Answers: Mains Marathon – UPSC Mains Current Affairs Questions – August 6, 2018

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Q.1 What are cryptocurrencies? Do you think that cryptocurrencies should be banned? (GS-3)

Introduction

• Recently the government is considering the introduction of a regulatory regime for virtual or crypto currencies, such as Bitcoin, that would enable the levy of the Goods and Services Tax on their sale. In the light of this the discussion whether to ban cryptocurrencies has come to light.

Crypto currencies:-

• It is a digital currency which allows transacting parties to remain anonymous while confirming that the transaction is a valid one. It is not owned or controlled by any institution – governments or private.
• There are multiple such currencies bitcoin, ethereum, ripple are some of the popular ones.
• Currently, they are neither illegal nor legal in India.

Yes,they need to be banned :-

• Government is wary that regulation will provide legitimacy to “what is currently ambiguous,” and may lead to further rise in its valuation and end up contributing “to the investment bubble.
• concerns about companies that run MLM and Ponzi schemes in the name of Bitcoin.
• Effective policy to curtail ransomware which has caused havoc in the UK’s National Health Service and elsewhere would be to ban the use of bitcoin and similar “cryptocurrencies”.
• Anonymity and fungibility have always made cash the favoured tool for illegal activities.
• Credit cards, cheques and bank transfers are too easily traceable. Bitcoin moves the criminal’s favoured financial tool online, with disastrous consequences.

No:-

• Regulation is fine
  • It can be traded on registered exchanges in a bid to “promote” a formal tax base, while keeping a tab on their use for illegal activities such as money laundering, terror funding and drug trafficking.
  • The lack of regulation or acknowledgment by Indian authorities has led to the Indian cryptocurrency industry establishing its own self regulatory body and watchdog titled the Digital Asset and Blockchain Foundation of India (DABFI).
• Crypto-currency can also be used for a lot of legal activities such as booking tickets, buying coffee or fast food, depending of which retailers accept such currency
• Banning will give a clear message that all related activities are illegal and will disincetivise those interested in taking speculative risks.
• Banning will impede tax collection on gains made in such activities.
• Any decision that ruled the cryptocurrency to be illegal in India would mean that India’s nascent but growing bitcoin industry will have to shut down.
• International examples:
  • Japan declared Bitcoins as a legal tender in April this year, causing the price of Bitcoins to spike.
  • Australia recently declared that it will accept Bitcoins as legal currency from July 2017 and it will also be exempt from goods and service tax.
  • Russia is planning to adopt Bitcoin as a legal payment method in 2018.
• Decentralised nature of Bitcoin makes it impractical to ban, and this will encourage the use of illegal channels like hawala networks.

What can be done?

• Regulating the currency instead would signal a boost to blockchain technology, encourage the development of a supervision ecosystem (that tracks legal activities and may also assist in tracking illegal activities) and promote a formal tax base.

Q.2 “Emotional intelligence is your ability to recognize and understand emotions in yourself and others, and your ability to use this awareness to manage your behavior and relationships.: Analyze. (GS4)

Emotional intelligence:- Four main skills of emotional intelligence are:-

• Self-awareness– our ability to perceive our emotions and understand our tendencies to act in certain ways in given situations
• Social awareness– our ability to understand the emotions of other people, what they are thinking and feeling
• Self-management– our ability to use awareness of our emotions to stay flexible and direct our behavior positively and constructively
• Relationship management– our ability to use our awareness of our own emotions and those of others to manage interactions successfully

Importance of emotional intelligence:

1.At work place:

• An employee with low emotional intelligence can negatively impact a workplace and their team members leading to poor morale.
  • Examples of low emotionally intelligent behaviour includes; not being able to take critical feedback, laying blame on other staff, passive-aggressive comments.
• In management, those with low emotional intelligence exhibit the same traits, but can also be leaders who do not listen to the recommendations of the staff that they manage and become out of touch with those that they lead.
• Self-Awareness, Self-Regulation and Self-Motivation
  • Employees who possess high levels of emotional intelligence are much more self-aware.
  • In the workplace this translates to an employee who understands their own strengths and their own weaknesses in addition to how their actions could affect their team members.
  • Self-aware employees are also better equipped to handle constructive criticism and learn from their mistakes.
  • An employee with high emotional intelligence can also reveal and control their own emotions to team members
  • Emotionally intelligent people are also self-motivated, but they are not motivated by money or a title alone
• Empathy and Interpersonal Skills
  • An empathetic employee is an employee who has compassion and understands human nature.

Q.3 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)

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.

Q.4 Examine the need for increasing public investment to boost growth in India. Also, discuss the problems associated with public investment in India (GS-3)

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.