Answers: Mains Marathon – UPSC Mains Current Affairs Questions – September 12, 2018

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Q.1)  Loan waiver is not the permanent solution for agricultural problems. Discuss

Answer:  Not a permanent solution:

1. A recent research shows that waivers are extremely expensive while having a limited impact and other policies could help many more farmers for every rupee spent.
2. Only 15% of the marginal farmers have access to formal credit, and loan waiver schemes cater to farmers who have availed of formal loans.
3. Previous waivers have led to banks reducing credit outlay for small farmers during their next loan cycle and reducing chances of getting formal loans.
4. Loan harm the small farmers because of less credit outlay from the formal sector, the small farmers increasingly have to depend upon the informal sector.
5. Studies also point out small farmers use money saved from loan waiver for consumption activities and not to augment investment to increase agricultural productivity.

Other solutions:

1. Government can spend money for building more canals and warehouses, on rural electrification, and to operate more e-markets.
2. Credit disbursal to small and marginal farmers can be made more systematic.
3. Rationalising subsidies on various inputs can leave governments to work on loan waivers.
4. Proactive land distribution reforms and low external input sustainable agriculture (LEISA) based on ecologically sound principles and options.

Q.2)  A major chunk of the state revenue generated is obtained from oil tax. Discuss the viability of shoring up the state’s finances from such tax and arguments for the same. Also analyse the impact of GST  on petroleum products if they are bought under the new regime.

Answer: Duties on fuel have been a big source of revenue for both the Centre and States and help to fund expenditure.

Viability of taxing oil:

1. It is unviable to increase the taxes in the long term because it inflates the economy.
2. It also hurts the rich and poor equally, thus reducing the justice in taxation.
3. As the taxes are not proportionately reduced along with international crude prices, it is often a politically sensitive issue.
4. This also led to variable prices across states, thus affecting their business.

Arguments for the tax:

1. Reduces oil consumption and thus arrests imports.
2. Guides people to environment friendly alternatives like public transport.

Impact of GST on petroleum products:

The petroleum products are “constitutionally included” under GST but when petrol, diesel can be brought under the regime is yet to be decided.

1. It might reduce the prices of fuels due to rationalisation of multiple taxes across state and central governments.
2. If petroleum products are brought under the purview of GST then the prices of petrol as well as diesel would be the same all over India due to One Nation – One Tax.

Q.3) Amid declining private Investment in highway projects, the Government’s introduction of “Hybrid Annuity Model (HAM)” has triggered new investment informs”. Analyse highlighting the advantage of HAM model over previous adopted model of investment.

Answer: HAM is a hybrid model, a mix of EPC (engineering, procurement and construction) and BOT (build, operate, transfer) models. HAM combines EPC (40%) and BOT-Annuity (60%). On behalf of the government, NHAI releases 40% of the total project cost.

Benefits over other models of investment

1. This model gives a lot of flexibility for a bidder.
2. It will also see new and small companies bidding for highway projects instead of focusing on EPC opportunities.
3. Introduction of the hybrid annuity model is expected to result in speedy completion of projects.
4. For private participants, it allows them to focus on execution of the projects wherein they will be hedged against inflation risk associated with increasing cost of raw materials.
5. While the private partner continues to bear the construction and maintenance risks as in BOT toll projects, it is required only to partly bear financing risk.
6. Developer is insulated from revenue or traffic risk and the inflation risk, which are not within its control

Q.4) How BIMSTEC as an organization is different from SAARC? Discuss. Also list down the major outcome of Kathmandu declaration at the 4th BIMSTEC Summit.

Answer: BIMSTEC vs SAARC:

1. SAARC was established with the signing of the SAARC Charter in Dhaka.
2. The objectives of the Association are to promote the welfare of the peoples of South Asia and to improve their quality of life; to accelerate economic growth, social progress and cultural development in the region and to provide all individuals the opportunity to live in dignity and to realize their full potentials; to promote and strengthen collective self-reliance among the countries of south Asia.
3. BIMSTEC is a regional organization comprising seven Member States lying in the littoral and adjacent areas of the Bay of Bengal constituting a contiguous regional unity. This came into being through the Bangkok Declaration.
4. The regional group constitutes a bridge between South and South East Asia and represents a reinforcement of relations among these countries.
5. While BIMSTEC is a bridge between South Asia and Southeast Asia, SAARC is a grouping of South Asian countries only.

Outcomes of Kathmandu declaration:

1. Recognized that eradication of poverty is the greatest regional challenge in realization of development objectives and expressed commitment to work together for the implementation of Agenda 2030 for Sustainable Development.
2. Acknowledged that enhanced inter-linkages and interdependence within the economies and societies in the BIMSTEC Member States provide greater opportunity to advance regional cooperation;
3. Acknowledged that terrorism and transnational organized crimes continue to pose a great threat to international peace and security. They called for sustained efforts and cooperation among Member States.
4. Renewed commitment to expedite Free Trade Area and revitalise activities of Business and Economic Forums.
5. Explored possibility of setting up BIMSTEC development fund with voluntary contributions from member states.
6. MOU on establishment of ‘BIMSTEC Grid interconnection’ to bolster energy cooperation for optimal utilisation of energy resources of members.
7. Decided to draft a charter for BIMSTEC, which has functioned so far on the basis of the Bangkok Declaration of 1997, and outcomes of the past three summits and the Leaders’ Retreat in 2016.
8. A Permanent Working Committee will be set up to provide direction during the period between two summits and also to prepare the Rules of Procedure.
9. Secretariat has been promised additional financial and human resources and enhancement of its role to coordinate, monitor and facilitate the grouping activities.
10. BIMSTEC governments will make an endeavour to review, restructure and rationalise various sectors, identifying a few core areas.