Economy GS Paper III by Harshvardhan

Model Answer

Question #1.India's case is unique in terms of Economic development, we directly shifted from Agriculture to Service sector. What are the reasons for the huge growth of the Service Industry in India? Is it possible for India to become a Developed country without Strong Industrial base? Also discuss the impact of COVID 19 pandemic on this sector.

Hints

The services sector with an around 60 percent contribution to the gross domestic product (GDP), has made rapid strides in the last few years and emerged as the largest and fastest-growing sector of the economy. Besides being the dominant sector in India’s GDP, it has also contributed substantially to foreign investment flows, exports, and employment

Reasons for Growth of Services

• The size of the middle income consumer is raising fast and the percentage of the very poor household’s declining.
• Traditionally the Indian woman was confined to household activities. But with the changing time there has been a change in the traditional way of thinking in the society. Women are now allowed to work.
• The emergence of the nuclear family system in place of the traditional joint family system creates a demand for a host of services like education, health care, entertainment, telecommunication, transport, tourism and so on.
• Realizing the potential for this area many state governments have made IT as their most, prioritized segment states such as Karnataka, Andhra Pradesh, Madhya Pradesh Maharashtra and Delhi 
• With the Disinvestment and the Privatization policies the state owned monopolies in many service areas came to an end Multinationals were permitted to enter the Indian market.

Cause of strong industrial base for development

As growth is different from development, because development encapsulates growth along with progressive changes at socio-economic, political and cultural level hence following arguments need to be considered

• Need for strong industrial base
  • Manufacturing plays a crucial role in absorbing surplus agriculture labour
  • long term investment is made in capital goods ensuring long term growth
  • rising competitiveness of India’s manufacturing companies is reflected in Global Manufacturing Competitiveness Index (2016:rank 11, 2020 predicted rank: 5)
  • Poverty eradication by China is backed by growth in industrial sector and in post covid world to attract FDI strong forward-backward linkages demands strong industrial base
• Downside of services and agricultural sector
  • agricultural sector is less organized which does not contribute much to overall personality development of workforce unlike industrial or service sector
  • flight of capital is easy in services sector as it is less capital intensive industry hence its always a threat to financial stability of the nation

Impact of COVID-19 on Service sector

• India’s Services sector witnessed a significant set-back during the COVID-19 pandemic mandated lockdown. Owing to its contact-intensive nature, the sector contracted by nearly 16 per cent during the first half of the financial year 2020-21
• Air passenger traffic, rail freight traffic, port traffic, foreign tourist arrivals, and foreign exchange all contracted sharply
• Despite the disruptions being witnessed globally, FDI inflows into India’s services sector grew robustly by 34 percent
• Telecom related regulations were removed from the IT-BPO sector, and consumer protection regulations were introduced for e-commerce.
• The shipping turnaround time at ports has almost halved from 4.67 days in 2010-11 to 2.62 days in 2019-20
• The Indian start-up ecosystem has been progressing well amidst the Covid-19 pandemic.

Question #2.There are many experts who suggest that Food subsidy should be replaced with Direct Beneficiary Transfer (DBT).Discuss the rationale behind this view.

Hints

Currently, India spends ?1, 45,400 crore — about 1.3 per cent of its GDP — to give food at highly subsidised rates (subsidies on grains like rice and wheat are as high as 90 per cent) to 67 percent of the population. The DBT Mission was created by the Planning Commission to act as the nodal point for the implementation of the DBT programmes. DBT has shown promising results in pilot schemes being run in different parts of the country. These include PAHAL (modified DBTL for LPG subsidy), Public Distribution System (PDS) in Puducherry, Chandigarh and Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) payments in Jharkhand, Bihar, etc. The programme has already been universalized since February 2015.

Rationale for replacing PDS with DBT:

• Financial Inclusion: DBT will lead to opening of large number of bank accounts of the intended beneficiaries and hence revamping the pace of financial inclusion in the country
• JAM Trinity: drastically improve the benefit delivery system in the country. The JAM Trinity will enable this novel system to transfer benefits in a leakage-proof, well targeted, cashless and timely manner.
• Maximum Governance with Minimum Government: DBT will ensure efficiency, effectiveness, transparency and accountability. The government believed that the dream of ‘Maximum Governance with Minimum Government’ would be realised with the help of advanced IT technology and tools
• Remove duplicity:  It was also believed that DBT will address black market sale and duplication in receiving benefit

Issues in Direct Cash Transfer

• It was found that most beneficiaries of pilot project in Puducherry had to spend extra money on making single-purpose visits to banks to withdraw the subsidy amount and hence preferred to redeem their PDS entitlements at fair price shops.
• whether the money transferred would reach the identified beneficiary on time
• whether the money sanctioned be adequate to purchase the food grains from the open market
• how fast their grievances would be redressed
• there is apprehension as to how many families would actually use this money for purchasing the food grains, without which the underlying objective of this programme would be lost
• it will put the poor people in vulnerable situation due to market price fluctuation and it will affect the procurement policy of rice that will have an effect on the farmers

Way forward

It is clear that a cash transfer programme will not be the solution for all government programmes. Especially in the case of food security programmes like PDS, Midday Meals (MDM), Integrated Child Development Service (ICDS) etc they should consider the provision of benefit in kind and not as cash, but given the benefits of DBT government should formulate a policy/roadmap on how to gradually shift from PDS to DBT without hampering the social sector schemes.