committee (Jan 2014): RBI should adopt new
CPI;Infln should be 4+-2%;0/12/24-10/8/6% CPI;Monetary Policy

INFLATION INDEX
 WPI – Index to measure the change in avg price level of goods
traded in wholesale mkt.
- Headline inflation based onWPI.
- Measured by DIPP (Dept of Ind Promotion & Policy )Min of commrc
- Policies like infl mgt,prices of essential commodities based on it
- 676 items mainly mfg products followed by primary products
- Limitations- No consideration of services sector& no mfg products of
unorganised sector.
• CPI – Index to measure the change in avg price level of goods &
services at consumer level; Larger weightage to primary art, so food
inflation reflected more in CPI
- 7 CPI indices
1.CPI (IW):Labour Bureau; Govt Employees; DA & Pay commsn
2. CPI (Urban Non manual employees):DA of empl of foreign

INFLATION INDEX
3.CPI (AL):Revising min wages of Agri labours
4. CPI (Rural worker):Other than agri workers
5. CPI (Urban ), 6. CPI (Rural ) & 7.CPI (Urban-Rural)
• Core Inflation- CPI excluding FOOD & FUEL vs Headline inflation
• SPI(Service Price Index)
- Currently in exp stage for selected services like
tpt,airlines,rail,port,trade,etc
- NHB RESIDEX for Housing

MONETARY POLICY
MONETARY POLICY-
1. EXPANSIONIST MONETARY POLICY i.e. EMP(Increases supply of
money in mkt;measure during recession;risk of inflation)
2. CONTRACTIONIST MONETARY POLICY i.e. CMP (Decreases
supply of money in mkt;measure during inflation;risk of deflation)
• Objectives of monetary policy-
1. Economic growth, 2. Price stability, 3.Exchange rate stability, 4.
Genetares employment, 5. Equitable distribution of income.
 QUANTITATIVE MEASURES –
1.BANK RATE:By RBI to commercial banks for long term credit
needs;7.75% as on 29 Sept.
2. CRR:Proportion of total deposits which commercial banks have to keep
with RBI in liquid form;4% as of 29 Sept;3-20%; No interest paid on thi
3. SLR:Proportion of deposits which commercial banks have to keep in
liquid form as cash or gold;21.5%-40%; No interests.

MONETARY POLICY
4.REPO RATE:Rate at which banks borrow from RBI; 6.75%
5. REVERSE REPO: Rate at which RBI borrows from commercial
banks; Reason- profit; 5.75%; RR +RRR-Policy rates;Diff of 1% bet
RR & RRR.
6. OPEN MARKET OPERATIONS (OMO): Buying & selling of Govt
securities in open mkt.
* Marginal Standing Facility (MSF)- Special window for banks to borrow
from RBI against approved G- secs in an emergency situations like
acute cash shortage; Higher than Repo Rate; 7.75%

PPP MODEL
.Pros: Attracts private investment; Best of Private sector in terms of
efficiency, innovation & risk sharing; Risk tfr; Long term soln for infra
in terms of quality provsn, maintainance for long term.
. Cons: Project cost overrun; Social & public sensitivities; lack of
transparency; Crony capitalism; Corruption;Increased NPAs of
PSU;Ltd flexibility; Pvt sector capacity (selecting wrong players for
big projects),No one stop solution ( not useful for rapid or changing
sectors).Lack of role of CSO, People; Lokpal & Audit; RTI.

INDIAN AGRICULTURE
- 48.9% Agri popln & 17.4% of GDP from agri.
- Role of Agri in Indian Economy- Half the popln & 17.4% GDP;
Industrial devlt as raw material; Role in food security; International
trade – net earner.
- Salient features of Indian agri- Marginal & Small land holders>
80%; Surplus agri labour; Gamble on monsoon; Lack of modern inputs;
Irrigation; lack of credit facilities & dependence on moneylenders.
- Concepts- Economic Land holing ( min essential area for profitable
agri); Family Land holding ( Plough Unit for a family with one plough);
Optimum Land Holding (max size owned by a fam)
- Land Reforms- Objectives- Increase production & Equality.
- Steps- 1.Abolition of intermediaries (rayatwari, mahalwari
&Zamindari)
2.Tenancy Reforms- Regulation of rent;Security of
tenure;Ownership rights.

INDIAN AGRICULTURE
3. Reorganisation of Agri- Ceiling of landholdings ( 54 & 18 hectr)
Consolidation of Land Holdings.
- Failure of LR- Land as a social prestige; lack of political will power;
poor land records; defect in land ceiling laws.
Green Revolution- > 250 % increase in wheat & rice production.
- Components- HYV seeds ( dwarf variety); Irrigation; Chemical
Fertilizers; Chemical Pesticides & Herbicides;Agri credit, storage &
mktg/ distrbn.
- Impact- 1. Foodgrain( wheat, jowar, bajra, maize,rice) vs Non
foodgrain disparity2. Socioeconomic Impact- Interregional disparity
wheat & rice; Interpersonal disparity( change in wages area wise) 3.
Ecological impact- Soil fertility degradation,water table, envtl degrdn.
4. MSP, Procurement Price & issue Price( FCI selling) .

INDIAN AGRICULTURE
Agri Price policy & Food security-
Useful for both producers as well as consumers against price fluctuations
- CACP in 1965- 1985 for recommending MSP, Procurement price &
Issue price(FCI selling price).
- Problems with MSP-Wheat & Rice price increase yr by yr creating
distorted prodn pattern; From Surplus state procurement of wheat &
rice creating regional disparities & bias;huge stocks with FCI;
uncontrolled inflation;uncompetitive ariculture vis a vis mkt
competition.
- Food security- Measures like GR, LR,Agri price policy.
Distribution- FCI- procurement,storage,disrtibution of wheat,maize
& coarse foodgrains while NAFED related to oilseeds and pulses.
- Operational stock forTPDS & welfare schemes;buffer stock for
exigencies.

INDIAN AGRICULTURE
PDS &TPDS
- Failure : Ltd to wheat & rice only;All states equal formula;More in
urban than rural; faulty inclusion & exclusion cards & ghost cards;
leakages & corruption.
- Food securityAct
Agricultural Finance-
Credit needs as Short term (<15 mnths), MediumTerm (15- 5 yrs) &
Long term (>5 yrs).
Sources- Non institutional as moneylenders,traders,relatives &
Institutional sources as cooperative banks, RRB s & Commercial banks-
supervised by NABARD ( apex inst to promote, develope & supervise
agri & rural credit delivery mech)
- Kisan Credit Card
- Agricultural Insurance Schemes
- SUBSIDIES &MISCELLANEOUS like schemes.

ECONOMIC SURVEY 2016:INDIAN
AGRICULTURE (Chapt-
5(ii),4(i),9(i)
• Share for agri in employment 48.9% of workfoce(NSSO 2011-12) &
GDP was 17.4% in 2014-15 , at 2011-12 constant prices.
• Twelfth FY plan envisages 4% growth rate in agri & allied sectors to
achieve 8% growth rate.
• From 2010-11, the percentage changes in avg yields of rice, wheat,
pulses, oilseeds and cotton are also showing declining trends,
which is a cause for concern.
• % distr of net irrigated area to total cropped area 33.9% in 2012-
13;Need of increased acreage under irrigation & efficient microirrigation
technologies-‘more crop per drop’.
• Productivity increase- Irrigation; mechanization of farm eqpt; quality
seeds; fertilizers; pesticides; credit facilities; agricultural research &
extension services

AGRICULTURE (Chapt-
5(ii),4(i),9(i)
• The Pardarshi Kisan SewaYojana (PKSY) was launched in
September, 2014 and rolled out in April 2015 in Uttar Pradesh for
distribution of hybrid seeds through DBT.
• Government of India has allocated R15,000 crore to the LongTerm
Rural Credit Fund (LTRCF) set up in the National Bank for
Agriculture and Rural Development (NABARD) for 2015- 16 as
compared to R5000 crore in 2014-15.With the help of this fund, the
Cooperative Banks/ Regional Rural Banks (RRBs) can draw much
higher refinance support from NABARD for financing medium- and
longterm agricultural loans during 2015-16.
• % share of horticulture output in agri is more than 33 per cent. Out
of the six categories e.g. Fruits, Vegetables, Flowers,Aromatic plants,
Spices and Plantation Crops, the highest annual growth of 9.5 per

AGRICULTURE (Chapt-
5(ii),4(i),9(i)
• Mission for Integrated Development of Horticulture (MIDH), was
launched during theTwelfth Plan with effect from 2014-15, for the
holistic development of the horticulture sector covering fruits,
vegetables, mushrooms, spices, flowers, aromatic plants, coconut,
cashew, cocoa and bamboo.The MIDH subsumes the National
Horticulture Mission (NHM), the Horticulture Mission for North East
& Himalayan States (HMNEH), the National Bamboo Mission
(NBM), the National Horticulture Board (NHB), the Coconut
Development Board (CDB) and the Central Institute for
Horticulture (CIH), Nagaland.
• There is wastage at every post harvest stage, from the farm to the table,
which needs to be minimized.
• India ranks first in milk production, accounting for 18.5% of world prod

AGRICULTURE (Chapt-
5(ii),4(i),9(i)
• Per capita availability of milk in India has increased from 176 grams
per day in 1990-91 to 322 grams per day by 2014-15. It is more
than the world average of 294 grams per day during 2013.

AGRICULTURE
• NEED OF MORE FROM LESS- Indian Agriculture has become
cereal centric; input intensive (land,water,fertilisers); scarcity
value of land water (due to industrialisation & climate
change);evolving dietary patterns of more protein consumption.To
adapt to these changes need paradigm shift of incresing productivity
by‘getting more from less’ from water in terms of microirrigation
methods,; cultivation of less water intensive crops (pulses, oilseeds),
supported by favourable MSP regime & strengthened procurement
system; agri research & extension services & solution for
segmentation in Indian agriculture.
• India , a major producer & consumer of pulses in the world; key
pulses producing state M.P. has yield barely 3/5 th of China.

AGRICULTURE
• Consolidation of ongoing irrigation schemes – the Accelerated
Irrigation Beneft Programme (AIBP), IntegratedWatershed
Management Programme (IWMP) and On Farm Water Management
(OFWM) – into the Prime Minister’s Krishi SinchayiYojana
(PMKSY) offers the possibility of convergence of investments in
irrigation, from water source to distribution and end-use.
• Subsidies on power for agriculture that, apart from its benefts
towards farmers, incentivises wasteful use of water and hasten the
decline of water tables.
• India, a net exporter of water- China imports water-intensive
soybeans, cotton, meat and cereal grains , while exporting vegetables,
fruits and processed food. India, on the other hand, exports water-
intensive rice, cotton, sugar and soybean.

AGRICULTURE
• Govt announces MSP for 23 crops,but effective MSP-linked
procurement occurs only in wheat, rice & cotton.
• One way of rationalizing MSP policy is to make these price signals
reflect social rather than just private returns of production.Wheat,
sugarcane or paddy, taking account of the negative externalities from
using chemical fertiliser (soil depletion and health), water (falling water
tables), and from burning crops (adverse health consequences).
Conversely, the social returns to pulse production is higher
than the private returns, because it not only uses less water
and fertiliser but fxes atmospheric nitrogen naturally and
helps keep the soil porous and well aerated because of its deep
and extensive root systems.

AGRICULTURE
• Market segmentation lead to large differences in producer
and consumer prices. Dispersion for prices received by farmers is
measured as the ratio between the highest (P95) and the lowest
(P5) price of the crop in a country, i.e. if this ratio were to be
equal to one, it would imply that there is no price dispersion, and that
there is one common market
• Causes – Differences in connectivity (rural roads), power of
intermediaries, degree of private sector competition, propensity of
regional exposure to shocks, local storage capacity, mandi
infrastructure, storage life of the crop and processing cost.
• Greater market integration is essential for farmers to get higher farm
gate prices. GST bill is a step in the right direction, a lot more needs to
be done, including, creating better physical infrastructure, improved

AGRICULTURE
• 0.5% of GDP on fertilizer subsidies (FOOD>FERTILIZERS>FUEL),
70% of which is on Urea.
Distortions in urea are the result of multiple regulations.
First, there are large subsidies based on end use—only agricultural
urea is subsidised—which creates incentives to divert subsidised urea
to industry and across the border. Subsidised urea suffers from 3 types
of leakages-inefficient urea production;diversion to non agri
use & consumption largely by rich farmers, leading to only 35%
of urea subsidy reaching to beneficiaries like marginal & small farmers.
Second, under-pricing urea vis a vis other fertilizers, leading to
overuse and adverse effects on environment.
Third, Exit problem( multiple distortions—price and movement controls,
manufacturer subsidies, import restrictions—feed upon each other, making it diffcult to
reallocate resources within the sector to more effcient uses)

AGRICULTURE
• Of all the fertilisers, Urea is the most produced (86 per cent), the most
consumed (74 per cent share), and the most imported (52 per cent)
fertilizer. It also faces the most government intervention.
• NBS- DAP and MOP producers and importers receive a Nutrient Based
Subsidy (NBS) based on a formula that determines the amount of N, P
and K in a given amount of fertiliser. Per kg subsidies on DAP and MOP
fertiliser are hence fxed—they do not vary with market prices. Imports
of DAP and MOP are also not controlled. The prices farmers face are
thus deregulated market prices adjusted by fxed nutrient subsidy.
Government involvement in DAP and MOP is limited to paying
producers and importers a fxed nutrient based subsidy which works out
to be roughly 35 per cent of the cost of production.

AGRICULTURE
 Concept of NBS : What is Nutrient Based subsidy (NBS)?
Launched in 2010 replacing “product based subsidy”.
Under NBS, govt. gives subsidy based on weight of the different
Macro/micro nutrient in the fertilizer.In this way, fertilizers
companies can make new product mixes with micro-nutrients, according
to soil requirement in each region.And farmers can afford to buy these
tailor-made fertilizers bcoz Govt gives subsidy to keep them cheap.
Disadvantages-Urea not covered in this scheme; Delay in NBS subsidy
payments, so Fertilizer companies focus more on Urea than other fertilz.
Result: shortage of (Cheap) non-urea fertilizers.So, farmers also overuse
Urea. Ideal ratio of NPK disruptedFarmer doesn’t move to specialized
fruits, vegetable, horticulture cropping- because they require special
non-Urea fertilizers, which are not easily available at cheap rates.

AGRICULTURE
Shortage of coal and natural gas has decreased Urea production.
Government has to import from abroad.
Urea smuggling-UP, Bihar-urea smuggled to Bangladesh and Nepal.
Maharashtra, Gujarat and Haryana-Urea smuggled to chemical
industries- especially in dyeing, inks, coatings, plastics and paints.
Result: nearly 3 million tonnes of Urea, doesn’t reach farmers.
Thus fertilizer subsidy hurts everyone: farmers, firms, taxpayers, and
consumers.

AGRICULTURE
• GOVT INTERVENTION IN UREA-
Sets MRP at which urea must be sold to farmers.
Subsidy to 30 domestic producers that is frm-specifc on a cost-
plus basis, meaning that more ineffIcient producers get larger subsidies.
Subsidy to importers (only 3)
Imports are canalised
Movement of fertiliser is directed—that is, the government tells
manufacturers and importers how much to import and where to
sell their urea.
• RESULT- LEAKAGES
Black marketing & smuggling as urea subsidy for agri use only.
 Small Farmer Inability to derive full benefits

AGRICULTURE
Inefficient fertilizer mfg (subsidy a frm receives is based on its cost
of production.As a consequence, inefficient firms with high production
costs survive and the incentive to lower costs is blunted.)
• REFORMS-
Decanalising urea imports
 Urea under Nutrient based subsidy pgme.
 Turning fertilizer into JAM-
- Neem- coating urea ( Neem-coating makes it more diffcult for black
marketers to divert urea to industrial consumers. It also benefts farmers
by reducing nitrogen losses from the soil by providing greater nutrient to
the crop. As a result, farmers need less urea to achieve the same effect)
- -Targeting small & marginal land-holders (problem related to
sharecroppers and small tenants)

AGRICULTURE
- Universal subsidy with cap on no of urea bags (A preferred
option would be to set a cap on the number of subsidised bags each
household can purchase and require biometric authentication at the
point of sale (POS). This is the approach adopted for kerosene and food
inAndhra Pradesh)
- DBT in fertilizer subsidy
• Conclusion-The current subsidy design—uncapped, varying by end
use, and larger for more inefficient producers—incentivises
diversion, creates a black market that hurts farmers most and does not
encourage producers to operate efficiently. Reforms will indicate
readiness for resolving exit problem of Indian agriculture.

PRADHAN MANTRI FASAL BIMA
YOJANA
 Launched in Jan 2016, replacing existing NAIS & Modified NAIS.
 Commence functioning from Kharif season of 2016.
 Features- Uniform premium rate of 2%, 1.5% & 5% of sum
assured for Kharif, Rabi & horticulture, commercial crops respectively
 The premium rates to be paid by farmers are very low and balance
premium will be paid by Govt to provide full insured amount to the
farmers against crop loss on account of natural calamities.There is no
upper limit on Government subsidy. Even if balance premium is
90%, it will be borne by the Government.
 Earlier, there was a provision of capping the premium rate which
resulted in low claims being paid to farmers.This capping was done
to limit Government outgo on the premium subsidy.This capping has
now been removed and farmers will get claim against full sum insured
without any reduction

YOJANA
 This Scheme also covers Loss / damage resulting from
occurrence of identified localized risks i.e. hailstorm, landslide.
 Coverage is available up to a maximum period of 14 days from
harvesting for those crops which are kept in “cut & spread”
condition to dry in the field after harvesting, against specific perils of
cyclone / cyclonic rains, unseasonal rains throughout the country.
 Use of technology will be encouraged to a great extent. Smart
phones will be used to capture and upload data of crop cutting to
reduce the delays in claim payment to farmers.
 Government liability on premium subsidy would be shared by the
Central and State governments on a 50:50 basis.
 Private insurance companies, along with the Agriculture Insurance
Company of India Ltd, will implement the scheme
Applicable for 3 yrs.

YOJANA
 Differences between old & new scheme-
 11 states vs All states & UTs; High premium rates vs less premium
rates; slow claim procedure vs fast claim; no post- harvest losses vs
post-harvest losses upto 14 days; no use of tech vs use of tech.

NATIONAL FOOD SECURITY ACT,
2013
• Aim- To provide food & nutritional security in human life
cycle approach, by ensuring access to adequate qty of quality food at
affordable prices to people to live a life with dignity.
 ‘Welfare based approach’ to ‘ Rights based approach’.
 Jurisdiction- All states & UTs in India; Covering 2/3 rd of popln of
India i.e. Upto 75% poln in rural & 50% poln in India.
 3/2/1 Rs per kg- 5 kg per person of rice/wheat/coarse foodgrains
from priority households and 35 kg per household of AAY scheme
plus free meal to pregnant & lactating mothers 6 mnths post-
child birth and 6000/- maternity benefits
plus free meal/mid-day meals to children betn age gr 6 mnths-14 yrs
 Failure to prvide this by State Govt- Food security allce.

2013
• Reforms inTPDS scheme-
 Door step delivery of food grains toTPDS outlets.
 Appl of ICT tools incl icl end to end computerisation to ensure
transparency & prevent diversion.
 Use of AADHAR.
 FPS selection- public inst ,SHG, Cooperative inst,etc
 Diversification of commodities throughTPDS.
 Innovative schemes like food coupons, cash tfr,DBT,etc.
• Grievance Redressal Mech- Dist Grievance Redressal Offr; State
Food Commission.
• Obligations of Central Govt- Regular supply of foodgrains to
eligible households by proper allocation of foodgrains to state govt
through central pool.

2013
• Obligations of State- Implementation & Monitoring of scheme;
local storage; food security allce.
• Obligations of LSG/PRI- Implementation as per notification.
• Provisions for advancing Food security- Revitalisation of agriculture;
procurement, storage & movement related interventions & others like
adolescent girls health , nutrition, drinking water, sanitation,etc.

SUBSIDIES
 Subsidies- an essential attribute of‘welfare state’.
 Despite spending as high as 3.77 lakh crore rupees annually on
subsidies, there is no‘transformational impact’ on standard of living of
masses.While subsidies have helped some poor people to do
firefighting in life, main allegation on a subsidy economy is that,
through subsidies, money meant for poorest is appropriated by richer
sections of the society due to mistargeting and leakages.
 Subsidies- a Hand- Holding mechanism; Politicization of subsidies.
Subsidies should be aimed at specific development objectives. On
achievement of these objectives subsidies should be phased out. It is
only then that subsidies can go well with an undistorted market
economy.

SUBSIDIES
• Subsidies led distortions in India-
 Energy-groundwater nexus of subsidies- Need of
rationalization of power & water subsidies to farmers; government has
plans to separate agriculture feeder network from rest, under
Deen Dayal Upadhayay Gram JyotiYojna.This separate
agriculture feeder will supply electricity only for a few hours a day.
This was first tried by Gujrat and results were encouraging as it had
role in making Gujrat a power surplus state, along with arresting
continuous decline in groundwater levels.
 Subsidized fertilizers – Nutrient Based Subsidy - to fix subsidy as
per nutrients in the fertilizer and leave the determination of price to
suppliers. Presently Urea is not covered under the scheme &
consequently subsidized price of Urea remained stagnant even when
real costs of production have risen significantly.; Negative externalities

SUBSIDIES
 Cultivation of wheat, Rice and sugarcane at cost of pulses,
horticulture crops and coarse but nutritious grains-
Evolving dietary pattern towards pulses consumption;
Pulses are most suitable to be grown in areas of Maharashtra and
Madhya Pradesh, yet large parts of these areas are under cultivation
of sugarcane. Sugarcane due to high ‘fair and remunerative
price’ is being sown in these areas.This create two problems – one, it
deprives Indians of their source of protein; two, these areas are water
deficit and sugarcane is water guzzling crop.This crop is sucking
scarce water rapidly and when monsoon failed again this time, mainly
in Marathwada; farmer had no way to escape.
Pulses are water efficient crops with capacity to rejuvenate soil by
process of nitrogen fixing .Secondly, issue of Rice & wheat surplus
production due to MSP policies focussing on them.

SUBSIDIES
 Railways subsidies- Freight & passenger fares subsidized
 Agricultural finance- Farmers are entitled to pre- harvest loan at
lesser interest rate & further 3% subvention in case of timely
payment. Farmers can also take loan for post-harvest time against
negotiable warehouse receipt.
3 discrepancies- 1.Trend for a single loan amount is increasing for
most of these subsidized loans.This means that more subsidies is
going in favour of rich farmers. 2. Extension of subsidized credit
is concentrated in last three months of financial year, which
indicates that reluctant banks otherwise unable to meet priority sector
lending targets, desperately disburse loans to reach target at the end
only. It is unlikely that this way credit will reach to desirable
party.3.Agriculture credit is getting concentrated on peripheries of
urban areas, so money is being diverted to nonagricultural use.

SUBSIDIES
Food inflation: Mainly due to increasing input costs to farmer
coupled with persistent increase in MSP.This forces government’s
agency FCI to procure foodgrains in open ended manner.As a result,
government ends up procuring 25-33% of total foodgrains production
in the country.
Few experts believe that entitlements under Food Security Act are
sufficient only to fulfill 50% of requirement of foodgrains for a
household. For this 50%, there is massive but inefficient storage and
PDS system.This in many ways significantly increases price of
remaining 50% food grain need of households. So, a well-intended
system may be actually working counter to its stated goals.

SUBSIDIES
• DBT as a solution-
 Fiscal savings – Assuming explicit subsidies being extended by state
in current form to remain between 3 to 4 lakh crores, DBT will curb
this expenditure by around 15%.
 Hits at roots of corruption – It is common knowledge that
subsidized fertilizer is diverted to industrial use from agricultural
sector, kerosene is mixed in diesel and PDS food is leaked in black
markets. In short, subsidy regime has nurtured a mammoth
corrupt ecosystem and black economy in India.When DBT is
implemented everything will be sold on market prices by the
government. For E.g. Fair Price Shop owner will get PDS food in full
CIP plus margin kept by state government.Then question of giving
away PDS commodities illegitimately doesn’t arise.

SUBSIDIES
 Controling inflation – Distortions created by subsidy
regimes discourage investment in relevant sectors.This creates
supply side constraints in economy. It is expected that recent
deregulation of diesel will increase production and private firms will
reopen their retail outlets.This will create competition which often
results in cheaper prices.
 Further, trading and purchase at market prices keeps
demand in check. For e.g. subsidy on urea encourages farmers to
use it more even when there is no due benefit.This created huge
demand of urea and in turn high prices of unsubsidized urea.This
scenario has increased government’s subsidy on urea manifold, which
is not only waste but a disaster in itself. Similar case is with the food
grains. DBT will leave more food grain in market and hence lower
prices.

SUBSIDIES
 Better nutrition –When there is cash transfer, poor will be
able to diversify their diet by including more items like pulses,
eggs etc.This will increase their protein intake.
 However, there is risk that some households will misuse this cash in
social evils like alcohol, tobacco or gambling. For this government has
made eldest women in a household target beneficiary for cash
transfers.This step is likely to empower women.
 PAHAL scheme – annual saving of Rs. 15000 crore.
Direct CashTransfer is also being implemented for transfer of wages
in MGNREGS scheme. It has resulted in reduction in delayed and fake
payments in relevant areas.

WTO & AGRICULTURE
• WTO’s agreement on agriculture was concluded in 1994 & aimed
to remove trade barriers and to promote transparent market
access and global mkt integration.
Agreement on agriculture stands on 3 pillars viz. Domes
tic
Support, Market Access, and Export Subsidies.
Domestic Support- It refers to subsidies like MSP
or Input subsidies which are direct and product specific. Subsidies
are categorized into 3 boxes –
1. Green Box .Subsidies which are no or least market distort
ing includes measures decoupled from output such as income
support payments, payments under environmental programs, and agri
cultural research & development subsidies.
USA has exploited it to fullest by decoupling subsidies from outputs

WTO & AGRICULTURE
2. Blue Box- Only ‘Production limiting Subsidies’ under this are
allowed. They cover payments based on acreage, yield, or number of
livestock in a base year.
 ‘Targets price’ are allowed to be fixed by government and if ‘market
prices’ are lower, then farmer will be compensated with difference
between target prices and market prices in cash.This cash shall not be
invested by farmer in expansion of production.
Loophole- No limit on target prices that can be set and those are often
set far above market prices deliberately. EU is active on this front.
3. Amber Box- Trade distorting subsidies and need to be
curbed.It contains category of domestic support,scheduled for
reduction based on a formula called the “Aggregate Measure of
Support” (AMS). AMS is money spent by govt on agri prodn, except
for those contained in theBlue Box, Green Box and ‘de minimis’.

WTO & AGRICULTURE
 It required member countries to report their total AMS for the
period between 1986 and 1988, bind it, and reduce it according to an
agreed upon schedule. Developed countries agreed to reduce these
figures by 20% over six years starting in 1995. Developing countries
agreed to make 13% cuts over 10 years. Least – developed countries
do not need to make any cuts.
As we can note that Subsidies were bind to levels of 1986-1988, there
was inequality at very beginning of the agreement. At that time
subsidies which latter came under ‘Amber Box’ were historically high
in western countries. In developing countries, including India these
subsidies were very limited. It is only now under pressure of Inflation
in prices of agricultural Inputs, and wide differences between market
prices and Minimum support Price, subsidies have grown to this level.
In effect developed countries are allowed to maintain substantially
higher amount of trade distorting subsidies.

Blue Box- This is the amber box with conditions.The
conditions are designed to reduce distortion subsidy that
would normally be in the amber box & is placed in the blue
box if it requires farmer or ascertain production level.These
subsidies are nothing but certain direct payments
Made to farmers by the government in the form of
assistance program to encourage agriculture, rural
development,etc.At present there are no limits on
spending on the blue box subsidies.In the current
negotiation, countries want to keep blue box as it is because
they see it as a crucial means of moving away distorting the
amber box subsidies without causing too much hardship.

WTO & AGRICULTURE
• De-Minimis provision
 Developed countries are allowed to maintain trade distorting
subsidies or ‘Amber box’ subsidies to level of 5% of total value of
agricultural output & for developing countries upto 10%.
So far India’s subsidies are below this limit, but it is growing
consistently. This is because MSP are always revised upward whereas
Market Prices have fluctuating trends.
Market Access: The market access requires that tariffs fixed
(like custom duties) by individual countries be cut
progressively to allow free trade. It also required countries to
remove non-tariff barriers and convert them toTariff duties.
India has agreed to this agreement and substantially reduced tariffs.
Only goods which are exempted by the agreement are kept under
control.

WTO & AGRICULTURE
 Export Subsidy: These can be in form of subsidy on inputs of
agriculture, making export cheaper or can be other incentives
for exports such as import duty remission etc. These can result in
dumping of highly subsidized (and cheap) products in other country.
This can damage domestic agriculture sector of other country.
These subsidies are also aligned to 1986-1990 levels.But USA is
dodging this provision by its Export credit guarantee program. In this,
USA Govt gives subsidized credit to purchaser of US agricultural
products, which are to be paid back in long periods. e.g. Food Aid
programs, such as (Public Law-480) under which food aid is send
massively to under developed countries.It results in perpetual
dependence on foreign grain in recipient countries and destroys their
domestic agriculture. So this is equally trade distorting subsidy, which
is not currently under ambit ofWTO’s AOA.

WTO & AGRICULTURE
 Special Safeguard Mechanism
A Special Safeguard Mechanism (SSM) would allow developing
countries to impose additional (temporary) safeguard duties in
the event of an abnormal surge in imports or the entry of
unusually cheap imports.
Debates have arisen around this question, some negotiating parties
claiming that SSM could be repeatedly and excessively invoked,
distorting trade. In turn, the G33 bloc of developing countries, a
major SSM proponent, has argued that breaches of bound tariffs
should not be ruled out if the SSM is to be an effective. remedy. SSM
is quite important in a scenario in which West has significant powers
to subsidize their production and in turn, exports.

WTO & AGRICULTURE
 Sanitary and Phyto- Sanitary Measures
It sets out the basic rules for food safety and animal and plant
health standards. It allows countries to set their own standards. But
it also says regulations must be based on science.They should be
applied only to the extent necessary to protect human, animal or plant
life or health & they should not arbitrarily/ unjustifiably discriminate
between countries where identical or similar conditions prevail.
 Bali Summit 2013-
 LDC- DFQF mkt access
 Peace clause (upto 2017, later on permanent without time limit)
 Trade facilitation

WTO & AGRICULTURE
Nairobi Summit 2015-
 Abolish export subsidies
 Public stock holding for food security (on hold)
 Spl Safeguard mech (SSM) for developing countries (on hold)
 DDA- (no firm commitment)
Bargaining tool by India-Trade facilitation.

INDUSTRIES
Industrial Policy Resolution, 1948-
(a) Exclusive Govt Monopoly mfg of arms& ammunition,
production and control of atomic energy and railways.
(b) Government Monopoly for New Units
This category included coal, iron and steel, aircraft manufacture, ship
building, telephone,
telegraphs and wireless apparatus (excluding radio receiving sets) and
mineral oils. New undertakings in this category could
henceforth be undertaken only by the State.
(c) Regulation Industries of such basic importance like machine t
ools, chemicals, fertilizers, nonferrous metals,rubber industry,
cement, paper, newsprint, automobiles, electric engineering- Central
Government would feel necessary to plan and regulate.
(d) Unregulated private enterprise Industries in this category lef

INDUSTRIES
Industrial Policy Resolution, 1956-
Schedule A:  Future development, exclusive responsibility
of  State. 17 industries;heavy& strategic industries such as defense
eqpt Atomic energy Iron and Steel.; ;
Schedule B:  Progressively State owned & pvt
enterprises,expected only to supplement the efforts of
the State. 12 industries were included.
Schedule C: Industries left open to pvt sector.
-Monopolistic and Restrictive Trade Practices Act, 1969
This act was hallmark of infamous ‘license quota permit’ syste
m. Companies having more than specified value of assets needed to ta
ke permission/license,before any expansion and commencement of
operations.

Industrial Policy Resolution 1977-
It was result of change in government at centre. More focus on small scale industry,
cottage,vilage industry. Itwas move away from Nehruvian Mahalanobis ideology to
Gandhian ideology of economic development.
Small sector into three categories:
a) Cottage and household industries which provide selfemployment on a wide scale.
b) Tiny sector incorporating investment in industrial unit in machinery and eqpt upto Rs.
1 lac & situated in towns with a population of less than 50000.
c) Small-scale industries comprising industrial units with an investment of Rs. 10 lakh
and in case of ancillaries with an investment in fixed capital upto Rs. 15 lakh.
This resolution categorized large industries on the lines of Basic/core industry, Capit
al Goods industries& High Technology industry and other Industries.
Further, foreign investment would be encouraged only for some industries in the
national interest as decided by the Government. This clearly meant that
in areas where the foreign collaboration was not required, such case would not be
reviewed. For this there was draconian Foreign Exchange Regulation Act in place.

.
Industrial Policy resolution, 1980-
Congress made come back and soon restored its own industrial policy.
.Regulations, Licensing, restrictions were eased a bit signaling inclination towards private
sector.
New Industrial Policy, 1991 -
 Shift from ‘imperative’ to ‘indicative’ planning under new system.
 New industrial policy abolished all industrial licensing, irrespective of the level of investment,
except for a short list of18 industries related to the security and strategic concerns,
hazardous chemicals and over riding environmental reasons and items of elitist consumption .
However, of these 18 industries, 13 categories have been removed
from the list gradually and currently only 5 category ;health, strategic and security
considerations industries needs license viz. Alcohol,
cigarettes, hazardous chemicals, electronic, aerospace and all types of defence eqpt
Policy on Public Sector – The 1956 Resolution had reserved 17 industries for the public sector;
1991 policy to8&as of now only 2 industries reserved for govt Atomic Energy , Rail
 For Chronically Sick industries BIFR.
 Privatization/disinvestment
 . Removal of threshold limit under MRTP Act; Indigenization of technology.
 Removal of Mandatory Convertible Clause into equity
 NEW MANUFACTURING POLICY, 2011 -
The Government of India has announced a national manufacturing policy with the objective of enhancing the share of

Micro Small and Medium Enterprise
Small scale industry sector output contributes almost 40% of the gross Industrial value
added 45% of the total exports from India,and is the second largest employer of human reso
urces after agriculture. The development of Small Scale Sector has therefore been
assigned an important role in India’s national plans.
There is separate ministry for MSMEs which helps in following way.
1. Reservation – Reservation of products for exclusive manufacture in the small scale sector was i
ntroduced for
the first time in 1967 with the,reservation of 47 items. As of July 2010, 20 item are reserved for e
xclusive manufacture in the small scale sector.
2. Government has ‘procurement policy’ which prefers SSI – 358 items exclusive procurement
policy for SSI.
3. Interest Subvention schemes are started from time to time.
4. Technology Upgradation Fund Scheme
Subsidy is available to small and medium scale industry to adopt new technology. Subsidy is
available either on Capital Expenditure, or as interest Subvention.
5. Export Assistance & Facilities – In certain cases duty free or with concessional rate of Custom
Duty, so as to ensure higher production for exports.
There were less restriction for exports by this sector and overall various supporting faciliti
es such as remission of duties paid on input materials were available.
Exporters are recognized as Export House, Trading Houses, Star Trading Houses and Super Star T
rading Houses on the basis of certain criteria as,laid down in the ExportImport Policy
19972002. Criteria are quantitative targets, such as turnover or FOREX earned.

• Special Economic Zone-It
is one or more areas of a country where the tariffs and quotas are eliminated and
bureaucratic requirements are lowered sothat more companies are attracted to the
area.
In India, the policy for setting up SEZ was introduced on April 1, 2000 with a view to
provide an internationally competitive and hassle free environment for
exports. The policy offered setting up of SEZ in the public, private, joint sector or by
State Govt
Prior to Special economic zones, Expert processing Zones (EPZ) were in vogue. With
a view to overcome the shortcomings experienced on account of the,multiplicity of co
ntrols and clearance(SEZ provides ‘single window clearance’), absence of world
class infrastructure, an unstable fiscal regime and with a,view to attract larger
foreign investments in India, SEZ Policy was announced in April 2000. For all
specified procedural,purposes Special Economic Zones are considered foreign
territory within the country. Domestic trade with SEZ is generally eligible for export
concessions.

Disinvestment Timeline in India
Disinvestment: When Government sells its shares of a PSU, to private sector company / individual.
Privatization: when Government sells so many shares, that it no longer remains the majority shareholder of the given
PSU.
1991Interim budget, Government announced 20% disinvestment in selected PSUs.
Their shares were sold to Mutual funds and financial institutions (UTI, EPFO, LIC etc.)1992
1993-Rangarajan Committee suggests:49% disinvestment in PSUs reserved for public sector;74% disinvestment in all
other PSUs
Government did not implement.
1996-Disinvestment commission under GV Ramakrishna. It was a nonstatutory, advisory body (similar to UPA’s NAC).
19982000Vajpayee Government classifies PSUs into two parts
Strategic: armsammunition, railway, nuke energy – NO disinvestment
Non-strategic: Dsinvestment in a phased manner. Hindustan Zinc, BALCO, Maruti
To implement above policy, Department of disinvestment setup under Finance ministry.
2004UPA comes into power, Common Minimum program (CMP) updates disinvestment policy
Sick PSUs will be revived;No disinvestment in profit making PSUs;PSUs will get commercial autonomy
2005Whatever Money Government earns from selling its PSU shares it’ll got o National investment fund (NIF).
200509Disinvestment remains stagnant because Left allies of the UPA Government stonewall everything.
2009 onwardsUPA2 without left parties. Government resumes disinvestment process.
All PSUs can be disinvested, but upper limit: 49%
201314Plan for 40,000 crores via disinvestment of Indian Oil, BHEL, NHPC, Neyveli lignite etc. but hardly managed to
get ~16,000 becauseOil ministry, mining ministry, trade unions opposed the move, files were delayed; Lukewarm
response from investors because sharemarket was down due to internal & external factors.
2014Modi cabinet approves disinvestment in NHPC, Coal India, ONGC.

Disinvestment: arguments in favour and against
1.Socialist / leftist ideology Limitation of pvt sector in fulfilling social commitments
Private enterprises only focus on profit maximization. They won’t cater for poor people.
Therefore Government needs to control all or some industrial sectors. vs
Such Govt controlled units can’t compete in free market economy due to political interference and price
control mechanisms.Ultimately more public money is wasted in running these loss making entities.
2. Dividend IncomeGovernment’s dividend income will decline. (Because they’ll have less shares).
Consequently, Fiscal deficit will increase. Vs
“dividend” Government earned so far vis a vis Government has spent more for their revival.
3. Financial Inclusion-  It’ll not help in “financial inclusion” as only 0.5% retail participation in equity
market i.e. only Large corporates and financial institutions benefit from this drive vs
Absurd logic, that just because corporates will benefit, we shouldn’t begin disinvestment.
Government already taken plenty of initiatives on financial inclusion front.
4. Jobs loss- After disinvestment employees of PSUs will loss their jobs.    vs
private sector experts in Board of Directors, plans to reduce staff strength, to increase profitability.
Overstaffing = One of the main reasons why PSUs don’t make optimum profit. Firm action needed.
Besides, such employees are given attractive VRS offers.
5. Monopoly of pvt- Disinvestment would lead to private monopolies     vs
Unlikely to happen in today’s world. CCI is always watching and punishing the firms that try to create
monopoly or oligopoly.

6. Less valuation- Allegations that PSEs are sold cheap to preferred parties e.g.
BALCO vs
Used to happen in 90s, when Govt sold shares to specific pvt companies at an arbitrary
price.
But, Unlikely to happen if shares directly sold via stock exchange. + CAG, Media very
active now
7. Changing ownership amongst Govt org-To complete the disinvestment targets,
Government asks one PSU to buy shares of another PSU.
e.g. ordering LIC to buy ONGC’s shares……. In such cases, disinvestment doesn’t
decrease Govt control over those companies.
Need for a clear policy on disinvestment to stop this practice.
Speed of Disinvestment- International experiences-
Rapid speed
1993: Czech Republic disinvested ~1000 state owned enterprises.; Russia did same.
Results were disappointing in both the cases.
Hence rapid approach= not recommended for India
Slow speed
China after more “Open Door Policy” in 1978.
But speed too slow thousands of enterprises still under Government ownership.
Middle speed- Most suitable for India

Modi PSU-reform1: Disinvesting NHPC, Coal India, ONGC
Issues-
NHPCHas 20 hydroelectric power stations.;Unable to recover dues from electricity utility
companies= company making huge losses.
Hence it share price won’t fetch truckload of cash to Government.
Coal India LtdLabour union strike may bring down share price.
ONGCMaharatna PSUIf Government clears the gas price policy, ONGC’s share prices will go up
(And after that Government should sell it
Modi PSU-reform2: Revive 5 and shut down 6
Hindustan Photo Films
HMT Bearings
HMT Watches
HMT Chinar Watches
Hindustan Cables.
Tungabhadra Steel Products Ltd
HMT Machine Tools
Heavy Engineering Corporation
NEPA
Nagaland Paper & Pulp Co
Triveni Structurals

ECONOMIC SURVEY 2016- Industrial, Corporate & infrastructural
performance
• As per latest data released in January 2016 on revised estimates of national income the
growth of Industrial sector broadly comprising mining, manufacturing, electricity and
construction is 5.9 per cent during 201415, as against a growth of 5.0 per cent during
201314. The advance estimates of national income 201516 shows that the growth of
industrial sector is estimated to be 7.3 per cent with manufacturing  sector  growing
at  9.5 per cent.
• Recent Reforms- Reducing the list of industries that can be considered defence
industries requiring industrial licence; and amendments in FDI policy which include
allowing FDI in defence  up to 49 per cent, in railway infrastructure up to 100 per cent
and in the insurance and pension sector up to 49 per cent. The investment limit
requiring prior permission from the Foreign Investment Promotion Board (FIPB)/Cabinet
Committee on Economic Affairs has been increased from R1200 crore to R3000 crore.
The definition of investment by Non Resident Indians (NRI), Persons of Indian Origin (PIO)
&Overseas Citizens of India (OCI) in FDI policy has been revised.
• The government has launched several programmes/initiatives  such as ease of doing
business, Make in India, Invest India, and ebiz Mission Mode Project under the National
eGovernance Plan. Further, the Government of India is also building a pentagon of
corridors across the country to boost manufacturing and to project India as a global
manufacturing destination. The National  Investment  and Infrastructure Fund (NIIF)
has been approved to extend equity support to infrastructure NonBank Financial
Companies (NBFC). Issue of tax free infrastructure bonds has been allowed for rail, roads
and irrigation programmes.

• The eight core infrastructure supportive industries, coal, crude oil, natural gas,
refinery products, fertilizers, steel, cement and electricity that have a total weight of
nearly 38 per cent in the IIP, registered a cumulative growth of 1.9 per cent during
AprilDecember 201516 as compared to 5.7 per cent during 201415. Monthwise
performance of the eight core sectors shows that the production of coal and fertilizers
have increased substantially, while that of crude oil, natural gas and steel have
mostly  been  negative. Refnery products, cement and electricity have attained
moderate growth. Crude oil and natural gas production declined because of a fall in
production by Oil and Natural Gas Corporation (ONGC), Oil India Limited (OIL).
• Steel Industry- India produces 86.5 million tonnes (MT) of steel, which is over 5
per cent of world production, making it the fourth largest producer of crude steel
in the world. The cost of production of domestic steel companies like Jindal Steel and
Power Limited, Bhushan Steel and Essar Steel is more than the import parity
price at 10 per cent import duty and hence are not globally competitive.
 Due to nearstagnant demand for steel globally, and in particular in China, major
global steel producers are pushing steel products into the Indian market, leading to
a surge  in steel  imports. The Indian steel industry with higher borrowing and raw
material costs and lower productivity is at a comparative disadvantage. The
government has taken the following measures to curb the surging steel imports
and make domestic production sustainable:
 Raised basic customs duties on certain primary iron and steel products; Imposed
anti-dumping duties ; Imposed provisional  safeguard  duty effective from
September 14, 2015 ; Minimum import price has been imposed; Reduced export
duty on iron ore .

• Aluminium Industry- India is the second largest aluminium- producing country
& third largest aluminium- consuming country in the world.
 The capacity utilization of the Indian aluminium industry has fallen drastically in the
last one and a half years as international prices have slid. The cost of production is
higher than international prices.
• Petroleum products and iron and steel are two major industries within the
manufacturing sector that recorded contraction in the last three quarters.
• Capacity utilization, as measured by Round of the Order Books, Inventories and
Capacity Utilisation Survey (OBICUS) of the Reserve Bank of India (RBI).
• The rate of growth of GCF in industry has registered a sharp rise from ()3.7 per cent
in 201314 to 3.6 per cent in 201415, showing upward momentum of investment in
industry.
• MSME- CRUCIAL ROLE- (i)With 3.6 crore units spread across the country, that
employ 8.05 crore people, MSME have a contribution of 37.5 per cent to the
country’s GDP.(ii) Huge potential for helping address structural problems like
unemployment, regional imbalances, unequal distribution of national income
and wealth across the country. Due to comparatively low capital costs and their
forwardbackward linkages with other sectors, MSMEs will play a crucial role in
the success of the Make in India initiative. (iii) Number of schemes/programmes
like the Prime Minister’s Employment Generation Programme (PMEGP), Credit
Guarantee Trust Fund for Micro and Small Enterprises (CGTMSE), Credit Linked
Capital Subsidy Scheme (CLCSS) for and promote startups for innovation and
entrepreneurship in rural and agriculture based industry.

 NEW INITIATIVES-
 Udyog Aadhar Memorandum (UAM):
The UAM scheme, which was notified in September 2015 under section 8 of
the MSME Development Act 2006, is a pathbreaking step to promote ease of
doing business for MSMEs.
On selfcertification basis and no supporting documents instantly get a
unique Udyog Aadhaar Number (UAN)
 Employment Exchange for Industries:
To facilitate match making between prospective job seekers and employers
an employment exchange for industries was launched on June 15, 2015 in
line with Digital India.
• Framework for Revival and Rehabilitation of MSMEs: Under this
framework, which was notified in May 2015, banks have to constitute a
Committee for Distressed MSME enterprises at zonal or district level to
prepare a Corrective Action Plan (CAP) for these units.
• A scheme for Promoting Innovation and Rural Entrepreneurs
(ASPIRE): ASPIRE was launched on March 16, 2015 with the objective of
setting up a network of technology centres and incubation centres to
accelerate entrepreneurship and promote start-ups for innovation and
entrepreneurship in rural and agriculture based industry.

• CPSE-
 ONGC Ltd, Coal India Ltd, NTPC Ltd, the National Mineral Development Corporation
(NMDC) Ltd and Power Finance Corporation Ltd were top 5 profIt-making CPSEs
during 201415, whereas Bharat Sanchar Nigam Ltd, Air India Ltd, Mahanagar
Telephone Nigam Ltd, Hindustan Photo Films Manufacturing Company Ltd
&Mangalore Refinery and Petrochemicals Ltd were top 5 loss-making CPSEs.
 CPSEs contribute to the central exchequer by way of dividend payment, interest
on government loans and payment of taxes and duties. Their contribution to the
central exchequer decreased.
• FDI-
 With a view to liberalizing and simplifying the FDI policy to provide ease of doing
business climate in the country that will also lead to larger FDI inflows, the
government has undertaken various reforms. A number of sectors have been
liberalized, including defence, construction, broadcasting, civil aviation,
plantation, trading, private sector banking, satellite establishment and
operation and credit information companies.
 During 201516, FDI policy in the pension sector has been revised to permit foreign
investment up to 49 per cent, with 26 percent under automatic route. Manufacturing
of medical devices and white label ATM operations have been opened up to 100
percent FDI under automatic route.
 The various reforms in the FDI sector have led to a significant increase in FDI inflows
into India, showing a 26 per cent surge in 2015.

 FDI inflows of last fifteen years –( Pneumonic- SC IT A/atics)
Services sector (17.6%) > Construction development (8.8 per cent)> Computer
hardware and software (7.2 per cent)> Telecommunications (6.6 percent) >
Automobile industry (5.2 percent).
 Country-wise FDI Inflow (2015-16):
Singapore ,Mauritius, Netherlands and USA account for the major share . During
2015-16 (April- November), more than 60 per cent have come from two
geographically small countries named Singapore and Mauritius. (These inflows
need perhaps to be examined more closely to determine whether they constitute
actual investment or are diversions from other sources to avail of tax benefits under
the Double Tax Avoidance Agreement that these countries have with India)
 State-wise analysis of FDI inflows in last 15 yrs : Delhi, Haryana, Maharashtra,
Karnataka, Tamil Nadu, Gujarat and Andhra Pradesh have together attracted more
than 70 per cent of total FDI inflows to India during last 15 years.

MAKE IN INDIA
 With the objective of making India a global hub of manufacturing, design and innovation,
the Make in India initiative, which is based on four pillars --new processes, new infrastructure, new
sectors and new mindset-- has been taken by the government.
 DIPP in consultation with various central ministries, state governments, industry leaders, and other
stakeholders, has formulated a strategy for increasing the contribution of the manufacturing
sector to 25 per cent of the GDP by 2020.
 The Government of India has set up Invest India as the national investment promotion and
facilitation agency.
 As per National Manufacturing Policy 2011, Make in India seeks to create 100 million additional
jobs in manufacturing by 2022.The government is taking a number of steps to enhance the skills of
workers/ the unemployed in India in order to improve their employability. In order to tap the creative
potential and boost entrepreneurship in India, the Start-up India, Stand-up India campaign has been
announced.An innovation promotion platform called Atal Innovation Mission (AIM) and a techno-
financial, incubation and facilitation programme called Self-Employment and Talent Utilization
(SETU) are being implemented to encourage innovation and start-ups in India.
 FUNDING- India Aspiration Fund has also been set up under SIDBI for venture capital financing of
newly set-up or expanding units in the MSME sector. SIDBI Make in India Loan for Small Enterprises
(SMILE) has been launched to offer quasi-equity and term-based short-term loans to Indian SMEs with
less stringent rules and regulations and a special focus on 25 thrust sectors of Make in India. Further, a
Micro Units Development Refinance Agency (MUDRA) Bank has been set up to provide development
and refinance to commercial banks/ NBFCs/cooperative banks for loans given to micro-units.

MeasuresTaken under ‘Ease of Doing Business’
Single window clearance system.
Notifcation has been issued by Directorate General of ForeignTrade (DGFT)
to limit number of documents required for export and import to three.
The Companies (Amendment)Act 2015 has been passed to remove
requirements of minimum paid-up capital
Simplification of clearances from MHA , MoD, MoEF wherever needed;
 Defence products’ list for industrial licensing has been issued, wherein a large
number of parts/components, castings/forgings, etc. have been excluded from
the purview of industrial licensing.
Registration with the Employees Provident Fund Organization (EPFO) and
Employees State Insurance Corporation (ESIC) has been automated and ESIC
registration number is being provided on a real-time basis.
 A unifIed portal for registration of units for Labour Identifcation Number
(LIN), reporting of inspection, submission of returns and grievance redressal
has been launched by the Ministry of Labour and Employment.

 Union Budget 2016-17: Governance and Ease of Doing Business
 The following are the new initiatives proposed in the Budget 2016-17 to achieve the goal of Minimum Government
and Maximum Governance and to enable people to realize their full potential.
 • A bill to amend the Companies Act, 2013 will be introduced in the 2016-17 budget session.The proposed bill
would also improve the enabling environment for start-ups by mandating the registration of companies in one day.
 • The Director General of Supplies and Disposal (DGS&D) will establish a technology driven platform to
facilitate transparency and efficiency in procurement of goods and services by various Ministries and
agencies of the Government.
 • The Price Stabilisation Fund will be provided with a corpus of 900 crore rupees to support market interventions
in procurement of pulses.
 • Ek Bharat Shreshtha Bharat programme will be launched to link States and Districts in an annual programme
that connects people through exchanges in areas of language, trade, culture, travel and tourism.The programme marks
the celebration of 70thAnniversary of independence.
 • Following three initiatives were announced to avoid leakage in disbursement of government subsidies.
 1) A bill for targeted delivery of Financial and Other Subsidies, Benefits and Services by using the Aadhaar
framework will be introduced in the budget session of 2016-17.A social security platform will be developed using
Aadhaar to accurately target beneficiaries.This will be a transformative piece of legislation which will benefit the poor
and the vulnerable.
 2) Direct BenefitTransfer for delivering fertilizer subsidies will be used on pilot basis in a few districts across the
country. It seeks to improve the quality of service delivery to farmers.
 3) Out of the 5.35 lakh Fair Price Shops in the country, automation facilities will be provided in 3 lakh Fair Price
Shops by March 2017.

SERVICES SECTOR: ECONOMIC SURVEY 2016-17
 CSO’s classification of services-India’s services sector covers a wide variety of
activities. (a) Trade, Hotel & restaurants; (b) transport, storage & communication;
(c)financing, insurance, real estate & business services, (d) community,social & personal
services .
 The services sector has emerged as the most dynamic sector of the world economy,
contributing almost one-third of world gross value added, half of world employment, one-
fifth of global trade and more than half of the world FDI flows. It remains the key driver
of India’s economic growth, contributing almost 66.1 per cent of its gross value added
growth in 2015-16, important net foreign exchange earner and the most attractive sector
for FDI inflows.
 Among the world’s top 15 countries in terms of gross domestic product (GDP), the US
ranks first in both services GVA and overall GDP, followed by China in second and Japan
in third position. India ranked ninth in terms of overall GDP and tenth in terms of services
GVA in 2014, climbing one rung in both rankings.
 Despite the slowdown in the post crisis period, India showed the fastest service sector
growth with a CAGR of 8.6 per cent, followed by China at 8.4 percent. In 2014 India’s
service sector growth at 10.3 %was noticeably higher than that of China at 8.0 %.
 In 2014-15, while total FDI equity inflows grew by 27.3 per cent to US$ 30.9
billion, FDI equity inflows to the services sector (top 10 services including

 The high growth in services FDI inflows is mainly due to higher growth of three major categories, namely
computer software and hardware; services sector category which itself consists of a basket of items like
financial, banking, insurance, non-financial, outsourcing and R&D; and trading.This was in spite of the high
negative growth at - 61.6 per cent in FDI equity inflows in telecommunications.
WTO Services Negotiations and Bilateral Negotiations including ServicesTrade in Nairobi
 Service trade- Implementation of preferential treatment in favour of services and service suppliers of
LDC and increasing LDC participation in services trade; and moratorium on payment of customs duties on electronic
transmissions until 2017.
 Preferential treatment for LDCs: So far, 21 members, including India, have notifed preferential treatment to
LDCs in services trade. India has offered this in respect of: (i) article XVI of the GeneralAgreement onTrade
 in Services (GATS) (Market Access); (ii) technical assistance and capacity building; and (iii) waiver of visa fees for LDC
applicants applying for Indian business and employment visas.The fee waiver will be valid until 31 December 2030.
India is the only member which has offered waiver of visa fees.This is a unique and almost path-
breaking offer by India. So far, visa issues have remained untouched in theWTO/free trade agreements (FTA).
India’s offer should give signifIcant advantage to service suppliers from LDCs vis-à-vis service suppliers from any other
country.
 E-commerce:TheWTO Members agreed to maintain the current practice of not imposing customs duties on
electronic transmissions until the next Ministerial Conference which will be held in 2017.
 Bilateral agreements:
 India has signed comprehensive bilateral trade agreements, including trade in services, with the governments of
Singapore, South Korea, Japan and Malaysia.And also FTA withASEAN.
 India has joined the Regional Comprehensive Economic Partnership (RCEP) plurilateral negotiations.The RCEP is a
proposed FTA which includes the 10 ASEAN countries and its six FTA partners, viz.Australia, China, India, Japan,
South Korea and New Zealand.The RCEP is the only mega-regional FTA of which India is a part.
 India is also engaged in bilateral FTA negotiations including trade in services with Canada, Israel,Thailand, the EU,
the European FreeTradeAssociation (EFTA),Australia and New Zealand. Dialogue is under way with the US under the
India-USTrade Policy Forum (TPF), withAustralia under the India-Australia Joint Ministerial Commission (JMC),
with China under the India-ChinaWorking-Group on Services, and with Brazil under the India-BrazilTrade Monitoring
Mechanism (TMM).

SERVICES SECTOR: ECONOMIC SURVEY 2016-17
 India continues to be a leading shipbreaking destination. It was in third on the list of
ship recycling countries in 2015 (January to June) with a world share of 18.3 per cent.
 The shipbreaking sector is in turmoil .Import of cheap Chinese steel billets into the
major shipbreaking locations is one of the reasons for this, owing to falling demand for
scrap ships. Further, the IMO has come up with the Hong Kong Convention on Recycling
in 2009 to regulate the entire practice of ship recycling, compliance of which would
mean continued business from European owners. The convention will require Indian
shipbreaking yards to create facilities in compliance with the upcoming Hong Kong
Convention.
 Consultancy services are emerging as one of the fastest growing service segments in
India
 Real estate and ownership of dwelling is an important contributor to the Indian
economy. It constituted 8.0 per cent of India’s GVA in 2014-15 and grew by 9.1 per cent.
It also generates significant income and employment owing to large forward and
backward linkages through creation of demand in the input sectors and real estate
services. The sector has grown at a CAGR of 8.1 per cent since 2011-12. However, the
construction sector has witnessed a significant slowdown in last few years, with growth
rates of 0.6 per cent in 2012-13, 4.6 per cent in 2013-14, 4.4 per cent in 2014-15 and 3.7
per cent in 2015-16 led by weakening of both domestic and global growth.

 GLOSSARY-
 AUTOMATIC ROUTE :
 Under this route no Central Government permission is required.
 GOVERNMENT ROUTE :Under this route applications are considered by the Foreign
Investment Promotion Board (FIPB). Approval from Cabinet Committee on Security is required
for more than 49% FDI in defence. The proposals involving investments of more than INR 30
billion are considered by Cabinet committee on economic affairs.
 The Indian company receiving FDI either under the automatic route or the government route is
required to comply with provisions of the FDI policy including reporting the FDI and issue of
shares to the Reserve Bank of India.
 SECTORS REQUIRING CENTRAL GOVERNMENT APPROVAL
 Tea sector, including plantations – 100%.
 Mining and mineral separation of titanium-bearing minerals and ores, its value addition and
integrated activities -100%.
 FDI in enterprise manufacturing items reserved for small scale sector – 100%.
 Defence – up to 49% under FIPB/CCEA approval, beyond – 49% under CCS approval (on a
case-to-case basis, wherever it is likely to result in access to modern and state-of-the-art
technology in the country).
 Teleports (setting up of up-linking HUBs/Teleports), Direct to Home (DTH), Cable Networks
(Multi-system operators operating at National or State or District level and undertaking
upgradation of networks towards digitalisation and addressability), Mobile TV and Headend-in-
the Sky Broadcasting Service(HITS) – beyond 49% and up to 74%.
 Broadcasting Content Services: uplinking of news and current affairs channels – 26%, uplinking
of non-news and current affairs TV channels – 100%.

 Publishing/printing of scientific and technical magazines/specialty journals/periodicals – 100%.
 Print media: publishing of newspaper and periodicals dealing with news and current affairs- 26%,
Publication of Indian editions of foreign magazines dealing with news and current affairs- 26%.
 Terrestrial Broadcasting FM (FM Radio) – 26%.
 Publication of facsimile edition of foreign newspaper – 100%.
 Airports – brownfield – beyond 74%.
 Non-scheduled air transport service – beyond 49% and up to 74%.
 Ground-handling services – beyond 49% and up to 74%.
 Satellites – establishment and operation - 74%.
 Private securities agencies – 49%.
 Telecom-beyond 49%.
 Single brand retail – beyond 49%.
 Asset reconstruction company – beyond 49% and up to 100%.
 Banking private sector (other than WOS/Branches) – beyond 49% and up to 74%, public sector
– 20%.
 Insurance - beyond 26% and up to 49%.
 Pension Sector - beyond 26% and up to 49%.
 Pharmaceuticals – brownfield – 100%.
 SECTORS UNDER AUTOMATIC ROUTE
 All the items other than above are under the automatic route.

FDI-MAKE IN INDIA
 India has already marked its presence as one of the fastest growing economies of the world. It
has been ranked among the top 3 attractive destinations for inbound investments. Since 1991,
the regulatory environment in terms of foreign investment has been consistently eased to make
it investor-friendly.
 RECENT POLICY MEASURES
 Government eases FDI norms in 15 major sectors.
 Townships, shopping complexes & business centres – up to 100% FDI under the auto
route. Conditions on minimum capitalisation & floor area restrictions have now been removed for
the construction development sector.
 India's defence sector now allows consolidated FDI up to 49% under the automatic route. FDI
beyond 49% will now be considered by the Foreign Investment Promotion Board. Govt approval
route will be required only when FDI results in a change of ownership pattern.
 Private sector banks now allow consolidated FDI up to 74%.
 Up to 100% FDI is now allowed in coffee/rubber/cardamom/palm oil & olive oil plantations via
the automatic route.
 100% FDI is now allowed via the auto route in duty free shops located and operated in the
customs bonded areas.
 Manufacturers can now sell their products through wholesale and/or retail, including through e-
commerce without Government Approval.
 Foreign Equity caps have now been increased for establishment & operation of satellites,
credit information companies, non-scheduled air transport & ground handling services
from 74% to 100%.
 100% FDI allowed in medical devices

 FDI cap increased in insurance & sub-activities from 26% to 49%
 FDI up to 49% has been permitted in the Pension Sector.
 Construction, operation and maintenance of specified activities of Railway sector
opened to 100% foreign direct investment under automatic route.
 FDI policy on Construction Development sector has been liberalised by relaxing
the norms pertaining to minimum area, minimum capitalisation and repatriation of
funds or exit from the project. To encourage investment in affordable housing, projects
committing 30 percent of the total project cost for low cost affordable housing have
been exempted from minimum area and capitalisation norms.
 Investment by NRIs under Schedule 4 of FEMA (Transfer or Issue of Security by
Persons Resident Outside India) Regulations will be deemed to be domestic
investment at par with the investment made by residents.
 100% FDI allowed in White Label ATM Operations.
 Note : Citizen or entity from Bangladesh & Pakistan can invest only under the
government route also investor from Pakistan cannot invest in defence, space, atomic
energy and sectors prohibited for foreign investment.

 SECTORS WHERE FOREIGN DIRECT INVESTMENT IS PROHIBITED :
 Lottery Business including Government /private lottery, online lotteries, etc.
 Gambling and Betting including casinos etc.
 Chit funds
 Nidhi company-(borrowing from members and lending to members only).
 Trading in Transferable Development Rights (TDRs)
 Real Estate Business (other than construction development) or Construction of Farm Houses
 Manufacturing of Cigars, cheroots, cigarillos and cigarettes, of tobacco or of tobacco substitutes
 Activities / sectors not open to private sector investment e.g. Atomic Energy and Railway
Transport (other than construction, operation and maintenance of
(i) Suburban corridor projects through PPP,
(ii) High speed train projects,
(iii) Dedicated freight lines,
(iv) Rolling stock including train sets, and locomotives/coaches manufacturing and maintenance
facilities,
(v) Railway Electrification,
(vi) Signaling systems,
(vii) Freight terminals,
(viii) Passenger terminals,
(ix) Infrastructure in industrial park pertaining to railway line/sidings including electrified railway
lines and connectivities to main railway line and
(x) Mass Rapid Transport Systems.)
 Services like legal, book keeping, accounting & auditing.

 SECTORS WITH CAPS
 Petroleum Refining by PSU (49%).
 Teleports (setting up of up-linking HUBs/Teleports),Direct to Home (DTH), Cable Networks
(Multi-system operators (MSOs) operating at national, state or district level and undertaking
upgradation of networks towards digitalisation and addressability), Mobile TV and Headend-in-
the-Sky Broadcasting Service (HITS) – (74%).
 Cable Networks (49%).
 Broadcasting content services- FM Radio (26%), uplinking of news and current affairs TV
channels (26%).
 Print Media dealing with news and current affairs (26%).
 Air transport services- scheduled air transport (49%), non-scheduled air transport (74%).
 Ground handling services – Civil Aviation (74%).
 Satellites- establishment and operation (74%).
 Private security agencies (49%).
 Private Sector Banking- Except branches or wholly owned subsidiaries (74%).
 Public Sector Banking (20%).
 Commodity exchanges (49%).
 Credit information companies (74%).
 Infrastructure companies in securities market (49%).
 Insurance and sub-activities (49%).
 Power exchanges (49%).
 Defence (49% above 49% to CCS); Pension Sector (49%)

 TERMS-
 Free Trade Agreement (FTA): A free trade agreement is a preferential arrangement in
which members reduce tariffs on trade among themselves, while maintaining their own
tariff rates for trade with nonmembers.
 Customs Union (CU): A customs union (CU) is a free-trade agreement in which members
apply a common external tariff (CET) schedule to imports from non-members.
 Common Market (CM): A common market is a customs union where movement of
factors of production is relatively free amongst member countries
 Economic Union (EU): An economic union is a common market where member
countries coordinate macro-economic and exchange rate policies.
 Trade liberalization, give rise not only to beneficial trade creation but also to trade
diversion. Trade diversion occurs when tariff preferences offered under an FTA causes a
shift of imports from firms in non- FTA member countries to less efficient firms within the
trade bloc, which now become competitive due to tariff reliefs.

 Salient features of EXIM Policy 2015-2020-
 • Merchandise Export from India Scheme: The 6 different schemes of the earlier FTP (Focus Product
 Scheme, Market Linked Focus Product Scheme, Focus Market Scheme, Agriculture Infrastructure Incentive
Scrip, Vishesh Krishi and Gram Udyog Yojana and Incremental Export Incentive Scheme) which had varying
sector-specific or actual user only conditions attached to their use have been merged into a single scheme,
namely the Merchandise Export from India Scheme (MEIS).
 • Service Export from India Scheme: The Served from India Scheme (SFIS) has been replaced with the
 Service Export from India Scheme (SEIS). The SEIS applies to 'service providers located in India' instead of
'Indian service providers'. Thus, it provides for incentives to all service providers of notified services who are
providing services from India.
 • Incentives (MEIS & SEIS) to be available for SEZs: EXIM Policy 2015-20 extends the benefits of the MEIS
and SEIS to special economic zones (SEZ) as well, which will give a new impetus to the development and
growth of SEZs.
 •Other Measures:
 (a) Under the Export Promotion Capital Goods (EPCG) scheme, in case capital goods are procured from
indigenous manufacturers, specific export obligation has been reduced to 75%. This is designed to help the
indigenous capital goods manufacturing industry.
 (b) Under the MEIS, export items with high domestic content and value addition have generally been provided
higher levels of incentives.
 (c) EASE OF BUSINESS-
 Hard copies of applications and specified documents which were required to be submitted earlier for
 incentive schemes and duty exemption schemes have now been dispensed with.
 - Landing documents of export consignments as proof for notified market can now be digitally uploaded as
specified.
 -There will be no need to submit copies of permanent records/documents repeatedly with each application,
once the same are uploaded in the exporter/importer profile.
 - Dedicated e-mail addresses have been provided for faster and paperless communication with various
 committees of the Directorate General of Foreign Trade (DGFT), e.g. Norms Committee and Exim
 Facilitation Committee.

Boost Export HOW? = Foreign Trade Policy 2015-20

Export
Targets
FTP-2015FTP-2015

1. WTO SPS/TBT: EU/US block
entry of our goods. (e.g.
Mangoes)
2. WTO food subsidies related
issues.
3. WTO trade rounds dragged
for decades without
consensus.
4. Therefore, non-WTO
Bilateral, multilateral and
regional trade agreements
to counter 1+2+3
Trade
Agreement
: WHY?
FTP-2015FTP-2015

CECA, CEPA, BTIA
Comprehensive Economic
Cooperation Agreements
(CECAs)
Comprehensive Economic
PartnershipAgreements
(CEPAs)
BroadbasedTrade and
Investment Agreements
(BTIA)
Free trade agreement
FTAWhat’s the difference?

CECA, CEPA, BTIA
Goods
Services
Investment
IPR
Movement of people.
= more trade, jobs than
FTA
Traditionally concerned
with Goods only.
FTA
What’s the difference? As per FTP-
2015?

1+2 = Erode Indian grip over US-EU markets
50% of world trade captured.
33% of World
Trade
50% of population

Trans-Atlantic Trade and
Investment Partnership
Between US and EU
~0% import duty for their
products= India hurt.
Stringent quality norms,
environment norms = Indian
hurt.
E.g. pesticide residues in
oranges (Nagpur vs Florida);
Lead / heavy metals in mfg.
goods/toy etc.
TATIP
AgreementAgreement

~0% import duty for their
products= Tariff barrier for
India, China
Stringent quality norms,
environment norms, faster
clearance to US/EU = Non-
Tariff barrier for India China.
E.g. pesticide residues in
oranges (Nagpur vs Florida);
Lead / heavy metals in mfg.
goods/toy etc.
TATIP
AgreementAgreement

TPP: 12 members :USA + Canada + 10
Asia-Pacific

1. Trans pacific partnership
2. ▲ Export of “Made in
USA” goods and services.
3. Tariff barriers: 0%
4. Non tariff barriers:
Minimal.
5. Sync. All partners with
American environment,
labour, IPR laws
Salient
Features
TPPTPP

 5. TPP and its Implications for India
 Positives
 • India could experience huge export gains of more than US$500 billion per year-a 60% increase--from
 joining an expanded TPP or participating in a comprehensive Free Trade Area of the Asia Pacific
(FTAAP).
 • It would increase both India's exports and imports.
 Negatives
 • Possibility of trade diversion and raised concerns about erosion of India's share in exports to US & Europe.
 • Loss of competitiveness of Indian exports in European markets
 • Lower India's export share to the US and the EU,
 • Some of the export sectors such as textiles and clothing industry are likely to face stiff competition from
 Vietnam, and it may lead to trade diversion.
 • Concern of investment diversion, particularly as countries likeVietnam would offer more robust investor
 protection.
 Concerns
 India has to give due consideration to the costs if it is desirous of joining theTPP, as it will be required to
 comply with provisions relating to tariffs, agriculture and Intellectual Property Right (IPR) protection.
 Some of the major concerns are as follows:
 • Openness of market: India needs to work significantly in terms of openness of market as its tariff rates
 are significantly higher than those in theTrans-Pacific-PartnershipAgreement (TPP) countries.
 • Import competition: Domestic industries will face severe import competition d/t tariff elimination of
 some of the products.

 • • IPRs:The prices of pharmaceutical products can be expected to rise due to implementation of IPR
 agreements which will give more protection to patented medicine and may lead substantially to elimination
 of generic drugs from the market.
 • Government procurement: Apart from stressing non-discriminatory, fair and transparent
procurement procedures, theTPP specifies timely publication of complete information on the procuring entity, the
 specific procurement, the time frame for submission of bids, and a description of conditions for participation
 of suppliers.As the agreement curtails the flexibility available to signatory countries to impose export
 restrictions on food, it will jeopardize India's endeavour to ensure food security.
 • Labour standards:TPP bind the members to adopt and maintain laws and practices governing
acceptable conditions of work relating to minimum wages, hours of work, and occupational health and safety.These
 labour standards may increase the labour cost.
 • Environment standard inTPP agreement:TheTPP agreement goes beyond the provisions in other FTAs
 to include wildlife trafficking, illegal logging and illegal fishing practices.TheTPP members acknowledge
 that inadequate fisheries management, fisheries subsidies that contribute to overfishing and overcapacity,
 and Illegal, Unreported and Unregulated (IUU) fishing can have significant negative impacts on trade,
 development and the environment and 'thus recognize the need for individual and collective action to
 address the problems of overfishing and unsustainable utilization of fisheries resources'.This is in
 contradiction to India's current policy of subsidizing the fishery industry. It may severely affect special
 governmental assistance programmes for around 15 million poor fishermen in India. Hence theseTPP
 rules are likely to affect the multilateral process and impact India

RCEP: China, India, ASEAN, Jap, Korea,
Aus., NZ

1. 7 countries- Australia,
Brunei, Japan, Malaysia,
New Zealand, Singapore and
Vietnam in both TPP and
RCEP
2. EU QE+Slowdown = Indian
Exports ▼
3. TPP+TATPI= tariff & non
tariff barriers, in the name of
environment, labour rights,
IPR
4. RCEP weaker on above
fronts (bcoz China itself
gross violator).
If we don’t
join TPP?
TPP/RCEP
?
TPP/RCEP
?

1. TPP: timing and terms yet
unclear
2. If we want to join, then
must reform environment,
labour, IPR front in
advance, to align with
developed nations.
3. India cannot be a part of
it bcoz our social-
economic development
goals. Compliance Cost
high Agro, Mfg. & service
industries.
India
should join
TPP?
RCEP/TPPRCEP/TPP

1. India: a member.
2. Obligations to reform
environment / Labour
laws: not much.
3. Generous Exemptions to
protect local industry: yes
4. lenient time-tables for
implementation: yes
5. Ideal to join such global
value added chain.
Produce in nearest low
cost destination. (CMLV)
RCEP
Trade
grouping
Trade
grouping

~400 trade agreement in
action among countries
India should Make
agreements with countries
where
1.India has potential
market
2.India can source raw
material / components.
Way
ahead?
FTP-2015FTP-2015

FTP-2015: Region wise Strategies (8)

FTP-2015: Region wise Strategies
Agro/ICT
challenges
Explore non-EU

1. South Asian Association
for Regional Cooperation
2. Mere 20 billion$ trade.
3. Largest trading partner:
Bangladesh > Sri Lanka >
Nepal > Pak.
4. 0% duty market access
given to L.D.C – Bhutan,
Maldives et al.
5. problem: Pakistan
SAARC
Present
FTP-2015FTP-2015

1. WTO: GATT, GATS =MFN
concept.
2. If trade barrier lowered
for most favored nation
(MFN) then all trading
partners be treated in
same manner.
3. 97: India gave MFN
status to Pak
MFN from
Pak
PoliciesPolicies

1. But pak still keeps
~1200 items India can't
export- textile, agro,
automobile parts =
SMUGGLING
2. Diplomatic stalling
3. 40% Pak-workforce in
textile, vote bank-
lobbying
MFN from
Pak
PoliciesPolicies

1. Prepare a 5-year action plan
2. Value added chains for
textiles, leather, tourism,
automobile, healthcare
3. Conclude SAFTA- in services.
4. Border Infrastructure
5. Multimodal connectivity.
6. SAARC Energy Grid
C
S
o
l
u
t
i
o
n
FTP-2015FTP-2015

UPSC Economy Prelims 2016

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