GS Mains: Q&A Test Series 2019

GS Mains
Q&A
Test Series 2019
Test-12
Economic Sectors:
Agriculture, Industry and Services
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TEST - 12
GS MAINS Q&A TEST SERIES 2019
ECONOMIC SECT ORS: AGRICUL

SECTORS: TURE,
AGRICULTURE,
INDUSTRY AND SER
INDUSTRY VICES
SERVICES
Time Allowed: 3 hrs. Max. Marks: 250
Section - A
1. What is Advance Price Agreement? Discuss why this provision was introduced?
2. Infrastructure development creates productivity increase along with inclusive growth. Discuss.
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3. Write a critical note on the National Infrastructure Investment Fund (NIIF) and its model of
investment. OR
4. Examine the changes in composition of India's exports and imports since liberalization. Analyze
India’s terms of trade in this context.
5. The major advantages of swiss-challenge model of PPP are available to large corporations only,
if adopted for big projects. Critically analyse.
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Section - B
6. The problems of MSME are many, but perhaps most critical is the quality issues and brand
perception. Analyze in the context of ‘Zero Defect - Zero Effect’ initiative.
7. Elaborate, how lack of exit policy affects the longevity of the industry. Discuss, how this
Chakravyuha Challenge can be broken.
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8. Discuss the need for diversification within the IT and ITES sector. Examine why it is critical
for future growth.
9. Do you think that rise in the Minimum Support Price (MSP) would solve the problem of
agriculture distress? Critically discuss.
10. Examine how the special package for leather footwear sector and textile and apparels sector has
affected the employment elasticity of exports. Also, comment why these particular sectors were
chosen for the package?
11. Analyze the recent decisions taken by India regarding custom duty structure to promote domestic
manufacturing of electronics and mobiles. Examine, whether such changes are compatible with
WTO rules.
12. How can Start-Up India programme help in filling the gap of missing medium scale enterprises,
which are vital for employment generation?
13. What do you mean by upstream and downstream requirements in the food processing industry?
Also, explain the importance of supply chain management in the food processing industry.
14. Identify the issues faced by the MSME in India. Discuss the recommendations of K.V. Kamath
Panel to address the issue of flow of funds in the sector.
15. In view of the declining average size of land holdings in India which has made agriculture non-
viable for a majority of farmers, should contract farming and land leasing be promoted in
agriculture? Critically evaluate.
Economic Sectors: Agriculture, Industry and Services [1]
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Section - C
16. It is said that the burden of welfare programmes on the public exchequer may be huge, their
impact on households is relatively limited. Critically analyze the impact of welfare programmes
on reduction of poverty in India and suggest how poverty can be effectively addressed through
these schemes.
17. What are the features of draft APMC Act, 2016? Will provisions of this draft act solve marketing
issues faced by India's agriculture sector? Discuss critically.
18. Elaborate the importance of shipping sector for the industry. What are the specific problems
with Indian shipping sector and ports? Analyze, how Sagarmala project can help address these
issues.
19. What do you understand by organic farming? Is organic farming good for the environment? Why
is it said that the future lies in organic farming? Also, enumerate the steps taken by the
government to promote organic farming.
20. Though the fertilizer subsidy is the second highest after food subsidy but only one-third of it
reaches the small farmers. What are the issues with the present model of fertilizer subsidy?
Suggest some of the reforms needed to address the issue.
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OR

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[ 2 ] Economic Sectors: Agriculture, Industry and Services

GS Mains Q&A T est Series 2019

Test
Answer Hints: T
Answ est No
Test .12
No.12 www.iasscore.in
ECONOMIC SECTORS:
AGRICULTURE, INDUSTR
AGRICULTURE, Y AND SER
INDUSTRY VICES
SERVICES
Section - A
1. What is Advance Price Agreement? Discuss why this provision was introduced?
Approach
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1. Briefly introduce the concept of APA (40 words)
2. Elaborate on reasons behind its introduction (80 words)
3. Conclusion (30 words) O
Hints:
One of the disputed issues in taxation related to MNCs is the area of intra-company transactions.
The pricing of goods and services between two related companies is called transfer pricing. Advance
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Pricing Agreement (APA) can be understood as an agreement between a taxpayer and a tax
authority fixing the transfer pricing methodology to decide the pricing of future international
transactions (i.e. arm length price) among tax paying entities & their international subsidiaries.
An APA could be unilateral, bilateral, or multilateral. An unilateral APA is agreed between a
taxpayer and the tax authority of his country, where as a bilateral or multilateral APA is an agreement
between the taxpayer, associated enterprises (AEs), and their respective tax authorities.
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Why APA was introduced?

• It was introduced in the Income-tax Act in 2012 to provide certainty to taxpayers in the
domain of transfer pricing by specifying the methods of pricing and setting the prices of
international transactions in advance.
• To keep a check on big MNCs so that they do not indulge in tax evasion. Such big companies
have subsidiaries and associate companies in several countries and they tend to adjust their
profits based on their inter-corporate transactions. These MNCs are known to divert profits
out of India by applying various methods that reduce their tax liability in the country.
• For example, an MNC in India can show higher than actual costs of goods and services
purchased from their subsidiaries thereby showing higher expenditure and getting relaxation
in tax.
Such transactions are verified &scrutinized under GAAR provisions. APAs are also a step towards
ease of doing business by reducing need for GAAR scrutinize
• To address complex transfer pricing issues in a fair and transparent manner.
• To reduce litigation related to transfer pricing.
• It also enhances tax revenues and makes the country an attractive destination for foreign
investments.
Since its inception, the APA scheme has been well-accepted by taxpayers and the total number of
APAs entered into by the CBDT has gone up to 223, which inter alia include 20 Bilateral APAs. The
progress of the APA scheme strengthens the Government’s resolve of fostering a non-adversarial
tax regime. The Indian APA programme has been appreciated nationally and internationally.
2. Infrastructure development creates productivity increase along with inclusive
growth. Discuss.
Approach
1. Introduce importance of infrastructure in the growth and development of a nation (40
words)
2. Elaborate on how infrastructure development creates productivity & inclusive growth (40
words)
3. Mention the steps taken by the government in this regard (40 words)
4. Conclusion (20 words)
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Hints:
India’s ambition of becoming a developed nation while ensuring sustainable and inclusive growth
depends on one important factor: infrastructure. The country, however, is plagued with a weak
infrastructure incapable of meeting the needs of a growing economy and growing population.
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Infrastructure development is a comprehensive idea that includes:
• Development of physical infrastructure: transportation, communication, irrigation, energy
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etc.
• Development of social infrastructure: robust health and education facilities
• Development of economic infrastructure: developed and stable economic and financial
institution
However, at present India‘s development is hindered due to substandard physical, economic and
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social infrastructure which results in inefficiency, lesser productivity and poverty, due to which a
huge population is still outside the ambit of development. It is evident from the following facts:
• According to World Bank due to poor transport infrastructure, India annually loses 1-2 %
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of its GDP. The congestion at Indian ports and operational inefficiencies of Indian railways
are case in point.
• Due to poor education related infrastructure Indian youth lacks in qualifications and skills
desired in industries
• Due to poor sanitation facilities, apart from losing approximately 5 % of its GDP, the
productivity of Indian citizens is found to be lower than that of developed nations
• Due to underdeveloped R&D infrastructure, India lacks in innovation and better means to
improve productivity in primary, secondary, and tertiary sector, which ultimately poses
challenges to inclusive growth. Lower productivity of Indian agriculture and the resultant
poverty in rural areas are a testimony to this.
According to World Economic Outlook an investment equal to 1% of GDP in infrastructure will
result in a GDP growth of at least 2-3 %, which will pull crores of people from poverty. The recent
initiatives of the government to provide robust physical, economic and social infrastructures are
steps for ensuring improved efficiency, better productivity and inclusive growth. For instance-
[2] Economic Sectors: Agriculture, Industry and Services
• Creation of infrastructure creates lot of semiskilled & unskilled jobs in construction activity
• Physical infrastructure is being developed through sagarmala, bharatmala, Smart City,
RURBAN, etc.
• Energy infrastructure is being ensured through schemes like National Solar Mission and
UDAY
• Agricultural productivity will improve due to Soil Health Card, PMKSY, etc.
• Social infrastructure will improve through steps such as Mid-Day Meal, National Health
Policy, Skill India etc.
• Economic infrastructure will get a boost through SEZ‘s and NIMZ‘s, GIFT City etc.
Thus, successful infrastructure development is key to the success of projects like Make In India. It
can be achieved by overcoming challenges in infrastructure development like lack of funds, cost
overruns due to delayed land acquisitions etc. Investment in infrastructure as planned during 11th
FYP will improve India‘s competitiveness globally apart from generating thousands of jobs which is
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key to inclusive growth.
Supplementary Notes
India Infrastructure Project Development Fund
The Union Finance Minister in the Budget Speech for 2007-08 announced in the parliament the
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setting up of a Revolving Fund with a corpus Rs. 100 Crore to quicken the process of project
preparation. Accordingly the corpus fund titled India Infrastructure Project Development Fund
(IIPDF) has been created in Department of Economic Affairs, Ministry of Finance, Government of
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India with an initial corpus of Rs. 100 Crore for supporting the development of credible and bankable
Public Private Partnership (PPP) projects that can be offered to the private sector. The IIPDF has
been created with initial budgetary outlay by the Ministry of Finance, Government of India.
The procurement costs of PPPs, and particularly the costs of Transaction Advisors, are significant
and often pose a burden on the budget of the Sponsoring Authority. Department of Economic
Affairs (DEA) has identified the IIPDF as a mechanism through which Sponsoring Authority will
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be able to source funding to cover a portion of the PPP transaction costs, thereby reducing the
impact of costs related to procurement on their budgets. From the Government of India’s perspective,
the IIPDF must increase the quality and quantity of bankable projects that are processed through
the Central or States project pipeline.
The IIPDF will be available to the Sponsoring Authorities for PPP projects for the purpose of meeting
the project development costs which may include the expenses incurred by the Sponsoring Authority
in respect of feasibility studies, environment impact studies, financial structuring, legal reviews and
development of project documentation, including concession agreement, commercial assessment
studies (including traffic studies, demand assessment, capacity to pay assessment), grading of projects
etc. required for achieving Technical Close of such projects, on individual or turnkey basis, but
would not include expenses incurred by the Sponsoring Authority on its own staff.
The IIPDF will be available to finance an appropriate portion of the cost of consultants and Transaction
Advisors on a PPP project where such consultants and Transaction Advisors are appointed by the
Sponsoring Authority either from amongst the transaction advisers empanelled by Department of
Economic Affairs or through a transparent system of procurement under a contract for services.
Viability Gap Funding (VGF) Scheme
• It is a grant one-time or deferred, provided to support infrastructure projects that are
economically justified but fall short of financial viability.
• The lack of financial viability usually arises from long gestation periods and the inability to
increase user charges to commercial levels. Infrastructure projects also involve externalities
that are not adequately captured in direct financial returns to the project sponsor. Through
the provision of a catalytic grant assistance of the capital costs, several projects may become
bankable and help mobilise private investment in infrastructure.
• Government of India has notified a scheme for Viability Gap Funding to infrastructure
projects that are to be undertaken through Public Private Partnerships. It will be a Plan
Scheme to be administered by the Ministry of Finance with suitable budgetary provisions to
be made in the Annual Plans on a year-to- year basis.
• The quantum of VGF provided under this scheme is in the form of a capital grant at the
stage of project construction. The amount of VGF will be equivalent to the lowest bid for
capital subsidy, but subject to a maximum of 20% of the total project cost. In case the
sponsoring Ministry/State Government/ statutory entity propose to provide any assistance
over and above the said VGF, it will be restricted to a further 20% of the total project cost.
• Support under this scheme is available only for infrastructure projects where private sector
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sponsors are selected through a process of competitive bidding. The project agreements must
also adhere to best practices that would secure value for public money and safeguard user
interests. The lead financial institution for the project is responsible for regular monitoring
and periodic evaluation of project compliance with agreed milestones and performance
levels, particularly for the purpose of grant disbursement. VGF is disbursed only after the
private sector company has subscribed and expended the equity contribution required for
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the project.
Eligible Sector:
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a. Roads and bridges, railways, seaports, airports, inland waterways;

b. Power
c. Urban transport, water supply, sewerage, solid waste management and other physical
infrastructure in urban areas;
d. Infrastructure projects in Special Economic Zones and internal infrastructure in National
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Investment and Manufacturing Zones;

e. International convention centres and other tourism infrastructure projects;
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f. Capital investment in the creation of modern storage capacity including cold chains and
post-harvest storage;
g. Education, health and skill development, without annuity provision;
h. Oil/Gas/Liquefied Natural Gas (LNG) storage facility (includes city gas distribution network);
i. Oil and Gas pipelines (includes city gas distribution network);
j. Irrigation (dams, channels, embankments, etc);
k. Telecommunication (Fixed Network) (includes optic fibre/ wire/ cable networks which provide
broadband /internet);
l. Telecommunication towers;
m. Terminal markets;
n. Common infrastructure in agriculture markets; and
o. Soil testing laboratories.
The Cabinet Committee on Infrastructure:

It been constituted under the chairmanship of the Prime Minister. The Committee will fast track the
implementation of the infrastructure sector projects and monitor the performance keeping in mind
the mandate of the Government. The functions of the Cabinet Committee on Infrastructure will be
as follows:
• To consider and take decisions in respect of all infrastructure related proposals costing more
than Rs.150 crores specifically those concerning Energy, Railways, Roads and National
Highways, Ports, Airports, Telecommunications, Information Technology, Irrigation, Housing
and Urban Development with particular emphasis on rural housing and urban slum clearance.
• To consider and decide measures; namely, fiscal, financial, institutional and legal required
to enhance investment in the infrastructure sector, including grant of requisite approvals to
facilitate private sector investment in specific projects;
• To lay down annual parameters and targets for performance for all infrastructure sectors;
and
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• To review the progress of infrastructure sector projects.
3. Write a critical note on the National Infrastructure Investment Fund (NIIF) and
its model of investment. O
Approach
1. What is NIIF? (30 words)
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2. What are its objectives? (30 words)

3. What is its model of investment? (50 words)
4. Its limitations and solutions. (40 words)
Hints:
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National Infrastructure Investment Fund (NIIF) is a fund created by government of India for
infrastructure financing in the country.
The objective of NIIF is to maximize economic impacts mainly through the infrastructure development
in commercially-viable green-field and brown-field project as well as the stalled project. Not only
this, it can consider other national projects such as manufacturing.
Main function of NIIF:
• NIIF is supposed to raise debt to invest in equity of infrastructure finance companies such
as NHB and IRFC (Indian Rail Finance Corporation). This will help these companies to raise
capital, which can subsequently be used for boosting the projects.
• Acting as an advisor for the Infrastructure project companies.
• Invest in the corpus created by asset management companies.
• Helping other important sectors such as manufacturing and banking so that sentiments can
be boosted for investment in infra related projects.
Problems being faced by NIIF:
• Not much investment has come so far from the private players.
• The Sentiments of the investors have been mixed with some sector such as vehicle and
cement production rising whereas some sectors such as railway freight falling depending on
the interest of investors.
Actions being taken by Govt.:
• The alteration in the model is being made to allow the investors to invest in the individual
projects instead of investing in the fund.
• This will give free choice to investors who can invest according to their personal choice.
These positive steps being taken by the government will boost the sentiments of private players to
invest more which in turn will help in boosting the various sub-sectors of the economy.
Supplementary Notes
National Investment and Infrastructure Fund (NIIF)
• To make it simple, National Investment and Infrastructure Fund (NIIF) is a fund created by
the Government of India for enhancing infrastructure financing in the country.
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• Securities and Exchange Board of India (SEBI) has already approved NIIF as an alternate
investment fund.
• The National Investment and Infrastructure Fund (NIIF) Limited has been incorporated as
a company under the Companies Act, 2013, duly authorized to act as investment manager
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of National Investment and Infrastructure Fund.
• The government will invest Rs 20,000 crore into the NIIF from the Budget, with another Rs
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20,000 crore expected to come from private investors.

• The government’s share of the NIIF’s corpus is envisaged to be under 50%.
Objectives
• Maximize economic impact of each Rupee spent.
• Mainly through infrastructure development in commercially viable projects, both Greenfield
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and brownfield, including stalled projects.

• It could also consider other nationally important projects, for example, in manufacturing, if
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commercially viable.
4. Examine the changes in composition of India's exports and imports since

liberalization. Analyze India’s terms of trade in this context.
Approach
1. Introduce evolution of India's trade since liberalization. (40 words)
2. Elaborate on changes in composition of India's exports & imports (70-80 words)
3. Analyze, how term of trade changed over the period (50-70 words)
Hints:
During present time, international trade is a vital part of development strategy and it can be an
effective instrument of economic growth, employment generation, and poverty alleviation in an
economy. Since, New Economic Reform in 1991, India’s foreign trade has significantly changed. In
absolute terms, trade volume rose and the composition of exports have undergone several significant
changes. In post-reform period, the major contributor to exports growth has been the manufacturing
sector. This is really a welcome development and the trend needs to be strengthened further for the
increased income through exports
Changes in composition of India’s export and import:
Export:
• The share of primary products to total exports was 23.83 per cent in 1990-91 and it was
15.37 per cent in 2013-14. It attained the maximum in the year 1996-97 i.e. 24.01 per cent.
It is revealed that the share of primary products exports to total exports has reduced sharply
and continuously during the study period. In the primary products exports agriculture and
allied products has remain at prominent place than the ores and minerals.
• Though Manufactured products exports grow at significant rate yet its share in total exports
reduced continuously from 71.63 per cent in 1990-91 to 61.13 per cent. Still it maintains its
place in the total exports. The share of manufactured exports to total exports was at maximum
in 1999-2000 i.e. 80.7 per cent.
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– The share of chemicals and related products to total exports was continuously increasing
from 13.3 per cent in 1990-91 to 21.73 per cent in 2012-13.
– Like that the share of engineering goods to total exports was also increasing tremendously
from 17.32 per cent in 1990-91 to 36.58 per cent in 2011-12 and reduced to 35.55 per
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cent, yet it has 1/3 share in total manufactured exports.
• The share of petroleum products to total exports was only 2.88 per cent in 1990-91 and
increased tremendously to 20.04 per cent in 2013-14. After 2004-05, the petroleum products
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exports share to total exports increased at the faster rate.
• The share of manufactured goods as well as the proportion of high value and differential
products, petroleum products has increased in India’s export basket reflecting that Indian
economy is being diversified and non-traditional items of exports are gaining importance.
• Earlier we were exporting mainly traditional and primary commodities. Now, we have
made structural changes in the composition of commodities exported from India. Now, we
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have composition of industrial, engineering and manufactured and processed goods in addition
to primary goods. This structural change is possible because of Indian government consistent
effort towards industrialization of the country.
Imports:
• The share of bulk imports to total imports was 45.06 per cent in 1990-91 and it was 46.7
per cent in 2013-14. It attained the maximum in the year 1994-95 i.e. 50.51 per cent.
• Its share to total imports is more or less consistent over the study period, as its main
component in the initial years was basic consumption goods and later on petroleum products
took that place. The share of petroleum and crude products to bulk imports was 55.57 per
cent in 1990-91 and it was increased tremendously to 73.74 per cent in 2013-14.
• The share of non-bulk-imports to total imports was 54.94 per cent in 1990-91 and it was 53.3
per cent in 2013-14. It attained the maximum in the year 1998-99 i.e. 68.79 per cent. Its
share to total imports is also more or less consistent
• Over the study period, its main component in the initial years was capital goods which
required for development programmes. The share of capital goods to non-bulk imports was
44.13 per cent in 1990-91 and it was reduced to 34.92 per cent in 2013-14 and later on gold
has more important place in this category of imports.
Term of Trade: It represents the ratio between a country’s export prices and its import prices.
When a country’s TOT is less than 100%, more capital is leaving the country than is entering the
country. When the TOT is greater than 100%, the country is accumulating more capital from exports
than it is spending on imports.
• The terms of trade in 1990-91 was 75.37%, though it improved in coming year till 2003-04
and deteriorated further to 61.17 in 2013-14. A favorable terms of trade is associated with
the less trade deficit and unfavorable terms of trade is also associated with the huge trade
deficit during the study period. After 2004-05 both trade deficit and terms of trade are in
the worst situation, due to rupee value depreciation and international market situation.
The changes in India foreign trade strategy from import-substitution to export-promotion have
been improving exports performance significantly during the post-reform period. The composition
of India’s foreign trade reflects, to a great extent, the structural changes that the Indian economy
has undergone over the study period. It is no longer an exporter of primary commodities and an
importer of manufactured goods. It exports manufactured goods and imports raw materials,
intermediate goods and capital goods. Though the volume and value of exports has increased
manifold, India’s share in the world exports is still not up-to the expectation.
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5. The major advantages of swiss-challenge model of PPP are available to large
corporations only, if adopted for big projects. Critically analyse.
Approach
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1. Introduce Swiss challenge model of PPP (30 words)
2. Discuss its advantages (30 words)
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3. Elaborate on concerns with the process (70 words)

Hints:
A ‘Swiss Challenge’ is a way to award a project to a private player on an unsolicited proposal. Such
projects may not be in the bouquet of projects planned by the state or a state-owned agency, but are
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considered given the gaps in physical or social infrastructure that they propose to fill, and the
innovation and enterprise that private players bring.
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The government may enter into direct negotiations with a private player who submits a proposal
and, if they cannot agree on the terms of the project, consider calling for bids from other interested
players. In one variant of the Challenge, the government awards bonus points to the project’s
ideator; in another, it calls for comparative bids, but gives the first right of refusal to the original
player. All this is generally disclosed upfront.
Concerns with the Process:
Globally, there aren’t too many good examples of Swiss Challenge projects. South Africa, Chile,
Korea, Indonesia, the Philippines and Taiwan have seriously considered, awarded and implemented
unsolicited projects. The obvious advantages are that it cuts red tape and shortens timelines, and
promotes enterprise by rewarding the private sector for its ideas. The private sector brings innovation,
technology and uniqueness to a project, and an element of competition can be introduced by
modifying the Challenge.
The biggest concerns are the lack of transparency and competition while dealing with unsolicited
proposals. Governments need to have a strong legal and regulatory framework to award projects
under the Swiss Challenge method. It can potentially foster crony capitalism, and allow companies
space to employ dubious means to bag projects. Given that governments, sometimes lack an
understanding of risks involved in a project, direct negotiations with private players can be fraught
with downsides.
In general, competitive bidding is the best method to get the most value on public-private partnership
projects. The government might also end up granting significant concessions in the nature of viability
gap funding, commercial exploitation of real estate, etc., without necessarily deriving durable and
long-term social or economic benefits.
Similarly, another important concern is the sunk costs in assessment of projects, as it is done on
behalf of companies without a demand by government, thus, such costs are left unpaid and have to
be recovered from later proceeds, if project is granted. However, in case the project is not granted,
which happens in majority of the cases, it is a loss for government. The cost of such assessment can
vary from several lakhs to crores of rupees, which can only be borne by the large corporations.
Thus, small companies are likely to stay away from applying.
However, such fears are unfounded and it depends on the transparency of the system, if received
bids are adequately advertised and posted for challenge, then small companies do get a level playing
field.
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The success of public-private partnership (PPP) in infra projects is still debatable. There have been
several controversies around largescale PPP projects. Construction costs jumped significantly in the
case of the Mumbai Metro. Similarly, there were serious issues related to the international airport
and the Airport Metro line in Delhi.
The government has now brought PPP projects under the ambit of the CAG, so there is some
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scrutiny of projects where significant concessions including land at subsidized rates, real estate
space, viability gap funding, etc. are granted by the government. But there is still no strong legal
framework at the national level, and such projects may be challenged in case of a lack of transparency
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or poor disclosures.
Bureaucrats, who ultimately sign off on such projects, continue to be afraid to take calls that might
face an investigation later. In the absence of transparency, and a strong element of competition,
such projects may be prone to legal challenges. Smaller projects are better off in this respect.
Section - B
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6. The problems of MSME are many, but perhaps most critical is the quality issues
and brand perception. Analyze in the context of ‘Zero Defect - Zero Effect’ initiative.
Approach
1. Problems of MSME (50 words)
2. Zero defect zero effect initiative (50 words)
3. Benefits accrued due to this initiative (50 words)
4. Way forward (50 words)
Hints:
Micro, Small & Medium enterprises termed as engine of growth for India is the pillar of economic
growth in many developed, and developing countries in the world.
MSME has played a prominent role in the development of the country in terms of creating
employment opportunities-MSME has employed more than 50 million people, scaling
manufacturing capabilities, curtailing regional disparities, balancing the distribution of wealth,
and contributing to the GDP-MSME sector forms 8% of GDP.
Problems of MSME:-
• The different problems of finance in micro, small and medium enterprises are:
– Inadequacy of working capital and fixed capital.
– Lack of collateral security guarantor for raising loans.
– Unorganized finance sectors offering loans at higher rate of interest.
– Inadequate loans financed by organized sector.
– High payment installments or short repayment period for loans.
– Elaborate procedure and forms required to be filled by entrepreneurs for obtaining loans
and undue delay.
• Brand perception and quality issues :-
– Marketing is one of the major stumbling blocks for Small-Scale Industries. The
many problems which they face in marketing their products and ensuring quality are
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enumerated as follows:
– Lack of standardization
– Poor designing
– Lack of quality control
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– Lack of precision
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– Ignorance of potential markets. Unfamiliarity with export activities-procedures and

market know-how
– Competition from advanced and developed markets like China, Japan, US and UK
– Lack of skilled manpower
• Other challenges like impact on MSME due to GST:-
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– Costs:
o India’s paradigm shift to the Goods and Services Tax (GST) regime will increase
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their compliance costs and snare a majority of them into the indirect tax net for the
first time.
o GST will have a marginally negative impact because of higher tax rates
– Input Tax Credit: Along with the initial confusion and infrastructure glitches that took
some time to stabilize, there were reports of delays in receiving Input Tax Credit (ITC),
which directly affected the MSME industry.
Zero defect zero effect initiative:
• ZED Scheme aims to rate and handhold all MSMEs to deliver top quality products using
clean technology. It will have sector-specific parameters for each industry.
• ZED Scheme is meant to raise quality levels in unregulated MSME sector which is engine of
growth for Indian economy.
• The scheme will be cornerstone of the Central Government’s flagship Make in India
programme, which is aimed at turning India into a global manufacturing hub, generating
jobs, boosting growth and increase incomes.
• The government is essentially emphasising on quality over quantity, thereby enabling Brand
India to get visibility in the manufacturing centre-stage of the world.
Benefits of ZED
• Credible recognition of the industry for international customers seeking investment in India
• Streamlined operations and lower costs
• Superior quality, reduced rejection and higher revenues
• Increased environmental & social benefits
• Additional employment generation
Way forward:
• Government of India and banks should design policies in alignment to help start-ups.
• Especially, cash flow should be provided based on the qualification not on collaterals or bank
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guarantees.
• Lengthy and complex loan processes, lack of transparency in loan application status and
delay in loan dispersal hampers unit’s overall growth. Policies should be devised to remove
non-value adding processes to shorten the overall loan process.
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• Government should encourage procurement programme, credit and performance ratings
and extensive marketing support to revive the growth of sick units.
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• Technology upgradation has also become imperative as it is synonymous in reducing cost of
production and improved quality of product. Government should promote and subsidies the
technical know-how to Micro and small enterprises.
Supplementary Notes
ZED scheme:
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• India launched the National SC/ST hub and the Zero Defect, Zero Effect (ZED) scheme for
Micro, Small and Medium Enterprises (MSMEs) at Ludhiana in Punjab
• The slogan of Zero Defect, Zero Effect (ZED) was first mentioned by PM Narendra Modi in
his Independence Day speech in 2014. It was given for producing high quality manufacturing
products with a minimal negative impact on environment.
• Vision:
– To enable the advancement of Indian industry to a position of eminence in the global
marketplace and leverage India’s emergence as the world’s supplier through the ‘Made
in India’ mark.
• Mission:
– To develop and implement a ‘ZED’ culture in India based on the principles of:
– Zero Defect (focus on customer)
o Zero non-conformance/non-compliance
o Zero waste
– Zero Effect (focus on society)

o Zero air pollution/liquid discharge (ZLD)/solid waste
o Zero wastage of natural resources
7. Elaborate, how lack of exit policy affects the longevity of the industry. Discuss,
how this Chakravyuha Challenge can be broken.
Approach
1. Exit problem issue (30 words)
2. Exit problem and relation with industry (70 words)
3. Chakravyuh challenge and how to deal with it (120 words)
Hints:
In India, the exit problem arises because of three types of reasons, what might be called the three I’s:
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Interests, Institutions, and Ideas/Ideology.
How lack of exit policy impacts industry:
• The lack of exit creates at least three types of costs: fiscal, economic (or opportunity), and
political.
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• Fiscal costs:
– Due to the exit issue, the government has to support the inefficient PSUs. This support
in the form of explicit subsidies (for example bailouts) or implicit ones (tariffs, loans from
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state banks) represents a cost to the economy.

– There is interest cost if the government borrows to finance the foregone revenue.
• Economic costs:
– Economic losses result from resources and factors of production not being employed in
their most productive uses. In a capital scarce country such as India, misallocation of
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resources can have significant costs.

– The other consequence of exit problem is a reduced flow of new investment, dampening
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medium term growth.

• Political costs:
– The lack of exit can also have considerable political costs for governments attempting
to reform the economy.
– The exit problem often benefits the rich and influential in the form of support for “sick”
firms. This can give the impression that governments favour large corporates.
– Similarly, if willful defaulters cannot be dealt with appropriately, the legitimacy of a
market economy and the regulating institutions can themselves be called into question.
– Credibility of the government is then on stake and it loses its socialist character when
it tries to bailout a sick company.
Chakravyuh challenge:
• Chakravyuh challenge describes the ability to enter but not exit.
• After independence, Indian economy adopted socialism with limited entry.
• Since the early 1980s, the Indian economy has made remarkable progress in improving entry
conditionds: industrial licensing has been dismantled, public sector monopolies have been
diluted, some public sector assets have been privatized, foreign direct investment has been
considerably liberalized, and trade barriers have been reduced.
• However, a market economy requires not just unrestricted entry of new firms, new ideas,
and new technologies but it also requires exit so that resources are forced or enticed away
from inefficient and unsustainable uses. In India, there has been less progress in relation
to exit. Thus, Indian economy is characterized by “marketism” without exit. This is
called Chakravyuha Challenge of the Indian economy.
• Chakravyuha challenge is more a feature of the relatively traditional sectors of the economy.
The challenge is not just restricted to the public sector and manufacturing but the private
sector and agriculture are also facing the exit challenge.
How to break Chakravyuh challenge:
• Firstly, by promoting competition via private sector entry rather than change of ownership
from public to private. For example, liberal entry of more banks and different types of banks
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and entry into capital markets is an option to reduce the role of inefficient public sector banks.
• Secondly, Direct policy action through better laws like the Insolvency and Bankruptcy Code
2015, reforming the Prevention of Corruption Act. Institutions need to be made stronger but
flexible by empowering bureaucrats and reducing their vulnerability.
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• Thirdly, use of technology to remove persistent distortions by bringing down human discretion
and layers of intermediaries. JAM and DBT are examples for using technology to solve exit
problem.
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• Fourthly, increasing transparency and highlighting social costs and benefits of various schemes
and entitlements.
• Fifthly, showcasing exit as an opportunity towards a newer and better tomorrow.
Supplementary Notes
Reasons why Exit problem exists in India:
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• Interests
– The first and perhaps most powerful reason for lack of exit is the power of vested
interests. In the case of administrative schemes, vested interests often create a market of
their own, planning their actions to benefit from it.
• Institutions:
– In India, the problem arises from a combination of both weak and strong institutions.
Examples of weak institutions are legal procedures that increase the costs time and
financial costs of exit. One example of weak institutions is simply the inability to punish
wilful defaulters.
• Ideas/ideology:
o All around the world, it is very difficult to phase out entitlements. Democracy favour
redistribution for the numerous poor. Once the programs and policies have been put in
place, it is very difficult to reverse them.
– For example, Minimum support prices (MSPs) were envisioned as an insurance
mechanism for farmers, but have become price floors instead, favouring some crops in
some regions at the expense of others.
8. Discuss the need for diversification within the IT and ITES sector. Examine why
it is critical for future growth.
Approach
1. Introduction (50 words)
2. Why there is need for diversification (60 words)
3. Why is this sector critical for India's future (100 words)
Hints:
Over the years, the Indian IT sector has contributed immensely in positioning the country as a
preferred investment destination amongst global investors and creating huge job opportunities in
India, as well as in the US, Europe and other parts of the world.
As per the industry body, NASSCOM, the sector is estimated to provide direct employment to 10
million and indirect employment to 20 million by 2020.
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Need for diversification:
• Diversify Geographic risk:
o With the focus on geographic diversification, Indian companies are also extending their
reach to other markets like Asia Pacific, Australia, Middle East, etc. apart from the US and
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European markets.
• With Brexit and America making changes regarding H-1B may restrict or reduce the low-
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skill work in USA which accounts for 62% of IT export.

• India’s IT work is related to IT services, Software production and engineering services and
business process management mainly in the areas of Banking, Financial services and telecom.
But the future holds for Retail and Healthcare and the areas would be Cloud computing,
automation, Artificial Intelligence, Data analytics etc
Why IT and ITES sector is critical for future growth:
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• Technology adoption has been on the rise for enterprises globally, in the wake of digital
transformation of industries worldwide. It is during such times that the role of IT companies
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as a partner becomes inevitable, as they can either enable clients in becoming platform-
driven or deliver outstanding digital experiences for them with their own platforms
• India’s increasing focus on innovation and entrepreneurship renders it an attractive destination
from a talent standpoint, and equally in terms of market access. This could benefit the IT
sector in India
• The Indian domestic market is fast emerging as a globally significant market for services.
Critical areas like Aerospace, Defence and e-Governance beckon Indian IT vendors and
global giants eager to participate in the Indian growth story driven by domestic consumption
and demand for services.
• Companies are increasingly investing in developing their Indian operations as think-tanks
to their global operations.
• India is the topmost offshoring destination for IT companies across the world. Having proven
its capabilities in delivering both on-shore and off-shore services to global clients, emerging
technologies now offer an entire new gamut of opportunities for top IT firms in India.
• Export revenue of the industry is expected to grow 7-9 per cent year-on-year to US$ 135-
137 billion in FY19. The industry is expected to grow to US$ 350 billion by 2025 and BPM
is expected to account for US$ 50-55 billion out of the total revenue.
• With recruitment and training costs contributing to the erosion of the cost arbitrage, service
providers are focusing more on retention as a means to both retain expertise as well as to
drive down internal costs
• The increasing participation of various states in India to tap into India’s IT/ITeS growth
story has opened up entirely new possibilities for both, companies as well as the people at
large. An attractive business centric taxation and benefits regime has seen a greater interest
amongst the IT/ITeS provider community as well as a more widespread distribution of
wealth across the country.
Way forward
• Creating more competitive services markets by removing a wide range of internal and
external policy distortions is vital for improving IT/ITES sector productivity.
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• Complementary investments in physical infrastructure and human capital will also be
necessary to achieve a strong IT/ITES sector.
Supplementary Notes
• The service sector will be able to contribute to inclusive growth by enhancing investment,
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creating employment and human capital, and developing infrastructure. It is important for
a developing country like India with a large, young population to generate quality
employment and to move up the value chain
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• By enabling the efficient use of IT through sharing of resources, high agility, enhanced
collaboration and consumption driven costing, Cloud Computing is fast emerging as an
answer to the business need of driving down IT costs as a proportion of operating and
capital expenditure.
• By marrying technology capability with domain expertise, the platform BPO is poised to
push the Indian service provider community into a Strategic Business Partner (SBP) mode
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from a transactional vendor mode. By moving the service delivery away from the traditional
people-centric BPO, this new approach introduces an element of profit nonlinearity which
is essential for the industry.
• By increasing the industry-academia engagement, many educational institutes are trying to
make the curriculum more relevant to the industry needs and thus, enabling the service
providers to save on initial training costs while creating a workforce capable of hitting the
ground running.
9. Do you think that rise in the Minimum Support Price (MSP) would solve the
problem of agriculture distress? Critically discuss.
Approach
1. Introduce minimum support price and its significance (40 words)
2. Highlight the role of MSP (40 words)
3. Mention its limitations (50 words)
4. Give some suggestions on how augment farmers income (50 words)
Hints:
Minimum Support Price is the price at which government purchases crops from the farmers,
whatever may be the price for the crops. Minimum Support Price is an important part of India’s
agricultural price policy.
The main objective is to support the farmers from distress sales and to procure food grains for
public distribution.
Role of MSP in reducing agriculture distress:
1. Controlling price volatility- Minimum Support Price (MSP) system acts as a tool for the
government to control sharp fall and rise in the prices of crops. This helps keep a minimum
price so that prices do not fall below a certain point. This helps farmers in between price
fluctuation.
2. Reducing debt burden -Farmers get fair amount for their produce which helps them to
sustain their losses, thus they do not get affected drastically due to debt burden.
3. Increased income- Farmer’s income gets augmented and it can be used as a tool to bring
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them out of their poverty levels
4. Eliminating middlemen - Farmers can directly sell their produce to the government at fixed
prices and save themselves from the wrath of traders and dealers who generally cheat
farmers by offering them low prices.
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Limitations of MSP:
1. Inflation - The higher returns due to increased MSPs increase the cash flow in the economy
and this may again lead to increase in prices of food grains thus affecting poor farmers the
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most.
2. Limited MSP coverage- Effectiveness of government procurement is more in few states like
Punjab, Haryana and Andhra Pradesh etc. Although Govt announces MSP for 23 crops but
effectively procures only wheat and rice. Thus, only handful farmers are able to have benefit.
3. Market Distortion- Increase in MSP leads to excessive sowing of a particular crop which
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reduces the prices obtained by it. For example, increasing wheat cultivation in MP & Rajasthan.
4. Lack of Private investment - Due to sure return under MSP, farmers rely on political
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pressure to remedy their problems, instead of adapting to market. This all keeps private
investment away for the sector.
5. Lack of awareness in small and marginal farmers - Majority of marginal farmers sell their
crop to village moneylender thus defeating the purpose of MSP.
Certain suggestions other than MSP rise that can address agricultural stress:
1. To increase the farm productivity India needs to adopt more scientific approach to agriculture
and needs better investments in research to find better-yielding seeds. This in turn will
augment farmer’s income.
2. For sustainable farming, farmers need to be better educated on the advantages of growing
pulses and encouraged to dedicate more acreage for the crop.
3. Government needs to strengthen the procurement system across the country and enlighten
the small farmers particularly about the MSP regime and the procurement process.
Minimum Support Price (MSP) does help to provide safety net to farmer but just increasing MSP
rate will not serve the purpose. Better marketing facilities, institutional credit, irrigation, quality
seeds and fertilizers, procurement during times of market glut and a social safety net during natural
calamities are the basic inputs and services farmers need. They together will ameliorate the
agricultural distress.
Supplementary Notes
While the farming sector has its own set of risks, like any other economic activity, to increase and
ensure stable flow of income to farmers it is vital to manage and reduce the risks by analyzing,
categorizing and addressing them. In rain fed areas, water security primarily depends upon
rainwater harvesting and the efficient use of the available water through techniques like drip
irrigation, and the appropriate choice of farming systems.
Groundwater augmentation and management is an important method of ensuring adequate and
timely availability of water for crops. Fortunately, the concept of ‘more crop per drop’ is being
promoted by the government. The government must resolve to address the structural issues and
there is a need to give farmers not just a better, but also more stable, return on their crops.
10. Examine how the special package for leather footwear sector and textile and
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apparels sector has affected the employment elasticity of exports. Also, comment
why these particular sectors were chosen for the package?
Approach O
1. Special packages for leather and textile industry(120 words)
2. Why these sectors were selected (100 words)
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Hints:
Special package for leather industry:
• The package involves implementation of central scheme ‘Indian Footwear, Leather &
Accessories Development Programme’ with an approved expenditure of Rs 2,600 crore over
the three financial years from 2017-18 to 2019-20.
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• The special package also includes measures for simplification of labour laws and incentives
for employment generation.
• These include enhancing the scope of Section 80JJAA of the Income Tax Act for providing
deduction to an Indian company engaged in manufacture of goods in a factory towards
additional wages paid for three years to new workmen.
Benefits:
• Special package for employment generation in the leather and footwear sectors, has the
potential to generate 3.24 lakh new jobs in three years and assist in the formalization of two
lakh jobs.
• The scheme would lead to development of infrastructure for the leather sector, address
environment concerns specific to the leather sector, facilitate additional investments,
employment generation and increase in production.
• Enhanced Tax incentive would attract large scale investments in the sector and reform in
labour law in view of seasonal nature of the sector will support economies of scale.
• Scheme will increase leather and footwear exports, currently at $6 billion, by around 4-5 per
cent compared to mostly flat or around one per cent growth presently.
Special package for textile and apparels sector:

• The move comes in the backdrop of the package of reforms announced by the Government
for generation of one crore jobs in the textile and apparel industry over next 3 years.
• The package includes a slew of measures which are labour friendly and would promote
employment generation, economies of scale and boost exports.
• The steps will lead to a cumulative increase of US$ 30 billion in exports and investment of
Rs. 74,000 crores over next 3 years.
• The majority of new jobs are likely to go to women since the garment industry employs
nearly 70% women workforce. Thus, the package would help in social transformation through
women empowerment.
• Special package generated additional investment and additional employment
Challenges before Textile industry:
• This sector is undergoing a huge churn due to automation, digital printing and the relentless
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rise of e-commerce.
• The world operated under a patently unfair quota system called the Multi Fibre Agreement
(MFA), has shackled the growth of India’s textile and garment exports.
• India’s share of textile exports in total exports stood, at 12%, is half of what it was in 1996.
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While the other sectors like petrol and diesel went from zero to 20% of export share
Why these sectors were selected for special packages:
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• Textile sector:-
– India’s textile sector covers everything from fibre to garments is the second-largest
employment generation sector after agriculture, employing an estimated 32 million
workers
– Textile industry not only provides livelihoods to millions of households, but is a storehouse
of traditional skills, heritage and a carrier of heritage and culture too.
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– India’s textiles sector is one of the oldest industries in Indian economy.

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– Textile sector is one of the largest contributors to India’s export with approximately 11
per cent of total exports.
• Leather and footwear sector:
– The Indian leather industry accounts for around 12.93 per cent of the world’s leather
production of hides/skins.
– The country ranks second in terms of footwear and leather garments production in the
world and accounts for 9 per cent of the world’s footwear production
– Indian leather industry has one of the youngest workforce with 55% of workforce
below 35 years of age
Impact of Employment Elasticity of Exports: Employment Elasticity is measured in terms of
proportional change in employment w.r.t. proportional change in exports.
The above two initiatives are likely to improve it, as Garment industry is 240 times more labour-
intensive than steel industry & leather industry is 100 times more labour-intensive than same. Thus,
they will generate more jobs , per rupee of additional export.
Supplementary Notes
Salient features of the package announced for textile and apparel sector are:
• Employee Provident Fund Scheme Reforms
– Government of India shall bear the entire 12% of the employers’ contribution of the
Employers Provident Fund Scheme for new employees of garment industry for first 3
years who are earning less than Rs.15, 000 per month.
– At present, 8.33% of employer’s contribution is already being provided by Government
under Pradhan Mantri Rozgar Protsahan Yojana (PMRPY). Ministry of Textiles shall
provide additional 3.67% of the employer’s contribution amounting to Rs. 1,170 crores
over next 3 years.
– EPF shall be made optional for employees earning less than Rs. 15,000 per month
– This shall leave more money in the hands of the workers and also promote employment
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in the formal sector.
• Increasing overtime caps
– Overtime hours for workers not to exceed 8 hours per week in line with ILO norms.
– This shall lead to increased earnings for the workers
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• Introduction of fixed term employment
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– Looking to the seasonal nature of the industry, fixed term employment shall be introduced
for the garment sector
– A fixed term workman will be considered at par with permanent workman in terms of
working hours, wages, allowanced and other statutory dues.
• Additional incentives under ATUFS
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– The package breaks new ground in moving from input to outcome based incentives by
increasing subsidy under Amended-TUFS from 15% to 25% for the garment sector as
a boost to employment generation.
– A unique feature of the scheme will be to disburse the subsidy only after the expected
jobs are created.
• Enhanced duty drawback coverage
– In a first of its kind move, a new scheme will be introduced to refund the state levies
which were not refunded so far.
– This move is expected to cost the exchequer Rs 5500 crores but will greatly boost the
competitiveness of Indian exports in foreign markets.
– Drawback at All Industries Rate to be given for domestic duty paid inputs even when
fabrics are imported under Advance Authorization Scheme
• Enhancing scope of Section 80JJAA of Income Tax Act
– Looking at the seasonal nature of garment industry, the provision of 240 days under
Section 80JJAA of Income Tax Act would be relaxed to 150 days for garment industry.
11. Analyze the recent decisions taken by India regarding custom duty structure to
promote domestic manufacturing of electronics and mobiles. Examine, whether
such changes are compatible with WTO rules.
Approach
1. Briefly introduce India's Electronic industry and government's initiatives which dragged
India in disputes under WTO (40 words)
2. Discuss government decision regarding custom duty structure to promote domestic
manufacturing of electronics and mobiles (80-100 words)
3. Examine compatibility of changed duty structure with WTO norms (70-80 words)
Hints:
The Indian electronics industry is one of the largest and fastest-growing industries in the world. In
2015, the industry in India was valued at USD 75 Billion, despite a weak global economy sector has
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undergone an evolution from being primarily a consumption-driven market to the one with
manufacturing capability to cater to local and overseas demand. Thus government is offering various
incentives both in form of tariff and others to promote domestic manufacturing, however it triggered
dispute under WTO as India is alleged for bending the norms.
Decision by government regarding custom duty structure to promote domestic manufacturing
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of electronics and mobiles:
• To encourage assembly activities, basic custom duty and countervailing duty (CVD) are
waived on inputs used in the production of all ITA-1 products (ITA-1 products are final
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products that enter duty free into the country under the WTO’s Information Technology
Agreement – 1 to which India is a signatory). Similar exemption is also given on inputs used
in TVs, mobile handsets, tablet computers, solar PV cells and certain medical equipment.
• Under zero duty Export Promotion Capital Goods (EPCG) scheme, imports of capital goods
for pre-production, production and post-production enter at zero custom duty. As per the
Foreign Trade Policy 2015-2020, the specific export obligation under EPCG scheme where
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capital goods are procured from indigenous manufacturers has been reduced to 75% from
90% in order to promote domestic capital goods manufacturing industry.
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• The government of India has relaxed customs duty on the imports of around 35 capital
goods used in the production of mobile phones in India. The printed circuit board (commonly
known as the motherboard) coating machine and a few more have been exempted from the
customs duty. The basic duty on the 35 items, which currently ranges from 7.5 to 10 per
cent, was fully exempted.
• The move has been made to support the domestic production of parts or components for
mobile devices, speakers and receivers, data cables, optical cables, PCBs and printed circuit
board assembly (PCBA), that have also been included in the phased manufacturing
programme. It will boost the local mobile manufacturing segment in the country.
• To curb surging imports of electronic items and to incentivize domestic value addition and
boost the government’s Make in India programme, basic custom duty has been hiked. the
Customs duty on mobile phones, video cameras, TV sets and microwaves hiked to 15, 15,
20 and 20 per cent.
• Additionally, the basic Customs duty on LCD, LED and OLED panels for manufacture of
TV has been withdrawn; they will attract 7.5 per cent duty.to incentivize domestic value
addition and boost the government’s Make in India programme.
Compatibility of Changed duty structure with WTO norms:

• Hikes in customs duties on mobile phones and other IT (information technology) products
are allegedly inconsistent with India’s scheduled commitments in the Information Technology
Agreement (ITA).Under it India is required to eliminate tariffs on a range of IT products,
including mobile phones.
• Because of it, India has come under intense scrutiny at WTO’s committee on trade in goods
and the committee on ITA. It raised a fresh prospect for a major trade dispute with the US,
Japan, the European Union, and Taipei among others at the World Trade Organization.
• However, India argued that IT and telecom technologies have evolved with new applications
and equipment which were neither existent nor even conceived at the time of signing the
ITA-I in December 1996, at the WTO’s first trade ministerial meeting in Singapore.
• Therefore, the new IT products including the latest Apple phones and other IT products do
not strictly fall under the scope of ITA-I agreement. India maintained it is not undertaking
any fresh commitments under ITA-2 agreement that came into force more than two years
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ago.
• US alleged that India has failed to comply with a World Trade Organisation (WTO) ruling
on solar power (India’s favour on domestic content requirement), the United States will tell
the WTO’s dispute settlement body (DSB), triggering a fresh round of litigation.
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If members continue to be dissatisfied with India’s explanation and lack of action, they may drag
the country to dispute settlement and a panel at the WTO would then decide whether rules were
bent. In case a decision is taken against India’s actions, it will have to roll back the duties or face
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penalties. Thus India need to take its tariff related decisions by balancing its domestic manufacturing
requirement with WTO’s agreement.
12. How can Start-Up India programme help in filling the gap of missing medium
scale enterprises, which are vital for employment generation?
Approach
GS
1. Briefly introduce missing medium scale industries in India. (40 words)

2. How start-ups are similar in size as medium industries (60 words)
3. How Start-up India programme can help fill the gap (70 words)
Hints:
The “missing middle” is a near-continuous phenomenon in the history of Indian MSMEs. According
to the industrial census of the MSMEs, as many as 99% are micro and small and only 1% are
medium scale enterprises. These medium scale companies are vital for job creation as they are
labour intensive. This symptom is because of several hurdles in the scaling up or starting businesses
of bigger size. The hurdles such as:
• The handholding required at this stage is lacking.
• Regulatory cholesterol and distorted factor market.
• The availability of risk capital from banks or venture capital companies is limited.
• Poor infrastructure availability also increases the operational costs.
The start-up and medium scale industries are of the same size with limited revenues, high cost
of operation, job-creating industries. Thus, the Start-up India Programme tackles these issues
head on.
• The government has made provision for Start-ups to get income tax exemption for 3 years
in a block of 5 year.
• A fund of funds of 10,000 crores for Start-ups has been established which shall be managed
by SIDBI. The fund will invest in SEBI registered Alternative Investment Funds (AIFs),
which, in turn, will invest in Start-ups. Thus, this fund will act as an enabler to attract
private capital in the form of equity and quasi equity for Start-ups.
• It brings out the confidence among the entrepreneurs to start-up with hassle free process.
With faster patent registration and protection for Intellectual Property rights.
• The relaxation of the financial and labour norms and SELF CERTIFICATION and compliance
under 9 environmental is a great step towards making things simpler for young start-ups so
they can focus on innovation.
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• It aims to work in a hub and spoke model and collaborate with Central & State
governments, Indian and foreign VCs, angel networks, banks, incubators, legal partners,
consultants, universities and R&D institutions handholding the new industries.
Thus the Start-up India programme solves the problems faced by the medium scale Industries and
aims to create as many 3 lakh new jobs by 2020.
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Supplementary Notes
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Start Up India Scheme

Government of India has launched the Start-Up India initiative which aimed at promoting
entrepreneurial culture in the country. Start-up India Action Plan was unveiled providing a slew of
incentives for the youth to become job creators rather than job seekers.
According to the government notification, an entity will be identified as a startup.
a) Till up to five years from the date of incorporation.
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b) If its turnover does not exceed 25 crores in the last five financial years.
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c) It is working towards innovation, development, deployment, and commercialization of new

products, processes, or services driven by technology or intellectual property.
Start-up India Action Plan highlights are:
a) Compliance Regime based on Self-Certification: There are provisions of self certification
to comply with various labour and environment laws such as Contract Labour (Regulation
and Abolition) Act, 1970 or Air (Prevention & Control of Pollution) Act, 1981 etc. It has been
done to reduce the regulatory burden on Startups thereby allowing them to focus on their
core business and keep compliance cost low.
b) Mobile App & Portal: The government has proposed to create a single window web portal
or Mobile App for purpose of registration of start-ups, tracking status of registration, Filing
compliances for various clearances/approvals, applying for various schemes or collaborating
with various Startup ecosystem partners etc.
c) Fast-tracking Patent Examination at Lower Costs: For effective implementation of the scheme,
a panel of “facilitators” shall be empanelled by the Controller General of Patents, Designs
and Trademarks (CGPDTM), who shall also regulate their conduct and functions. The
government will bear entire facilitation costs and startups have to pay only statutory fees for
patent registration. Startups shall be provided an 80% rebate in filing of patents as compared
to other companies.
d) Faster Exit for Startups: In terms of the Insolvency and Bankruptcy Bill 2015 (IBB) which
has been tabled in Lok Sabha, Startups with simple debt structures or those meeting such
criteria as may be specified may be wound up within a period of 90 days from making of
an application for winding up on a fast track basis.
e) Funding: Under Start-up India scheme, government will set up a fund with an initial corpus
of Rs 2500 Cr and total corpus of Rs 10000 Cr for next 4 years. The Fund will be in the
nature of Fund of Funds, which means that it will not invest directly into Startups, but shall
participate in the capital of SEBI registered Venture Funds.
f) Tax Benefits: Start-ups shall be exempted from income tax for a period of first 3 years.
g) Atal Innovation Mission (AIM) and SETU: The AIM has launched with Start-up India
scheme. It has two main functions that are as follows:
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– Entrepreneurship promotion through Self-Employment and Talent Utilization (SETU),
wherein innovators would be supported and mentored to become successful
entrepreneurs. Establishment of 500 Tinkering Labs, Pre-incubation training, Strengthening
of incubation and Seed funding are some examples of entrepreneurship promotion.
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– Innovation promotion: to provide a platform where innovative ideas are generated such
as Institution of Innovation Awards (3 per state/UT) and 3 National level awards etc.
h) Govt will create innovation or Start-up centres at national institutes such as IITs, NITs or
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IIITs with various facilities like incubation, etc.
13. What do you mean by upstream and downstream requirements in the food processing
industry? Also, explain the importance of supply chain management in the food
processing industry.
Approach
GS
1. Define upstream and downstream in food processing industry. (50 words)

2. Elaborate on the upstream and downstream requirements. (80 words)
3. Define Supply Chain Management and explain its importance. (70 words)
Hints:
The complete framework from storage of raw materials, inventory and finished goods from point of
origin to point of consumption process of movement of material consists of two stages, namely
upstream and downstream.
Requirements of Upstream in Food processing industry:
• Accessibility to raw materials is the first upstream requirement for any industry.
• The food processing industry also requires modern extraction techniques.
• To make the food processing industry sustainable, it is important to ensure good linkages
with farmers.
• The storage facilities for raw materials like Grains, Meat, Fish etc. are important part of food
processing upstream requirements.
• Food processing industry also requires good quality testing facilities.

• Transport facilities are essential part of upstream requirements of food processing industry
in India.
• The food industry also requires a sizable amount of work force.
Requirements of Downstream in Food processing industry:
• The downstream stage in the production process involves processing of the materials collected
during the upstream stage into a finished product.
• The downstream stage also includes the actual sale of product to customers like businesses,
governments or individuals. Since, downstream processing has direct contact with customers
through the finished product; it requires a large work force.
Importance of Supply chain Management-:
Supply chain management spans all movement and storage of raw materials, work-in-process
inventory, and finished goods from point of origin to point of consumption. Good supply chain
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links helps farmers, manufactures, wholesalers, retailers and consumers. Importance for different
stakeholders is:
For Farmers:
• Makes it easier for farmers to sell their goods at better prices
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• Facilitates investment in agriculture
• Results in use of new technologies to increase productivity
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• Results in creation of rural infrastructure

For Consumers:
• Availability of healthy, nutritious food material
• Avoidance from inflationary pressures
• Access to varieties of processed food
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For Industries:
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• Easy access to raw materials

• Quality controls and regulations
• Healthy competition
India can become the food supplier of the world. The food processing industry has an important
role to play in linking farmers to the final consumers in the domestic as well as the international
markets. Supply chain management is critical in achieving that goal.
Supplementary Notes
If there are good Supply Chain Management practices in a country, then it will boost economy as a
whole. Good supply chain links helps farmers, manufactures, wholesalers, retailers and consumers.
Everyone in the supply chain link will get inputs at a faster rate, at the right time and at a cheaper
cost.
An agriculture supply chain system comprises organizations/cooperatives that are responsible for
the production and distribution of vegetable/Fruits/Cereals/Pulses or animal-based products. In
general, we distinguish two main types:
1. ‘Agriculture food supply chains for fresh agricultural products’ (such as fresh vegetables,
flowers, fruit). In general, these chains may comprise growers, auctions, wholesalers, importers
and exporters, retailers and speciality shops and their input and service suppliers. Basically,
all of these stages leave the intrinsic characteristics of the product grown or produced
untouched. The main processes are the handling, conditioned storing, packing, transportation
and especially trading of these goods.
2. ‘Agriculture food supply chains for processed food products’ (such as portioned meats,
snacks, juices, desserts, canned food products). In these chains, agricultural products are
used as raw materials for producing consumer products with higher added value. In most
cases, conservation and conditioning processes extend the shelf-life of the products.
14. Identify the issues faced by the MSME in India. Discuss the recommendations of
K.V. Kamath Panel to address the issue of flow of funds in the sector.
Approach
1. Introduce status of MSMEs in India (40 words)
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2. Elaborate on the issues faced by them (60 words)
3. Elaborate on K.V Kamath Panel recommendation (100 words)
Hints:
In India, the MSME sector employs nearly 11 crore people and contributes to around 17% of the
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GDP. Products ranging from the khadi kurta, cottage products like honey and coir to the many
ancillary items used in industrial production, are all manufactured in this sector.
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Issues faced by this sector are-
• Lack of adequate capital and timely access to credit.
• Poor infrastructure
• Access to modern technology
• Access to markets and marketing facilities
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• Getting statutory clearances related to power, environment, labour etc.

• Competition from neighbouring countries like China, Vietnam, Bangladesh etc.
• Recent global slowdown and downfall in exports
• Lack of adequate awareness about govt programs and schemes
K.V. Kamath Panel has given a number of recommendations to encourage this MSME sector-
• Create an apex authority which would be called the National MSME Authority under the
Ministry of MSME- To ensure a single point resource center which will be a nodal agency
to execute and administer programs, benefits & grievance redressal, facilitate ease of doing
business, registration & inclusion by using Udyog- Aadhar.
• Achieve, in a time bound manner, universal financial inclusion of MSMEs by using the above
registration to ensure that every registered MSME has a bank account.
• Increase the flow of equity to the MSME sector
• Encourage establishment of an effective, online, technology-driven receivables financing
platform with wide participation by credit providers, MSMEs, corporate and government
units
• Expand coverage under and enhance effectiveness & utilization of credit guarantee/insurance
schemes and make the programmes accessible to a wider set of credit providers leverage
outreach points outside the formal financial system (akin to the banking correspondent
model) to enhance access to financial services through a hub-and-spoke approach, as also
leverage the National MSME Portal to expand access
• Encourage expansion in coverage of credit bureaus to include a wider range of credit
institutions and a wider range of transaction records to facilitate a better credit and payment
history of the buyer and the seller.
• Based on the recommendations of the Committee, bank credit to the MSME sector which
was 10 lakh crores as of March 2014 could scale up to as much as 30 lakh crores in five
years.
Supplementary Notes
Steps taken by govt to promote MSME-
• The government has augmented coverage of the sector under the Credit Guarantee Fund
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Scheme with limit of loan being doubled from Rs 1 crore to Rs 2 crores.
• The Cluster Development Programme of the government aims to create assets like Common
Facility Centers to access latest tools, technology, designs, etc.
• There is a Credit Guarantee Scheme for MSME sector which focusses on availing funds for
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this sector.
• Industrial extension services
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• Institutional support with reference to credit facilities

• Providing developed sites for the construction of sheds
• Providing training facilities
• Supply of machinery on the basis of hire-purchase terms
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• Enabling Assistance for domestic marketing and exports

• Offering special incentives for creating enterprises in backward areas and so on
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• Offering technical consultancy and financial assistance for the purpose of technological
enhancement.
15. In view of the declining average size of land holdings in India which has made
agriculture non-viable for a majority of farmers, should contract farming and
land leasing be promoted in agriculture? Critically evaluate.
Approach
1. Introduce by defining what is contract farming (50 words)
2. Mention its Pros and Cons (120 words)
Hints:
Contract farming is the process of agricultural production carried out according to an agreement
between unequal parties, companies, government bodies or individual entrepreneurs on one side
and economically weaker farmers on the other which establishes conditions for the production and
marketing of farm products.
In this process, the farmer agrees to provide established quantities of a specific agricultural product,
meeting the quality standards and delivery schedule set by the purchaser. In turn, the buyer commits
to purchase the product, often at a pre-determined price. In some cases, the buyer also commits to
support production through supplying farm inputs, land preparation, providing technical advice
and arranging transport of produce to the buyer’s premises.
Land is important natural resource as all the three sector of economy is very much dependent on
land, particularly agriculture.
Pros
• Contract farming and land leasing are innovative method of prudent utilization of land.
• Contract farming has been used for agricultural production for decades but its popularity
appears to have been increasing in recent years. The use of contracts has become attractive
to many farmers because the arrangement can offer both an assured market and access to
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production support.
• Contract farming is also of interest to buyers, who seek supplies of products for sale further
along the value chain or for processing. Processors constitute the main users of contracts, as
the guaranteed supply enables them to maximize utilization of their processing capacity.
•
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Contracts with farmers can also reduce risk from disease or weather and facilitate certification,
which is being increasingly demanded by advanced markets. There are also potential benefits
for national economies as contract farming leads to economies of scale, which, as some
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agriculture scientist argue, are “bound to provide for a more dynamic agricultural sector.
• Although contract farming must first and foremost be considered as a commercial proposition,
it has also come to be viewed as an effective approach to help solve many of the market
access and input supply problems faced by small farmers. That’s help in development of
agriculture sector
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Cons
• Common problems include farmers selling to a buyer other than the one with whom they
hold a contract or using inputs supplied by the company for purposes other than intended.
From the other side, a company sometimes fails to buy products at the agreed prices or in
the agreed quantities, or arbitrarily downgrades produce quality.
• Lack of legal framework is thus crucial for the successful implementation and long-term
sustainability of contract farming operations.
• A system of law is essential to assist farmers and their buyers in the negotiation and drafting
of contracts. It is also important to protect them from risks that may occur during contractual
execution, such as abuse of power by the stronger bargaining party or breach of contract.
• Strengthening farmer organizations to improve their contract negotiating skills can redress
the potential for subsequent misunderstandings
• Even apparently successful contracts from a legal point of view can face other difficulties.
For example, family relationships can be threatened. Work for contracts is often done by
women but the contracts are invariably in the name of the man who also receives the
payment
So, considering the pros and cons of Contract farming and land leasing, it is clear that they have
potential to transform agricultural sector into a major driver of Indian economy.
Hence, to overcome these limitations the Government should play the role of a facilitator and not
that of a regulator in developing and promoting a healthy system of farmer-corporate relationship
for mutual benefit. This will help in development of agriculture sector in India.
Supplementary Notes
Limitations of contract farming
• Contracting agreements are often verbal or informal in nature, and even written contracts
often do not provide the legal protection in India that may be observed other countries.
• When growing new crops, farmers face the risks of both market failure and production
problems
• Farmers investing in crops with a long growing period receive no income until the crops bear
fruit. For most small farmers such investments are impossible without funding from a
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company, the government or a development bank.
• Even if such funding is available it is unlikely to come as a gift and thus farmers become
more indebted than they would if following traditional farming practices, even though in the
long run they may be much better off.
• Farmers tied to a contract are unable to benefit from high prices on the open market.
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• Most of the crops grown under contract arrangements are cash crops which give more
income to farmers but at the same time due to this profit motive food crops are being
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neglected.
• The seeds of generally modified crops to tackle pests, diseases and to get maximum output
are sold by the MNCs. The seeds once used cannot be regenerated as is the case of BT cotton.
• There are no standard legal procedures in resolving the disputes arising under contract
agreements.
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• It leads to greater casualisation of labour as well as the greater use of female and child
labour.
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Section - C
16. It is said that the burden of welfare programmes on the public exchequer may be
huge, their impact on households is relatively limited. Critically analyze the impact
of welfare programmes on reduction of poverty in India and suggest how poverty
can be effectively addressed through these schemes.
Approach
1. In introduction highlight the proportion of beneficiaries of few schemes and their impact
(60 words)
2. Explain why the impact is limited (Reasons) (70 words)
3. What are the possible steps that needs to be taken to increase the number of beneficiaries
(80 words)

Hints:
According to India Human Development Survey (IHDS), between 2004-05 and 2011-12
• The proportion of households receiving any of the benefits under different government
schemes, such as old age pension, widow pension, and the Janani Suraksha Yojana, grew
from 13 percent to 33 percent
• The proportion of households buying cereals from the Public Distribution System (PDS), which
was intended to provide subsidised food grains to the poor, grew from 27 to 52 per cent.
Impact
The transfers and subsidies under the above schemes averaged of Rs. 3,129 per recipient household
per year, which had increased to Rs. 6,017 in constant terms in the said period. This amounts to
only about Rs.100 per person per month.
Thus, while the burden of these programmes on the public exchequer may be huge, their impact on
households is relatively limited.
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The possible reasons for such a limited impact are:
• Today, the number of welfare schemes has proliferated beyond belief. 131 schemes were in
operation in one of the study districts. However, most of the supposed beneficiaries had
never heard of these schemes. The more the number of schemes, the greater is the likelihood
of leakage and inefficiency.
•
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Tendency to initiate schemes without setting aside enough funds to successfully implement
them, thereby almost willing them to failure.
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• Despite the massive expansion in the coverage of welfare programmes, the incomes and
subsidies accruing from them still account for a relatively small proportion of the overall
household budget.
• Poverty is dynamic in nature, and conventional definition of poverty cannot identify new
poor and exclude non-poor. This leads to mistargeted benefits.
• we want to cover the maximum number of people, consequently diluting the support that
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can be provided to the poor in the schemes for e.g. Janani Suraksha Yojana, or scholarships
and other benefits, grew from 13 per cent in 2004-05 to 33 per cent in 2011-12. , the
proportion of households covered by all these schemes taken together grew from 35 per cent
to 68 per cent of the total population over the period.
• Unintended consequences are not accounted. For e.g. Rashtriya Swasthya Bima Yojana
(RSBY) covers hospital costs but not outpatient services. Consequently, many patients delay
treatment until the severity of their medical conditions forces them into hospitalization,
which, in turn adversely affects their health and increases public expenditure.
So, there is need to find another way of providing social safety nets that would circumvent these
problems while genuinely taking care of the people’s needs.
Fundamentally restructuring social safety nets necessitates meeting three key challenges:
• Identifying those in need of assistance in the context of rapid economic changes;
• Efficiently delivering this assistance to prevent unintended consequences which may pervert
the very purpose of social safety nets;
• Ensuring that this assistance is meaningful rather than simply tantamount to applying a
bandage to a cancer.
Remedy:
It can be of great help if we divide social safety net policies into three categories:
• Provision of back-up manual work at below market wages to those who are able to work.
High wages may encourage people to work for MGNREGA instead of resorting to other
forms of employment. Since this is not a desirable outcome, the wages offered must be below
market wages.
• Provision of insurance against catastrophic events such as health-care emergencies or crop
failure that push people into poverty.
• Provision of cash support, say in the form of old age pension, to people who are no longer
able to work.
Conclusion:
Concept of poverty today is fundamentally different from that of poverty three decades ago, and
that safety nets need to be tailored to meet the needs of a society in transition.
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Supplementary Notes
PROGRAMMES FOR POVERTY ALLEVIATION
Salient features of various employment generation of poverty alleviation programme are given
below:
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1. MGNREGA: This flagship programme of the Government of India aims at enhancing livelihood
security of households in rural areas of the country by providing at least 100 days of
guaranteed wage employment in a financial year to every household whose adult members
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volunteer to do unskilled manual work. It also mandates 1/3rd participation for women.
The primary objective of the scheme is to augment wage employment. This is to be done,
while also focusing on strengthening natural resource management through works that
address causes of chronic poverty like drought, deforestation, soil erosion and thus encourage
sustainable development.
2. Deendayal Upadhyay Antyodaya Yojana (DAY): To reduce poverty and vulnerability of
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the urban poor households by enabling them to access gainful self-employment and skilled
wage employment opportunities, resulting in an appreciable improvement in their livelihoods
on a sustainable basis, through building strong grassroots level institutions of the poor. The
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mission would aim at providing shelters equipped with essential services to the urban homeless
in a phased manner. In addition, the mission would also address livelihood concerns of the
urban street vendors by facilitating access to suitable spaces, Institutional credit, social security
and skills to the urban street vendors for accessing emerging market opportunities.
3. National Health Mission: The National Health Mission (NHM) with its two Sub-Missions,
namely the National Urban Health Mission (NUHM) and National Rural Health Mission
(NRHM) covering both the rural and urban areas came into effect with Cabinet approval of
1st May,2013.
The main programmatic components of NHM include Health System Strengthening in both
rural and urban areas, Reproductive-Maternal- Neonatal-Child and Adolescent Health
(RMNCH+A) interventions, and control of Communicable and Non-Communicable Diseases.
4. Pradhan Mantri Suraksha Bima Yojna: Pradhan Mantri Suraksha Bima Yojana is available
to people between 18 and 70 years of age with bank accounts. It has an annual premium
of Rs. 12 (18¢ US) excluding service tax, which is about 14% of the premium. The amount
will be automatically debited from the account. In case of accidental death or full disability,
the payment to the nominee will be Rs.2 lakh (US$3,000) and in case of partial Permanent
disability Rs.1 lakh (US$1,500). Full disability has been defined as loss of use in eyes, hands
or feet. Partial Permanent disability has been defined as loss of use in one eye, hand or foot.
This scheme will be linked to the bank accounts opened under the Pradhan Mantri Jan Dhan
Yojana scheme. Most of these account had zero balance initially. The government aims to
reduce the number of such zero balance accounts by using this and related schemes
5. Atal Pension Yojana: Under the Atal Pension Yojna Scheme (APY), the subscribers, under
the age of 40, would receive the fixed monthly pension of Rs. 1000 to Rs. 5000 at the age
of 60 years, depending on their contributions. To make the the pension scheme more attractive,
government would co-contribute 50% of a subscriber’s contribution or Rs. 1,000 per annum,
whichever is lower to each eligible subscriber account for a period of 5 years from 2015-16
to 2019-20. The benefit of government’s co-contribution can be availed by those who subscribe
to the scheme before December 31, 2015.
6. Pradhan Mantri Jeevan Jyoti Bima Yojana: Pradhan Mantri Jeevan Jyoti Bima Yojana is
low cost life insurance policy provided by government of India. Maximum sum offered
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under this scheme is Rs. 2 Lakh Premium payable for this insurance scheme is Rs. 330 per
year or less than 1 rupee per day.
It is Available to people in the age group of 18 to 50 and having a bank account. People who
join the scheme before completing 50 years can, however, continue to have the risk of life
cover up to the age of 55 years subject to payment of premium.
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7. Pradhan Matri Awaas Yojana: The Mission will be implemented during 2015-2022 and will
provide central assistance to Urban Local Bodies (ULBs) and other implementing agencies
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through States/UTs for:
• In-situ Rehabilitation of existing slum dwellers using land as a resource through private
participation
• Credit Linked Subsidy
• Affordable Housing in Partnership
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• Subsidy for Beneficiary-led individual house construction/enhancement.

Credit linked subsidy component will be implemented as a Central Sector Scheme while other three
components will be implemented as Centrally Sponsored Scheme (CSS).
17. What are the features of draft APMC Act, 2016? Will provisions of this draft act
solve marketing issues faced by India's agriculture sector? Discuss critically.
Approach
1. Briefly introduce need of marketing reform (50 words)
2. Salient features of APMC act and how it addresses marketing challenges (80 words)
3. Limitations in model act (80 words)
Hints:
India is an agrarian economy with 70% of its population dependent on agriculture. Over the years
we have improved our agricultural production which has been a boon. But finding a market for the
marketed surplus and getting fair prices have always been a major challenge. Due to the monopoly
of APMCs, farmers do not have a choice to sell their farm produce to multiple buyers. The draft
APMC act 2016 will provide several marketing channels to sell agricultural produce. The model act
aims to liberalize trade in farm produce and aid better price realization for farmers.
Features of draft APMC Act, 2016:
1. The act proposes to curb the role of APMC mandis.
2. The law on agricultural marketing would introduce features like single market within a
state, private wholesale markets, direct sale by farmers.
3. Traders would be able to transact in all markets within a state by paying a single fee.
4. As agricultural marketing is a state subject and is governed by their respective Agricultural
Produce Market Committee (APMC) Acts, the states are free to adopt the portion or the
entire model act.
5. The state governments as per the draft law are required to appoint an independent entity
‘director of agricultural marketing’ who would function as a sole authority to grant the
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license for the establishment of a new market yard in the state concerned.
6. Full democratisation of Market Committee and State/UT Agricultural Marketing Board.
7. Promotion of direct interface between farmers and processors/exporters/bulk buyers/end
users so as to reduce the price spread bringing advantage to both the producers and the
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consumers
To meet the marketing sector challenges, the Agriculture Ministry has formulated APMC Act 2017
and it is being shared with the States for implementation. The new proposed model will address the
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following issues:
1. The main purpose of the act is to limit the role of APMC mandis in India. Due to the
monopoly of APMCs, farmers do not have a choice to sell their farm produce to multiple
buyers.
2. The act will provide several marketing channels to sell agricultural produce.
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3. The act aims to liberalize trade in farm produce and aid better price realization for farmers.
Limitations
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1. It only makes an integrated market for agriculture crops within a state only. Providing a
single national market can be a more holistic approach as it may provide large and competitive
markets to farmers.
2. The second limited reform proposed in the draft is the removal of fruits and vegetables from
the purview of mandatory trading in APMC market yards. A complementary set of supporting
policies including making available land for setting up new produce markets and incentives
for investment is essential. None of the states that have officially delisted fruits and vegetables
from their APMC Acts have undertaken these follow-up measures.
3. The rules specifying the new practices, including who is eligible to buy from farmers, are still
to be notified.
4. There is a need to do away with the provisons of the Essential Commodities ACT(ECA).
With stockholding limits back and the ECA’s harsh provisions there are restraints on the
private sector in direct procurement, warehousing, marketing and exporting of produce sold
by farmers.
The draft APMC act 2016 is a right step towards marketing reform. There is a serious need to
address limitations. Without addressing the entire marketing ecosystem, the new draft APMC law,
with all its good intentions, could not follow the desired path.
Supplementary Notes
National Agriculture Market (NAM)
• The motivation for a unified market platform can be traced to the Rashtriya e-Market
Services (ReMS), an initiative of Karnataka State Agricultural Marketing Board with National
e-Markets Limited (NeML), erstwhile National Commodity and Derivatives Exchange
(NCDEX) Spot Exchange.
• NAM, announced in Union Budget 2014-15, is a pan-India electronic trading portal which
seeks to connect existing APMCs and other market yards to create a unified national market
for agricultural commodities. NAM is a “virtual” market but it has a physical market (mandi)
at the back end NAM creates a unified market through online trading platform both, at State
and National level and promotes uniformity.
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• The NAM Portal provides a single window service for all APMC related information and
services. While the material flow of agriculture produce continues to happen through mandis,
an online market reduces transaction costs and information asymmetry.
In current days of mass production and marketing which is being replaced by customer-based or
market-driven strategies, an effective marketing extension service is the need of the hour. This has
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added significance in the light of post-WTO scenario. If the Indian farmers have to withstand the
possible onslaught of international competitors, both in domestic as well as overseas markets,
agricultural marketing services have to be strengthened.
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18. Elaborate the importance of shipping sector for the industry. What are the specific
problems with Indian shipping sector and ports? Analyze, how Sagarmala project
can help address these issues.
Approach
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1. Introduce shipping sector of India (70 words)

2. Discuss problems with ports and shipping (70 words)
3. Elaborate on how Sagarmala project can be helpful (70 words)
4. Way forward (40 words)
Hints:
The Indian ports and shipping industry plays a vital role in sustaining growth in the country’s
trade and commerce. India is the sixteenth largest maritime country in the world, with a coastline
of about 7,517 km.
Importance of shipping sector:
• According to the Ministry of Shipping, around 95 per cent of India’s trading by volume and
70 per cent by value is done through maritime transport.
• Using coastal shipping and inland waterways would be 60 to 80 percent cheaper than road
or rail transport.
• If coastal shipping is used to complement road and rail transport in India, it could therefore
lead to significant logistics cost savings.
• The Indian shipping Industry plays a crucial role in Indian economy as 90% of the Nations
trade by volume is done via sea. India has been the largest merchant shipping fleet among
the developing nations.
• The Indian Shipping Industry supports transportation of national and international cargoes
and also provides various other facilities such as ship building, ship repairing, lighthouse
facilities, freight forwarding, etc.
• Without shipping the import and export of goods on the scale necessary for the modern
world would not be possible.
Specific problems with India’s shipping sector and ports:
• Despite its long coastline, India’s coasts only contribute to 15 percent of national trade
activity.
• Port congestion, custom clearance, shipping line issues and charges, documentation and
paperwork and regulatory clearances are some of the major hurdles leading to detention
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and demurrage challenges faced by traders in.
• High turn-around time, low draft and siltation and other geographic hindrances.
• Governance issues: Major ports are managed by Central government while minor ports by
state governmentt. So there is skewed distribution of traffic, lack of coordination in port
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traffic management and non-uniform tariff resulting in suboptimal utilization of port
infrastructure.
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• Congestion at the approach roads is a common problem observed at quite a few Indian port
like the Jawaharlal Nehru Port in Maharashtra.
• The major issue faced at the port, however, is its tariff structure. The tariff determined for
the port by the Tariff Authority for Major Ports (TAMP) was reported to be almost three
times that of other major ports, which renders the port uncompetitive.
• Indian shipping industry subjected to 12 type of taxes. Tax per ton of cargo, is very high.
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• Large vessels cannot enter in Indian ports. They dock at Sri Lanka, and send cargo via
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smaller vessels.
• Port trust cannot regulate their own tariff, Ports in India need third party neutral regulator.
• Problems of land acquisition and environmental clearances while setting up new ports.
Sagarmala project:
• Through this initiative, the Ministry of Shipping (MoS) aims to further utilise India’s vast
coastline and potentially navigable inland waterways to boost trade, spur industrial growth
in coastal regions and develop coastal communities
• The key objective of Sagarmala project develop port infrastructure in India that results in
quick, efficient and cost-effective transport to and from and cost-effective transport to and
from ports.
• It also includes establishment of rail / road linkages with the port terminals, thus providing
last mile connectivity to ports; development of linkages with new regions, enhanced multi-
modal connectivity including rail, inland water, coastal and road services.
How it will help with issues regarding ports and shipping in India:
• While logistics costs in India currently stand at 19% of GDP, the Sagarmala Programme
aims at unleashing the potential of Indian ports to reduce costs and hence boost the
country’s trade competitiveness.
– Increases competitiveness of the core industry and manufacturing with savings in input
cost for power and steel by up to 5%
– Increases volume of inland water ways and coastal shipping by 50 MTPA
• Creates world class port institutions:-
– World class PPP program in port, waterways and connectivity projects that will attract
the nest domestic and international investors
– Maritime services cluster example for ship building
• Integrating the coastal economy with the ports through development of coastal economic
regions and projects with synergies of coastal industrial corridors.
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• Development of port based smart cities and other urban infrastructure to improve standards
of living.
• Modernisation or capacity expansion of existing ports and creation of greenfield ports to
reduce bottlenecks for future growth.
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• Development of maritime sector leading to new economic activity in the region
• Easing of policy and institutional bottlenecks for obtaining project approvals , accessing
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project funding and implementation partners ,project implementation and monitoring.
• Under this port-led development framework government hopes to increase its cargo traffic
three-fold in next 5 years.
• It will benefit around 14 per cent of country’s overall population from at least 13 States
and Union Territories. If inland waterways programme is included in it will benefit at least
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55 per cent of all population.

• India’s strategic location along international trade routes, high-speed supply chains and
improved port capacity will be used to boost port-led development in the country.
• A study done in September 2016 estimates that the resultant cost savings could range from
US$5.2 billion (Rs 35,000 crore) to US$5.9 billion (40,000) crore per year by 2025.
• It includes the efficient connection of major industrial areas within the nation, to the ports
through road, rail and inland waterways network, so as to stimulate growth of the coastal
areas. This will also provide alternative employment opportunities to people who were
traditionally fishermen.
Suggestions:
• India needs to revamp institutional and regulatory environment around ports.
• Corporatisation of ports is one way of achieving efficient and world class ports by the
conversion of major port trusts into truly commercial organisations.
• In terms of infrastructure, it is important to maintain draft to serve bigger vessels, ensure
mechanisation of ports through introduction of new equipment and procedures, build
new facilities, upgrade existing facilities and automate systems/procedures
• In terms of policy and regulatory reforms, it is important to streamline tariff determination

by TAMP along with a provision for periodic revisions
• Ensure transparent and effective contractual arrangements in PPPs
• Implement strengthened communication platforms for seamless information flow among
stakeholders
• Strengthen system integration, ensure paperless clearance of procedures and transactions,
develop user information portals, and so on
• Apart from reviving the ports currently operational, these measures, if duly incorporated,
promise to sufficiently bolster prospective ventures as the country moves towards an optimistic
maritime trade regime.
Supplementary Notes
Sagarmala programme:
• The government has planned six megaports under the project, namely the Vizhinjam
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International Seaport (Kerala state), Colachel Seaport (Tamil Nadu), Vadhavan Port
(Maharashtra), Tadadi Port (Karnataka), Machilipatnam Port (Andhra Pradesh), and Sagar
Island Port (West Bengal).
• Spearheaded by the Sagarmala Development Company (SDC), 415 projects have been identified
across India for port modernisation and new port development, port connectivity
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enhancement, port-linked industrialisation and coastal community development under the
Sagarmala Initiative.
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• The projects are to be implemented in phases at a projected cost of USD 123 Billion over 10
years, from 2015 to 2025.
• The Sagarmala Project Stands on Three Pillars of Focus
– Supporting port-led development with pro-active policy initiatives and providing
institutional framework to assist all stakeholders.
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– Modernising port infrastructure.

– Developing integrated transport infrastructure for connecting the coast to the hinterland.
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19. What do you understand by organic farming? Is organic farming good for the
environment? Why is it said that the future lies in organic farming? Also,
enumerate the steps taken by the government to promote organic farming.
Approach
1. Introduce Organic Farming (50 words)
2. How it is useful for Environment (50 words)
3. Elaborate on future challenges (70 words)
4. Discuss steps taken by the Government (60 words)
Hints:
Organic farming is a system which avoids the use of synthetic inputs (such as fertilizers, pesticides,
hormones, feed additives etc. It relies upon crop rotations, crop residues, animal manures, off-farm
organic waste, and biological system of nutrient mobilization and plant protection. It strives for
sustainability, the enhancement of soil fertility and biological diversity.
FAO suggested that Organic agriculture enhances agro-ecosystem health, including biodiversity,
biological cycles and soil biological activity. With merely 0.4 per cent of total agricultural land
under organic cultivation, the industry has a long journey ahead.
Organic Farming and Environment:
It aims to produce food while establishing an ecological balance to prevent soil fertility or pest
problems. Organic farming has some important environmental benefits such as :
1. Soil: Soil building practices such as crop rotations, inter-cropping, symbiotic associations,
cover crops, organic fertilizers and minimum tillage encourage soil fauna and flor improving
soil formation and structure and creating more stable systems.
2. Water: As the use of pesticides is prohibited in organic agriculture, well managed organic
systems with better nutrient retentive abilities greatly reduce the risk of groundwater pollution.
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3. Climate Change: Organic agriculture contributes to mitigating the greenhouse effect and
global warming through its ability to sequester carbon in the soil.
4. Organic farming conserves biological diversity.
5. Ecological services: It provides services such as soil forming and conditioning, soil stabilization,
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waste recycling, carbon sequestration, nutrients cycling etc.
For any civilization to prosper, agriculture has to be healthy and sustainable. In the era of global
warming, organic farming is the need of hour for sustainable agriculture. Its future looks bright due
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to many reasons:
• With increasing affluence in the society, people are becoming more health conscious and
preferring food products from organic farming over conventional farming.
• It minimizes farmer suicides by reducing their dependence on farming inputs such as fertilizers
and pesticides.
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• It helps combat climate change by cutting down greenhouse gas emissions.

• Increasing yields in low-input areas.
• It helps to conserve bio-diversity and nature resources on the farm and in the surrounding
area.
Challenges
• Due to relatively small volumes, the costs of organic food products are relatively high.
• The cost of cultivation increases as it takes more time and energy to produce than its
chemical intensive counterpart.
• High demand and low supply has further created an inflationary pressure on organic food
products.
The Central government has taken various initiatives to promote organic farming.
• National Project on Organic Farming is a continuing central sector scheme since 10th Five
Year Plan and National Organic Farming Research Institute has been established in Sikkim
to promote research and education.
• Further, Paramparagat Krishi Vikas Yojna and Organic Value Added Development (in
North-East regions) schemes were launched under National Sustained Agriculture Mission
to promote organic farming.
• The Ministry of Agriculture and Farmers Welfare launched Pandit Deen Dayal Upadhyay
Unnat Krihsi Khiksha Yojna to impart knowledge about natural and organic sustainable
farming to the youth.
• Despite these measures, there is a need for further integrated efforts by the government and
farmers to reap the benefits of organic farming.
Evergreen Revolution: Swaminathan coined the term ‘’Evergreen Revolution” to highlight the
pathway of increasing production and productivity in a manner such that short and long term
goals of food production are not mutually antagonistic. He held that organic agriculture could help
nation move from green revolution to ever-green revolution. Integrating ecology and technology is
the way forward towards an evergreen revolution.
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Conclusion
Organic agriculture is the best insurance policy that India can have with better performance on
productivity, environmental impact, economic viability and social wellbeing. Focusing only on higher
yields at the expense of other sustainability pillars (economics, environment and society) is not the
food production system that India needs. What India needs is an integrated system that gives equal
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importance to all sustainability dimensions across the value chain and thus helps establish a healthy
and well-fed society.
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Supplementary Notes
National Food Security Mission (NFSM): to increase the production of rice, wheat and pulses.
The mission is being continued during 12th plan with new target of additional production of 25
million tonnes of foodgrains comprising 10 million tonnes of rice, 8 million tonnes of wheat and 4
million tonnes of pulses and 3 million tonnes of coarse cereals.
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Mera Gaon, Mera Gaurav

• This scheme is being launched involving agricultural experts of agricultural universities and
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ICAR institutes for effective and deeper reach of scientific farming to the villages.
• A group of experts will be associated with one particular village to create awareness and
adoption of new technologies including farm investment, loans, availability of inputs and
marketing.
• All the scientists from ICAR and agricultural universities will participate in this initiative.
Paramparagat Krishi Vikas Yojna (PKVY)

• Aim of the project is to maximize the utilization of natural resources through eco-friendly
cultivation.
• Organic farming is a method of farming system which primarily aimed at cultivating the
land and raising crops in such a way, as to keep the soil alive and in good health by use
of organic wastes (crop, animal and farm wastes, aquatic wastes) and other biological
materials along with beneficial microbes (bio-fertilizers) to release nutrients to crops for
increased sustainable production in an ecofriendly pollution free environment.
20. Though the fertilizer subsidy is the second highest after food subsidy but only one-
third of it reaches the small farmers. What are the issues with the present model of
fertilizer subsidy? Suggest some of the reforms needed to address the issue.
Approach
1. Introduce the role of fertilizer in agriculture (50 words)
2. Highlight the issue of present day model of fertilizer subsidy (80 words)
3. Suggest some of the reforms (80 words)
Hints:
Fertiliser subsidies account for about 0.8 per cent of GDP. It is estimated that of this only 35 percent
reaches small farmers. In many ways, urea dominates the sector, which is highly regulated. It
accounts for nearly 70 per cent of total fertilisers subsidy. It is most produced (86 per cent), the most
consumed (74 per cent share), and the most imported (52 per cent).
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Issues with the present model of subsidy:
• Black Market: High regulation of urea creates a black market that burdens small farmers
disproportionately. It hurts small and marginal farmers’ more than large farmers since a
higher percentage of them are forced to buy urea from the black market.
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• Canalisation: Only three firms are allowed to import urea into India, and the canalisers are
also instructed when to import, what quantities to import, and in which districts to sell their
goods resulting in aggravated black market effect.
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• Incentivise production inefficiency: The objective of self-sufficiency has meant a preference

for survival and an associated willingness to countenance inefficiency. This has led to a
model where the subsidy a firm receives is based on its cost of production: the greater the
cost, the larger the subsidy. As a consequence, inefficient firms with high production costs
survive and the incentive to lower costs is blunted.
• Diversion: Only agricultural urea is subsidized. This administered dual pricing mechanism
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creates incentives to divert subsidised urea to industry and across the border. Overuse:
Under-pricing of urea encourages overuse, which has resulted in significant environmental
externalities, including depleted soil quality and impacting human health. It is recommended
that N, P and K—should be used roughly in the ratio of 4:2:1. Most states use almost twice
more nitrogen as compared to phosphorous.
• Multiple distortions: like price and movement controls, manufacturer subsidies, and import
restrictions that feed upon each other, making it difficult to reallocate resources within the
sector to more efficient uses.
Reforms needed:
• Decanalising urea imports: It would increase the number of importers and allow greater
freedom in import decision. It would allow fertiliser supply to respond flexibly and quickly
to changes in demand. This would reduce the likelihood and severity of shortages, decrease
black marketing and thereby benefit the small farmer.
• Turning fertilizer into JAM: The case for implementing direct transfers in fertilisers is to
reduce leakages to the black market, remove ghost beneficiaries, increase efficiency and
transition from producer subsidy to consumer subsidy regime. Recently, encouraged by the
success of a pilot project in 17 districts of the country, the Centre has decided to roll it out
nationwide.
Additionally, some other steps can also be undertaken like policy of neem-coating urea that makes
it more difficult for black marketers to divert urea to industrial consumers.
Reform of the fertiliser sector would not only help farmers and improve efficiency in the sector.
Further, rationalising subsidies to domestic firms would release fiscal funds to spend more effectively
on schemes that help poor farmers, such as drip irrigation and connectivity through the Pradhan
Mantri Gram Sadak Yojana.
Supplementary Notes
Soil Health Card
• Soil Health cards are necessary to ensure that only requisite nutrients are applied in the soil
in a balanced manner to enhance productivity of specific crops in a sustainable manner.
• Values on soil parameters such as pH, EC, N, P, K, S, Zn, Fe, Mn, Cu & B.
• Recommendation on appropriate dosage of fertilizer application based on test values and
requirement of crop, use of organic manures and soil amendments to acidic/alkaline/sodic
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soils.
Direct Benefit Transfer (DBT) For Fertilizer Sector:
• Government also announced to introduce Direct Benefit Transfer of fertilizer subsidy to
farmers on pilot basis in few districts of the country.
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• The government has fixed the Maximum Retail Price (MRP) of Urea at Rs. 5,360 per tones.
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GS MAINS Q&A TEST SERIES 2019

ECONOMIC SECT ORS: AGRICUL

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[ 2 ] Economic Sectors: Agriculture, Industry and Services

GS Mains Q&A T est Series 2019

Why APA was introduced?

a. Roads and bridges, railways, seaports, airports, inland waterways;

Investment and Manufacturing Zones;

The Cabinet Committee on Infrastructure:

2. What are its objectives? (30 words)

20,000 crore expected to come from private investors.

and brownfield, including stalled projects.

4. Examine the changes in composition of India's exports and imports since

3. Elaborate on concerns with the process (70 words)

– Ignorance of potential markets. Unfamiliarity with export activities-procedures and

– Zero Effect (focus on society)

state banks) represents a cost to the economy.

resources can have significant costs.

medium term growth.

skill work in USA which accounts for 62% of IT export.

Special package for textile and apparels sector:

– India’s textiles sector is one of the oldest industries in Indian economy.

Compatibility of Changed duty structure with WTO norms:

1. Briefly introduce missing medium scale industries in India. (40 words)

Start Up India Scheme

c) It is working towards innovation, development, deployment, and commercialization of new

1. Define upstream and downstream in food processing industry. (50 words)

• Food processing industry also requires good quality testing facilities.

• Results in creation of rural infrastructure

• Easy access to raw materials

• Getting statutory clearances related to power, environment, labour etc.

• Institutional support with reference to credit facilities

• Enabling Assistance for domestic marketing and exports

[28] Economic Sectors: Agriculture, Industry and Services

• Subsidy for Beneficiary-led individual house construction/enhancement.

1. Introduce shipping sector of India (70 words)

55 per cent of all population.

• In terms of policy and regulatory reforms, it is important to streamline tariff determination

– Modernising port infrastructure.

• It helps combat climate change by cutting down greenhouse gas emissions.

Mera Gaon, Mera Gaurav

Paramparagat Krishi Vikas Yojna (PKVY)

• Incentivise production inefficiency: The objective of self-sufficiency has meant a preference

[40] Economic Sectors: Agriculture, Industry and Services

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