Answered: Mains Marathon – UPSC Mains Current Affairs Questions – July 20

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1. Discuss the impact of GST in infrastructure sector. Suggest measures to be taken by the government to boost growth in infrastructure sector in India.(GS 3) Live Mint | Financial Express

Introduction:

• Infrastructure is the backbone of Indian economy with total infrastructure spending is expected to be about 10% of GDP in the twelfth five year plan according to the government.

Impact of GST in infrastructure sector :-

• Positives:
  • Earlier dichotomy would vanish:
    • The cascading effect of Central and state indirect taxes was a concern.With GST this issue would fade away.
  • Valuation of goods and services in works contracts would now be put to rest as works contracts would be regarded as supply of services.
  • GST is expected to bring in predictability for infrastructure projects.
  • Expected to boost the infrastructure sector with the elimination of ´tax on tax’ and the introduction of input tax credit .
  • Works contracts and EPC
    • The major gain from this treatment is that the tax would be now charged on the actual contractual base.
    • Also, local versus inter-state works contracts, that at present leads to innumerable disputes, should get eliminated.
  • GST is expected to impact cement positively. The overall indirect tax incidence is currently estimated to be around 25 per cent.
  • The GST is expected to enable a reduction in logistics cost by as much as 20 per cent to 30 per cent, as firms reconfigure their supply chains on four counts.
  • The roadways are going to get better with GST. The interstate movement of goods will be facilitated properly. It will save the unproductive time wasted in the movement of goods.

• Negatives:
  • For project owners, the new legislation may not lead to a conducive future.
  • Credit restrictions on works contracts resulting in an immovable property coupled with increase in GST rates could increase cost outlay.
  • Exemptions and concessions to infrastructure have been completely withdrawn. This could also lead to increased working capital requirements. Project cost could rise due to increased burden of indirect taxes.
  • Electricity being outside the purview of GST, power generation companies would continue to have indirect taxes as a significant cost factor.
  • Flat GST rate of 18% would lead to increased incidence on infrastructure projects.
  • The cost of construction services will also be impacted due to credit restrictions provided under Section 17(5) of the GST Act.
  • Civil aviation:
    • Aviation is about to get costly. The credit on tax paid by Airlines will not be credited to them now. The jet fuel is also going to burn the pockets of Airlines.

The government has taken many measures to boost infrastructure sector like recently by allocating 3.96 lakh crore to the sector.But more is needed. Measures to be taken by government to boost infrastructure sector:-

• A specific programme for development of multi-modal logistic parks together with multi-modal facilities need to be drawn up and implemented.
• Government should relook at the Minimum Alternate Tax (MAT) scheme to make infrastructure sector more lucrative for private players; a lower MAT rate or an alternative should be considered for mega infrastructure projects.
• Land amendments are crucial for ‘Make in India.
• Implement kelkar committee recommendations which suggested
  • the government to strengthen three key pillars of a PPP framework
  • Also asked for amendments to the prevention of corruption Act
  • setting up of a dedicated institute for PPP’s, proper risk-sharing measures
• The government needs to give a serious thought and revisit the PPP models and re-instate some confidence into the private sector to take interest again.

India needs to develop a better regulatory mechanism, a rational pricing system, reform financial markets and strengthen dispute resolution mechanisms so that the private sector finds infrastructure projects economically feasible.

2. Examine the need for increasing public investment to boost growth in India. Also, discuss the problems associated with public investment in India.(GS 3) The Hindu

Need for public investment :-

• According to Keynesian economics that lowering the rate of interest may not do much for private investment if the expected rate of return is depressed.
  • The slowing of both global trade and domestic manufacturing may have had precisely this effect by lowering the long-term expectations held by private investors. To flag demand India needs public investment
• Exports have been stagnated for more than a year now and private consumption largely is tied to income,so public investment remains the only source of demand growth.
• The Indian economy is much more dependent on the global economy which itself is in turmoil so public investment is the abode.
• Ramping up public investments may be necessary to fill-in for and indeed crowd-in private investment.
• Public investment will be the main driver of growth as the private sector’s ability to leverage balance sheets for infrastructure projects is either already over-extended or has very little headroom.
• Rapidly rising state investment is associated with high economic growth (China and India).
• A policy relying purely on private investment is extremely unlikely to be successful as the experience of the U.S., Japan and EU confirms.
  • International demand has slowed down due to successive crises in the international economy – the 2008 financial crisis, the sovereign debt crisis in Europe, falling crude oil prices, slowdown in the Chinese economy and depressed global commodity prices.So relying on this would adversely affect economy so public investment is needed.
• For setting up industries in backward/tribal areas for better regional development.

Why depending too much on public investment is not good :-

• Strained balance-sheets of companies
  • even if demand picks up it is unclear if companies can undertake further investments
• RBI reluctant to cut repo rates in spite of low inflation rates.

Problems associated with public investment in India :-

• continuing financial problems of Indian banks and of many large corporations.
• One factor holding back investment is that major reforms, especially regarding land acquisition, simply have not happened.
• A third factor creating a drag on investment is the real cost of borrowing.
• Increased fiscal deficit and public debt will dent foreign investors confidence.
• Problem of revival of inflation based on public spending.

The mixed economy character has always been an avowed objective of the government since the first industrial policy of 1948. The future is likely to see the true emergence of the mixed economy character of India as both private and public investment would boost the economy.

3. What do you understand by the following terms: a) Intellectual Integrity:-

• Intellectual integrity is the discipline of striving to be thorough and honest to learn the truth or to reach the best decision possible in a given situation.
• A person with intellectual integrity has a driving desire to follow reasons and evidence courageously wherever they may lead.
• Individuals who strongly manifest intellectual integrity value objectivity, evidence-based decision making, and the courageous, fair-minded, and complete pursuit of the best possible knowledge in any given situations.
• Example :-
  • When accident took place in full public the people lacked the intellectual integrity as they were clicking the pics of the person rather than taking him to the hospital or call an ambulance.

b) Utilitarianism:-

• Utilitarianism is generally held to be the view that the morally right action is the action that produces the most good.
• Example:-When your vehicle lost brakes and in the front there are 5 people on the side there is one person, a utilitarian would argue that saving five people instead of one would achieve the greatest amount of happiness for the greatest amount of people in this situation.

c) Probity:-

• Probity literally means a complete and confirmed integrity; having strong moral principles.
• Example:- If you found that a poor person is in distress and need some financial help and you don’t have enough money to help.
• Helping with how much you can is Ethics or Morality, but arranging money for him by requesting others to also help and taking care of non-financial part will be Probity.

d) Moral Absolutism:– Moral absolutism is an ethical view that particular actions are intrinsically right or wrong.