Day 17 Mains Questions – Ace Answer Writing Program

Question 1: Evaluate the shift from centralized planning to strategic guidance in India’s economic policy. How has this transition impacted resource allocation and economic growth? (10 Marks, 150 words)

Introduction

The shift from centralized planning, led by the Planning Commission (established in 1950), to strategic guidance under NITI Aayog (established in 2015), marks a significant change in India’s economic policy. This transition aims for a more flexible, inclusive, and state-centric approach to development.

Body

Transition from Centralized Planning to Strategic Guidance –

1. Centralized Planning: The Planning Commission followed a top-down approach, formulating Five-Year Plans with uniform policies. Five-Year Plans set specific targets for sectors like agriculture and industry.
2. Strategic Guidance by NITI Aayog: NITI Aayog focuses on cooperative federalism and provides strategic policy direction rather than binding plans. Flexibility in policy implementation to suit state-specific needs.

Transition Impact on Resource Allocation –

1. Decentralized Planning: NITI Aayog promotes decentralized planning, empowering states to tailor policies (e.g., State-specific initiatives).
2. Collaborative Federalism: Enhanced cooperation between center and states for resource allocation (e.g., GST Council’s role).
3. Sector-Specific Strategies: Focus on sector-specific growth strategies rather than broad central plans (e.g., PM-KISAN for agriculture).
4. Inclusive Growth: Emphasis on inclusive growth through targeted programs (e.g., Aspirational Districts Programme).
5. Data-Driven Policies: Use of data analytics for informed decision-making and efficient resource use (e.g., real-time monitoring dashboards).

Transition Impact on Economic Growth –

1. Enhanced Efficiency: Improved policy implementation through better resource utilization (e.g., Direct Benefit Transfer schemes).
2. Increased Investment: Attracting private investment through favorable policies (e.g., Make in India initiative).
3. Innovation and Technology: Promoting innovation and technology-driven growth (e.g., Digital India).
4. Balanced Development: Efforts towards balanced regional development (e.g., North Eastern Development Finance Corporation).
5. Sustainable Growth: Focus on sustainable development goals (e.g., renewable energy targets).

Conclusion

The shift from centralized planning to strategic guidance has led to more dynamic and responsive economic policies, positively impacting resource allocation and economic growth. This transition fosters a more inclusive and sustainable development model, aligning with global best practices.

Additional Data, Committees, Examples for Value Addition –

1. NITI Aayog Reports: Insights on economic strategies and impact.
2. Finance Commission Recommendations: Resource allocation guidelines.
3. World Bank and IMF Reports: Assessments of India’s economic reforms.

Question 2: Examine the challenges and opportunities in mobilizing domestic resources for India’s development. Suggest innovative strategies to enhance resource mobilization while ensuring fiscal prudence. (10 Marks, 150 words)

Introduction

Mobilizing domestic resources is crucial for India’s development, ensuring sustainable growth and reducing dependency on external funding. This involves improving tax revenues, financial inclusion, and efficient use of resources.

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Challenges in Mobilizing Domestic Resources –

1. Tax Evasion: High levels of tax evasion reduce government revenues. This is evident from Black money and underreporting of income.
2. Informal Economy: Large informal sector complicates tax collection like the small businesses operating outside the formal financial system.
3. Administrative Inefficiency: Inefficiencies in tax administration hinder revenue collection where there are delays in tax processing and refunds.
4. Low Financial Literacy: Limited financial literacy affects savings and investments like poor understanding of financial products among rural populations.
5. Regulatory Hurdles: Complex regulatory environment discourages formal business activities. For example, stringent compliance requirements for small enterprises.

Opportunities in Mobilizing Domestic Resources –

1. Digital Economy: Growth of digital transactions increases transparency and tax compliance. For example, UPI payments and digital banking.
2. Expanding Tax Base: Bringing more individuals and businesses into the formal economy. For example, GST bringing informal businesses into the tax net.
3. Financial Inclusion: Wider access to banking services boosts savings and investments. For example, Pradhan Mantri Jan Dhan Yojana (PMJDY).
4. Public Awareness: Increasing awareness about financial literacy and tax benefits. For example, financial literacy campaigns by RBI.
5. Leveraging Technology: Using technology for efficient tax administration and collection like E-filing of taxes and Aadhaar-linked bank accounts.

Innovative Strategies to Enhance Resource Mobilization while Ensuring Fiscal Prudence –

1. Digital Tax Administration: Leveraging technology to streamline tax processes like the E-filing of taxes and GST implementation.
2. Public-Private Partnerships (PPP): Collaborating with private sector for infrastructure development. For example, Hybrid Annuity Model in road construction.
3. Enhancing Tax Compliance: Simplifying tax procedures to encourage compliance like Reducing GST rates for small businesses.
4. Promoting Savings and Investments: Encouraging long-term savings through policy incentives like Tax benefits for investments in Public Provident Fund (PPF).
5. Fiscal Responsibility: Maintaining fiscal prudence by managing deficits and debt. For example, adhering to the Fiscal Responsibility and Budget Management (FRBM) Act.

Conclusion

Mobilizing domestic resources effectively is key to India’s development. Implementing innovative strategies while ensuring fiscal prudence can enhance resource mobilization, leading to sustainable and inclusive growth. Strengthening these efforts will support long-term economic stability and development.

Question 3: Analyse the impact of global economic uncertainties on India’s growth prospects. How can India insulate its economy while leveraging global opportunities? (15 Marks, 250 words)

Introduction

Global economic uncertainties, such as trade wars, geopolitical tensions, and pandemics, significantly affect India’s growth prospects. These uncertainties can disrupt trade, investment, and economic stability, necessitating measures to insulate the economy and leverage global opportunities.

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Impact of Global Economic Uncertainties –

1. Trade Disruptions: Fluctuations in global trade policies impact exports and imports. For example, US-China trade war affecting Indian exporters.
2. Investment Volatility: Uncertainty leads to fluctuations in foreign direct investment (FDI) like Brexit impacting European investments in India.
3. Currency Fluctuations: Global economic instability affects currency exchange rates. For example, depreciation of the Indian rupee during global crises.
4. Commodity Price Shocks: Changes in global commodity prices impact domestic inflation like Oil price volatility affecting India’s import bill.
5. Supply Chain Disruptions: Global uncertainties disrupt supply chains, affecting manufacturing like COVID-19 pandemic halting global supply chains.

Insulating the Economy and Leveraging Opportunities –

1. Diversifying Trade Partners: Expanding trade relations with multiple countries reduces dependence. Example: Trade agreements with ASEAN, Africa.
2. Boosting Domestic Manufacturing: Strengthening domestic industries to reduce import dependency. Example: Make in India initiative promoting local manufacturing.
3. Enhancing Foreign Exchange Reserves: Maintaining ample forex reserves to cushion against currency volatility. Example: RBI’s forex reserve management.
4. Promoting Digital Economy: Leveraging digital platforms for global market access. Example: Digital India program enhancing IT and e-commerce sectors.
5. Attracting Stable Investments: Encouraging long-term FDI through policy stability. Example: Reforms in ease of doing business to attract consistent FDI.

Conclusion

Global economic uncertainties pose significant challenges to India’s growth prospects. By diversifying trade, boosting domestic manufacturing, and leveraging the digital economy, India can insulate its economy while harnessing global opportunities. Ensuring economic resilience through these measures will support sustained growth and stability.

Additional Data, Committees, Examples for Value Addition –

1. Economic Survey: Analysis of global impacts on India’s economy.
2. RBI Reports: Insights on currency and forex management.
3. World Bank and IMF Reports: Assessments of India’s economic resilience.