Mains Marathon

Answered: Mains Marathon – UPSC Mains Current Affairs Questions – May 8

  1. What are Equity exchange-traded funds (ETF)? Discuss the key drivers responsible for rise of equity ETFs recently?(GS 3

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  • Equity exchange-traded funds (ETFs) saw significant growth in the financial year 2016-17 (FY17) with the total assets under management (AUM) increasing three-fold on the back of higher demand from both retail and institutional investors.
  • The total AUM of equity ETFs was pegged at Rs. 43,234 crore as on March 31, 2017

Equity exchange traded funds:-

  • Equity Exchange Traded Funds (ETFs) are simple investment products that combine the flexibility of stock investment and the simplicity of equity mutual funds.
  • ETFs trade on the cash market of the National Stock Exchange, like any other company stock, and can be bought and sold continuously at market prices.
  • Equity ETFs are passive investment instruments that are based on indices and invest in securities in same proportion as the underlying index. Because of its index mirroring property, there is a complete transparency on the holdings of an ETF.
  • A retail investor can buy ETFs for as little as Rs. 100 and then trade on the exchange with a minimum trading lot of one unit and carry significantly lower fund management costs.

Key drivers responsible for rise of equity ETF’s recently:-

  • There is an increasing popularity of ETFs among retail investors, investments by pension funds including Employees’ Provident Fund Organization in equity through the ETF route
  • Further due to its unique structure and creation mechanism, the ETFs have much lower expense ratios as compared to mutual funds.
  • The Government of India is also using the ETF route for disinvestment.
  • Portfolio diversification:-
    • It gives opportunity for diversification of several stocks with single investment unlike other mode where multiple investment is needed.
  • Exposure to many assets as investment can be done in variety of assets like debts,gold,other international indices etc.
  • It can be traded from anywhere throughout from any trading terminal.

  1. Discuss the key recommendations of report of the Fiscal Responsibility and Budget Management (FRBM) review committee chaired by N.K. Singh. (GS 3)

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  • The government appointed N.K.singh committee for reviewing FRBM and the committee has submitted the report recently.

Key recommendations:-

  • The report prescribes a fiscal path over a six-year period of fairly severe fiscal tightening going up to the year 2023.
    • The Centre can take a pause on the fiscal consolidation front over the next three years by maintaining a fiscal deficit to GDP ratio of 3% till 2019-20
    • Reaching a fiscal deficit to GDP ratio of 2.8% in 2020-21, 2.6% the next year and 2.5% in 2022-23
    • Revenue deficit to 0.8 per cent by 2022-23.
    • Debt-to-GDP ratio of 60% by 2023:
  • It has also said the Centre should replace the existing Fiscal Responsibility and Budget Management (FRBM) Act, 2003, with a new law and also set up a Fiscal Council.
  • Adopt fiscal deficit as the key operational target consistent with achieving the medium-term debt ceiling
  • An escape clause has been added and should be used only in specified circumstances, when a deviation of up to 0.5 percentage points from the fiscal deficit target would be permitted.
    • However, Reserve Bank Governor Urjit Patel, who was also a member of the committee, had said that the deviation should be limited to 0.3 percentage points.
  • For any deviations, the Centre would be expected to hold formal consultations with the three-member Fiscal Council that would also make multi-year fiscal forecasts for Central and General governments.
  • The committee has also called for institutional reforms in general government’s fiscal management, including the Centre giving consent to State borrowings under Article 293 of the Constitution and requesting the RBI to issue a consolidated annual prospectus for planned bond and loan issues by each government.
  • The report also includes a draft Fiscal Responsibility and Debt Management Bill, 2017.
  • Debt trajectory for individual states:
    • Recommended that 15th FC should recommend for this based on track record of fiscal prudence.
    • 60% combined debt GDP ratio for centre and state, 40% for centre and 20% for state. It is important as debt stock is high 50% for centre only that undermines credit rating and sustainability.


  • What the report prescribes for the period beyond 2023 a bit unclear, and is one of the issues raised by a key member of the committee, the chief economic adviser (CEA).
    • CEA was against precise revenue deficit targets as it will not give room for fiscal manoeuvring.
  • Another issue correctly flagged by the CEA is that the FD target of 5%, through a back-of-the-envelope calculation first used by the 12th Finance Commission, is based on very uncertain estimates of the household financial savings rate.
  • The report has little to say about the response to UDAY, which was an optional scheme and an important issue, since Uday provides a template for resolving all parastatal debt in ways similar to that attempted for power utilities.
  • Ensuring independence of council
  • Feasibilty, practicality and need of a fixed target vis-a-vis a range of target.
  • The debt target of 40% for the Centre is arrived at through an econometric exercise, unfortunately modelled on a long-discredited 2010 paper.

However the report is a step in right direction to observe fiscal prudence and improve fiscal health by reducing debt and matching the other countries which are following 60% debt targets.

3.To win without risk is to triumph without glory. Do you agree? (GS 4)

Risk takers sometimes gets glory for instance during quit india movement Gandhi took risk by giving the slogan “do or die”.This added the element of risk in it.Similarly revolutionary leaders like Bhagat singh , Azad etc took risk by bombing the British assembly.The youth of india still glorify them for their sacrifice

Glorious task of risk taking shows strong resolution of individual,highlights the efficacy to control over the situation,highlights strong emotional intellegence present during the process of risk taking for example Gandhiji’s anti-racial activities against south african regime

One may win without taking any risk and without leaving one’s comfort zone. In this case, the achievement may not give much much glory. Because they is already comfortable and new achievement may not give much glory.

Some people triumph even without taking iota of risk in these cases society attributes their success as lucky so the success is not glorified.Without taking risks ,One can succeed in short term but not in longer term.

Moreover, it is not the case that winning is always necessary to have glory. Though the Indian National Army (INA) was not able to overthrow the Britishers, their trials signalled the demise of British rule in India. Even today, we cherish them because they took a risk worthy of the glory.

Drug peddler too take huge risk to amass wealth. However, true victory comes by if means are ethical.

Risk taking is necessary to achieve a victory. However, it has to be ethical and calculated risk based on cost-benefit analysis not just for self but for society as a whole.



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