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Syllabus:
Preliminary Examination: Current events of national and international importance
Mains Examination: General Studies-III: Indian Economy and issues relating to planning, mobilisation, of resources, growth, development and employment
What’s the ongoing story: Manmohan Singh, the architect of opening India’s economy to the world that lifted a record number out of poverty and set the stage for the nation to secure a seat at the global high table, died in New Delhi Thursday night. He was 92.
Key Points to Ponder:
— What were Manmohan Singh’s major contributions to the Indian economy?
— What was the economic crisis of 1990?
— What was the role of Manmohan Singh in the economic reforms of 1991?
— What were the major reforms initiated by Dr Manmohan Singh?
— What are LPG reforms?
Key Takeaways:
— As Prime Minister from 2004 to 2014, Singh broke the country’s long nuclear winter, steered it successfully through the global financial crisis and marked a place for the country in the new world order.
— An unlikely politician, the scholarly, soft-spoken academic-politician — born in Gah in what is today Pakistan, his family migrated to India during Partition; he was an alumnus of both Oxford and Cambridge universities — believed in the importance of the free market and at the same time redefined the role of the welfare state when he was PM.
— The economic reforms steered by Singh as Finance Minister, under the watch of P V Narasimha Rao in the 1990s, and the policies employed by the UPA government with him at the helm as Prime Minister spurred industrial growth, lifted millions out of poverty, swelled the middle class and revitalised Indian business.
— He steered the landmark Indo-US nuclear deal which gave a glimpse of Singh the politician – it was always understated.
— The first Sikh to become Prime Minister, he was also the first PM after Jawaharlal Nehru to be returned to office after a full term. But his second term as Prime Minister was buffeted with controversies and corruption charges against his government, which led to the ouster of the Congress from power in 2014.
Manmohan Singh’s 10 pivotal reforms
📌 Budget 1991: The famous 1991-92 Budget unveiled by Manmohan Singh was the major event that turned the course of the country’s fortunes.
📌 Rupee Devaluation: The rupee devaluation was done in two tranches of 9 per cent and 10 per cent in quick succession in a matter of three days.
📌 Freedom to Enterprises: New Industrial Policy Resolution, abolition of most trade licences, providing freedom to enterprises, opening up the country to FDI, thereby deregulating the industrial sector. New industrial policy was presented along with the Budget on July 24, 1991.
📌 Monopolies & Restrictive Trade Practices: Monopolies & Restrictive Trade Practices (MRTP) Act was repealed to eliminate the need for prior approval for capacity expansion by companies.
📌 Banking reforms: Banking reforms announced–Setting of interest rates by lenders were deregulated, new private bank licences issued.
📌 Public listing banks: Public listing of banks and moving to a new framework of recognition of accounts and introduction of capital adequacy norms recommended by Narasimham committee.
📌 Rupee Convertibility: Full convertibility of the rupee on the current account allowed, giving more flexibility to trade.
📌 Mutual funds: Disinvestment of PSU units to mutual funds. Entry of private mutual funds. Market reforms introduced–NSE was created, paperless trading started, depositories allowed.
📌 Inviting foreign institutional investors: Foreign institutional investors allowed to invest in Indian stock markets for the first time.
📌 SEBI given more powers: Market regulator SEBI was given more powers to regulate the capital market.
‘History will be kinder to me’
— As he signed off after his second term as the Prime Minister in 2014, he signed off saying “history will be kinder to me”.
— Singh’s enduring legacy would be his achievement, under the helmsmanship of former Prime Minister Narasimha Rao, of ushering in an era of reforms in 1991 — from the controversial two-stage devaluation to liberalisation and globalisation policies.
— Then as prime minister over a decade down the line, Singh’s leadership also saw the crucial rollout of legislations for right to education and rural employment guarantee. The power of education in his own life journey was cited by him on the occasion of the Right to Education Act coming into force in 2010, when he gave his example of being born in a family of modest means and rising due to his education.
— “I read under the dim light of a kerosene lamp. I am what I am today because of education. I want every Indian child, girl and boy, to be so touched by the light of education,” he had said.
— Singh’s reforms in 1991, which sought to liberalise the economy from the shackles of socialist regulations in place till then and ended the ‘Licence Raj’ through industrial policy reforms, cemented his position as the Finance Minister.
Manmohanomics: Inflation focus to reforms in banking
— It was Indira Gandhi, Prime Minister of the country in 1982, who brought Manmohan Singh, then Member-secretary of the Planning Commission, to the Reserve Bank of India (RBI) to succeed the legendary IG Patel as the Governor.
— Singh who took the reins as the Governor on September 16, 1982 and held office till January 14, 1985, prepared the groundwork for strengthening the monetary policy actions and banking reforms got a boost.
— Singh said the RBI Governor enjoys a position of respect in our system, but the Finance Ministry always “wants to downplay the status of the Governor”. “The RBI Governor is not superior to the Finance Minister in authority. And if the finance minister insists, I don’t see that the governor can really refuse unless he is willing to give up his job,” Singh’s daughter’s book quoted him as saying.
— During Singh’s tenure, rural development got a further fillip and, most importantly, the foundations for modern day monetary policymaking that would be consistent with high growth and the expansion of financial markets were laid. The setting up of the Chakravarty Committee (1985) to reform the monetary and financial system was a reflection of this idea.
— Singh’s tenure was also a period marked by double digit inflation as high as 11.87 per cent and high reserve requirements for the banking system. However, inflation came down to 5.56 per cent by 1985 following a moderation in monetary expansion.
— The necessity to reform the banking system was spelt out by Singh in his address at the founders’ day of the Bank of Maharashtra in Pune on September 16, 1984, where he identified new challenges and responsibilities that the Indian banking system was called upon to meet during the Seventh Five Year Plan.
— He hoped that this exercise would set in motion a process of thinking and debate about structural reforms, organisational improvements and procedural progression that were urgently needed to enable the banking system to perform successfully in the ensuing phase of India’s development, the RBI History says.
Other Important Articles Covering the same topic:
📍Knowledge nugget of the day: LPG Reforms — Manmohan Singh’s economic contribution to India
📍The Manmohan Singh team whose reforms saved Indian economy from collapse
Previous year UPSC Prelims Question Covering similar theme:
(1) Which of the following has/have occurred in India after its liberalization of economic policies in 1991? (UPSC CSE 2017)
1. Share of agriculture in GDP increased enormously.
2. Share of India’s exports in world trade increased.
3. FDI inflows increased.
4. India’s foreign exchange reserves increased enormously.
Select the correct answer using the codes given below:
(a) 1 and 4 only
(b) 2, 3 and 4 only
(c) 2 and 3 only
(d) 1, 2, 3 and 4
Syllabus:
Preliminary Examination: Economic and Social Development – Sustainable Development, Poverty, Inclusion, Demographics, Social Sector Initiatives, etc.
Mains Examination: General Studies-II: Government policies and interventions for development in various sectors and issues arising out of their design and implementation
General Studies-III: Indian Economy and issues relating to planning, mobilisation, of resources, growth, development and employment.
What’s the ongoing story: Highlighting how youth energy has played a significant role in the country’s progress, PM Narendra Modi on Thursday said that the world looks at India with hope and expectation because of youth power, which is driving new revolutions.
Key Points to Ponder:
— What is the Suposhit Gram Panchayat Abhiyan?
— What is demographic dividend?
— What is the role of youth in the economic development of the country?
— What is demographic prime?
— What are the initiatives taken by the government to empower youth?
— What are the challenges in the path of utilising youth potential in India?
Key Takeaways:
— Underlining that the government’s biggest policy focus is empowering the youth, he said, “All policies, whether for the start-up ecosystem, future of the space economy, sports and fitness sector, fintech and manufacturing industry, or skill development and internship schemes, are youth-centric and aimed at benefiting young people.”
— The PM launched the ‘Suposhit Gram Panchayat Abhiyan’, which aims at improving the nutritional outcomes and well-being by strengthening implementation of nutrition-related services to eliminate malnutrition and form the basis of developed India.
— The programme will involve a competition among anganwadis, and a total of 1,000 gram panchayats will get Rs 1 lakh while a part of this amount will be used for better nutrition in the anganwadis.
— Recalling the sacrifice of the brave Sahibzadas — Sahib Zorawar Singh and Sahib Fateh Singh — the PM said that over three centuries earlier they sacrificed their lives and rejected all temptations of the Mughal sultanate, enduring all atrocities and chose to embrace the death sentence ordered by Wazir Khan with utmost bravery.
— The Sahibzadas, he said, reminded him of the valour of Guru Arjan Dev, Guru Tegh Bahadur, and Guru Gobind Singh and this bravery was the spiritual strength of our faith.
Do You Know:
— India’s population has reached its demographic prime. Around 67.3 per cent of our population is between 15-59 years of age, a demographic advantage which will persist for another three decades. Approximately 26 per cent of the population is below 14 years, and just 7 per cent above the age of 65, as against 17 per cent in the US and 21 per cent in Europe.
— By 2030, India’s working age population will reach 68.9 per cent, with a median age of 28.4 years and a dependency ratio of just 31.2 per cent. In absolute numbers, India, with 1.04 billion working age persons, will constitute the largest workforce in the world.
— The typical Indian is very young, with the median age being around 28 years. Moreover, India has a very low dependency ratio, with 100 workers for every 40 dependents (those who are too young or too old to be working).
— India’s low dependency ratio, the young age of its workers, and the anticipated addition of around 10 million new workers annually for the next couple of decades is often described as India’s demographic dividend or boon.
— India’s demographic dividend is, however, a double-edged sword. On the one hand, it presents the country with a short window during which it will have a huge supply of young workers and human capital. On the other hand, it presents the country with a severe challenge in matching these workers to productive jobs.
— An additional complication to this labour market matching challenge is the ongoing transformation of India’s economy from primarily agrarian to more non-agrarian.
— This presents two challenges: First, people’s skills need to change in order to successfully transit from the agricultural sector to either manufacturing or services. Second, these transitions often require workers to also change location, since non-agricultural employment opportunities tend to be in urban centers far from rural India.
Other Important Articles Covering the same topic:
📍India’s asset-less, ageing population with poor health is a crisis in the making
📍India’s youth can give the country an edge — if they get the jobs they desire
Previous year UPSC Mains Question Covering similar theme:
While we found India’s demographic dividend, we ignore the dropping rates of employability. What are we missing while doing so? Where will the jobs that India desperately needs come from? Explain. (UPSC CSE 2014)
Syllabus:
Mains Examination: General Studies-II: India and its neighbourhood- relations.
General Studies-III: Security challenges and their management in border areas – linkages of organized crime with terrorism.
What’s the ongoing story: China has approved the construction of the world’s largest dam, stated to be the planet’s biggest infra project costing USD 137 billion, on the Brahmaputra River in Tibet close to the Indian border, raising concerns in riparian states – India and Bangladesh.
Key Points to Ponder:
— What is the purpose of the Expert Level Mechanism (ELM) between India and China?
— What are the contemporary issues between India and China?
— Why is the Tibetan plateau regarded as the roof of the world?
— What are the steps taken by both governments to de-escalate the border conflict?
— Know about the tributaries of the Brahmaputra River
Key Takeaways:
— The Chinese government has approved the construction of a hydropower project in the lower reaches of the Yarlung Zangbo River, the Tibetan name for the Brahmaputra, according to an official statement quoted by state-run Xinhua news agency on Wednesday.
— The dam is to be built at a huge gorge in the Himalayan reaches where the Brahmaputra river makes a huge U-turn to flow into Arunachal Pradesh and then to Bangladesh.
— The total investment in the dam could exceed one trillion yuan (USD 137 billion), which would dwarf any other single infrastructure project on the planet including China’s own Three Gorges Dam, regarded as the largest in the world, the Hong Kong-based South China Morning Post reported on Thursday.
— The Brahmaputra dam was part of the 14th Five-Year Plan (2021-2025) and National Economic and Social Development and the Long-Range Objectives Through the Year 2035 adopted by Plenum, a key policy body of the ruling Communist Party of China (CPC) in 2020.
— Concerns arose in India as the dam besides empowering China to control the water flow, the size and scale of it could also enable Beijing to release large amounts of water flooding border areas in times of hostilities.
— India too is building a dam over Brahmaputra in Arunachal Pradesh.
— India and China established the Expert Level Mechanism (ELM) in 2006 to discuss various issues related to trans-border rivers under which China provides India with hydrological information on the Brahmaputra river and Sutlej river during the flood seasons.
— The Brahmaputra Dam presents enormous engineering challenges as the project site is located along a tectonic plate boundary where earthquakes occur. The Tibetan plateau, regarded as the roof of the world, frequently experiences earthquakes as it is located over the tectonic plates.
— To harness the hydropower potential of the river, four to six 20km-long tunnels must be drilled through the Namcha Barwa mountain to divert half of the river’s flow at about 2,000 cubic metres per second, according to the report.
Do You Know:
— Brahmaputra is one of the largest rivers in the world and rank fifth with respect to its average discharge. The river originates from the Kailash ranges of Himalayas at an elevation of 5300 M. After flowing through Tibet it enters India through Arunachal Pradesh and flows through Assam and Bangladesh before it joins Bay of Bengal.
— “China is building several hydroelectric projects on the Tsangpo. But one of the biggest is a 60 GW dam which is being constructed, and it is on the neck of Arunachal Pradesh in Medong. It is a part of China’s ambition to achieve carbon neutrality by 2060, but also to divert water to northern China which is water scarce. This is a major concern for India..” said a senior officer.
— India’s solution to the problem is the Upper Siang project, which will act as a reservoir. In the event of a diversion of water by China, the massive reservoir will be able to feed Arunachal Pradesh and its irrigation requirements, said officials.
— For India, they said, Brahmaputra accounts for 30 per cent of freshwater resources and 40 per cent of the total hydroelectric power potential of the country. The Upper Siang reservoir will store 9 billion cubic meters of water, said officials.
Other Important Articles Covering the same topic:
Previous year UPSC Prelims Question Covering similar theme:
(2) Which of the following is/are tributary/ tributaries of Brahmaputra? (UPSC CSE 2016)
1. Dibang
2. Kameng
3. Lohit
Select the correct answer using the code given below.
(a) 1 only
(b) 2 and 3 only
(c) 1 and 3 only
(d) 1, 2 and 3
Syllabus:
Mains Examination: General Studies-III: Indian Economy and issues relating to planning, mobilisation, of resources, growth, development, and employment.
What’s the ongoing story: Prime Minister Narendra Modi laid the foundation stone of the Ken- Betwa River Linking National Project on Wednesday (December 25), on the 100th birth anniversary of former Prime Minister Atal Bihari Vajpayee.
Key Points to Ponder:
— What is the significance of the Ken-Betwa River Linking project?
— What is the purpose of the river linking projects?
— What are the other river interlinking projects?
— What are the concerns with the river interlinking projects?
— How river linking projects will help in mitigating flood and drought?
— Know about: Yamuna River, Ken River, Kosi River, Betwa River, and Panna Tiger Reserve
Key Takeaways:
— The KBLP envisages transferring water from the Ken river to the Betwa river, both tributaries of the Yamuna. The Ken-Betwa Link Canal will be 221 km in length, including a 2-km tunnel.
— It is the first project under the National Perspective Plan for interlinking of rivers, which was prepared in 1980. This plan has 16 projects under its peninsular component, including the KBLP. Apart from this, 14 links are proposed under the Himalayan rivers development plan.
— The Ken-Betwa Link Project has two phases. Phase-I will involve building the Daudhan Dam complex and its subsidiary units such as the Low Level Tunnel, High Level Tunnel, Ken-Betwa Link Canal and power houses. Phase-II will involve three components — Lower Orr Dam, Bina Complex Project and Kotha Barrage.
— On March 22, 2021, a memorandum of agreement was signed among the Ministry of Jal Shakti and the governments of Madhya Pradesh and Uttar Pradesh to implement the Ken-Betwa Link Project.
— The idea of linking the Ken with the Betwa got a major push in August 2005, when a tripartite memorandum of understanding for preparation of a detailed project report (DPR) was signed among the Centre and the two states.
— The project lies in Bundelkhand, which spreads across 13 districts of Uttar Pradesh and Madhya Pradesh. According to the Jal Shakti Ministry, the project will be of immense benefit to the water-starved region, especially the districts of Panna, Tikamgarh, Chhatarpur, Sagar, Damoh, Datia, Vidisha, Shivpuri and Raisen of Madhya Pradesh, and Banda, Mahoba, Jhansi and Lalitpur of Uttar Pradesh.
— The river-linking project has faced intense scrutiny for its potential environmental and social impact. The project will involve large-scale deforestation inside the heart of the Panna National Park and Tiger Reserve.
— The submergence of around 98 sq km of Panna national park, where tigers had gone locally extinct in 2009, and felling of about two to three million trees has been one of the most controversial aspects of the project. The Daudhan dam is situated inside the national park.
— The dam will displace 5,228 families in Chhatarpur district and 1,400 families in Panna district due to submergence and project-related acquisition.
Do You Know:
— Rajasthan and Madhya Pradesh signed a Memorandum of Understanding (MoU) with the Union Ministry of Jal Shakti on Sunday to implement the Modified Parbati-Kalisindh-Chambal-ERCP (Modified PKC-ERCP) Link Project.
— The project envisages integration of the long-pending PKC river link project with the Eastern Rajasthan Canal Project, under the national perspective plan of interlinking of rivers (ILR) programme of the Government of India.
— Last year, the Patna High Court has directed the Centre and Bihar government to set up Kosi Development Authority and interlink Kosi and Mechi rivers to tackle annual floods often caused due to excess water discharged from Nepal.
Other Important Articles Covering the same topic:
📍The river-linking project Rajasthan, Madhya Pradesh and Centre have signed MoU for, who it helps
📍Bihar under water: Why the state sees floods every year
Previous year UPSC Mains Question Covering similar theme:
The interlinking of rivers can provide viable solutions to the multi-dimensional inter-related problems of droughts, floods, and interrupted navigation. Critically examine. (UPSC CSE 2020)
Syllabus:
Mains Examination: General Studies-III: Inclusive growth and issues arising from it
What’s the ongoing story: In their recent study on India, Thomas Piketty and his co-authors have documented a sharp rise in inequality in India over the past decades — a rise that appears to be more pronounced post 2014-15. As per their analysis, the top 1% accounted for 22.6% of income and 40.1% of wealth in 2022-23. These estimates place the income share of the top 1% in India even higher than that in South Africa, Brazil and the US.
Key Points to Ponder:
— What is a wealth tax?
— What are the arguments for and against the imposition of wealth tax?
— What is the current status of wealth tax in India?
— What are the administrative difficulties in imposing wealth tax?
— What is the role of taxation in addressing the income and wealth inequality in India?
Key Takeaways:
— Jayati Ghosh writes: It is beyond obvious that public spending in India is way below the minimum required to deliver essential social and economic rights of the people. Despite several decades of relatively fast aggregate income growth, large sections of the population are still deprived of basic needs…
— Meanwhile, according to researchers at the World Inequality Lab, India has already become one of the most unequal countries in the world, in terms of both asset and income inequalities.
— Such extreme inequality has not helped to increase investment rates, productivity or economic dynamism. Instead, it has generated stagnation of mass consumption demand, which has acted as a deterrent for private investment.
— To address both the need for much increased public spending and the explosion of the wealth and associated power of the super-rich, a first critical step is to tax them fairly. In fact, all over the world, public demands for taxing the super-rich are becoming louder and even recognised by policy makers.
— The final statement of the G20 Summit in Rio in November (also endorsed by the Government of India) declared that “With full respect to tax sovereignty, we will seek to engage cooperatively to ensure that ultra-high-net-worth individuals are effectively taxed.”
— The Brazil Presidency of the G20 commissioned a report from the French economist Gabriel Zucman, which proposed a model of international coordination to ensure the effective taxation of ultra-high-net-worth individuals (UHNWIs).
— Essentially, people with more than $1 billion in wealth would pay a minimum annual tax equivalent to 2 per cent of that wealth. This need not be only in the form of a wealth tax: It could be a combination of taxes on income (broadly defined) and wealth.
— A global minimum tax of 2 per cent would mean that rich people who avoid paying in their country of tax residence by shifting their assets, could be charged up to that amount on their wealth wherever they choose to hold it.
— It is often argued that in countries like India, a wealth tax is not administratively feasible, and would cost more to administer than it would deliver in revenues. That is no longer true, because of increased digitisation of financial records that makes it much easier to track financial wealth, while real estate ownership is already tracked by state governments.
— Simply taxing the very rich fairly, just as others in the country are taxed, would generate much more revenues for the government and at least contribute somewhat to reducing the obscene economic inequalities in India.
— Surjit S Bhalla writes: The advocacy of Robin Hood economics (take from the rich and give to the poor) has now survived for close to a 1,000 years (allegedly, the first known literary reference is circa 1377)… My strong belief is that all of us, have at one time or another, accepted the premise that you must take from the rich and give to the poor.
— Thomas Piketty and his band of warriors have been engaged in the pursuit of redistribution for the last N years. It is a worthy cause. However, with all good intentions, and worthy causes, facts should not be sacrificed at the altar of ideology, or policy “preferences”.
— First, Piketty claimed that income inequality in India is second highest in the world (just lower than South Africa’s Gini of 0.63). India has never had an official income distribution survey…
— One pointer that this assertion by Piketty is very likely outrageously incorrect is that the average gap between consumption and income Gini found by World Bank and other experts is around 6 Gini points — and the consumption Gini in India is around 0.34. An Indian income Gini around 0.4 may be plausible, but 0.6 is stretching it.
— Having “established” that the income distribution is very unequal in India, Piketty suggests a win-win strategy — tax the rich at a higher rate, collect more taxes, and spend them on goods and services for the poor. And since all good things happen together, India will also be able to grow faster.
— Along the way, Piketty also makes a highly inaccurate claim that “the government’s argument — that we need this kind of income scale and inequality to incentivise wealthy entrepreneurs to develop, accumulate wealth and deliver growth — is just not convincing.”
— Other Piketty “facts”: The ratio of tax collections to GDP in India is only 13 per cent, so there is very little left for redistribution. Other countries, for example China, do much better in terms of taxation (and therefore redistribution). A 2 per cent wealth tax would raise tax revenue by 0.5 per cent of GDP in India.
— Safe conclusion: India’s tax to GDP ratio is definitely not too low a la Piketty, and indeed might be too high. Once we establish the facts, we can proceed towards hypotheses generation on wealth tax, tax collection, savings, and GDP growth.
Other Important Articles Covering the same topic:
📍Lessons from the past: Why a wealth tax may not be a rich idea
📍French economist Thomas Piketty calls for more detailed income tax data from India
Previous year UPSC Prelims Question Covering similar theme:
(3) In the context of any country, which one of the following would be considered as part of its social capital? (UPSC CSE 2019)
(a) The proportion of literates in the population
(b) The stock of its buildings, other infrastructure and machines
(c) The size of population in the working are group
(d) The level of mutual trust and harmony in the society
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