UPSC Mains Answer Writing Practice Test 8, GS 3

2. The GST as tax reform is a fine example of fiscal federal cooperation in India. Critically analyse. (10 marks)

Answer: GST is one indirect tax for the whole nation, which will make India one unified common market.
The GST implementation was a beautiful example of Centre-state cooperation for undertaking economic reform. It has seen a coordinated effort to make constitutional amendments, formation of GST Council, ceding of fiscal powers, design of tax structure, rate and selection of commodities and services, etc to implement the GST reform.

1.Formation of institutions for the implementation of GST: the empowered committee of state finance ministers on GST, GST Council.
2.Constitutional amendments- 101st constitutional amendment.
3.Decisions at GST Council through center state discussions.
4.State preparation: all states including J&K enacted GST legislations.
5.GSTN – the IT platform.
6.Consensus on; GST rate structure and tax rates, commodity and good selection, exemptions etc.

Issues related to GST
1.GST Council requires ¾th of vote share to pass a decision but the states overall has only a vote share of 2/3rd of the total which means the States alone cannot make a decision.
2.The concept of GST as a destination based taxation causes losses for the strong manufacturing states like Maharashtra, Tamilnadu etc.
3.Issues in collecting taxes on sales due to the multiple rates and classification.
4.Issues in preparing the tax returns due to the onerous information requirements in the tax form and also the exclusion of certain items like petroleum, etc. causes issues for States as they will not receive the tax benefits from it.
5.The introduction of GST has become conflated with other factors slowing growth including demonetization.

3. With constant efforts, the Government has not only put in place a system to block corruption and black money but has also created an environment that makes it almost impossible. In light of this statement, analyse how the technological revolution has added strength to the government of India for the fight against black money in the country. (10 Marks)

Answer: Government has formulated a five pronged strategy to tackle the menace of black money which is as below:
●Joining the global crusade against black money,
●Creating an appropriate legislative framework,
●Setting up institutions for dealing with Illicit Funds,
●Developing systems for implementation (new manpower policy); and
●Imparting skills to the manpower for effective action (constant training for skill development).

In line with the above strategy, the Government has taken several steps:

●Joining the global crusade against black money: India has joined the Task Force on Financial Integrity and Economic Development in order to bring greater transparency and accountability in the financial system.
●Creating an appropriate legislative framework: In pursuance of this India has so far completed negotiations of 22 new Tax Information Exchange Agreements with various tax havens. The Prevention of Money Laundering Act (PMLA) was amended.
●Enactment of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act to more effectively tackle the cases involving black money stashed abroad.
●Enactment of the Benami Transactions (Prohibition) Amendment Act to effectively deal with domestic black money cases
●Constitution of the Special Investigation Team (SIT) on Black Money
●Quoting of PAN made mandatory for all cash deposits above Rs. 50,000.
●Restriction on cash transaction of Rs. 2 lakh or more.
●Operation Clean Money initiated by the Income Tax Department.
●Pradhan Mantri Garib Kalyan Yojana, 2016
●The Income Declaration Scheme, 2016

Technological breakthroughs of recent times including digital identification, electronic payments, online tax interface platforms, digital baking etc unprecedently helped the government to fortify its fight against black money. Several initiatives by the government using technology like Aaddhar-PAN seedings have helped the government to induce accountability, transparency in economic activities and thus to raise tax compliance.

Technological changes – Adhaar ID, digital payment facilities, Aadhaar-PAN seeding, Mandatory PAN quoting for bank accounts. High value payments are executed over NEFT-RTGS platforms.

1.Aadhaar PAN seeding raised accountability and transparency. The seeding provides information about all types of income of an individual. Only one PAN for each individual was made possible through the seeding and this reduces black money.
2.Digital payment systems: High value transactions are now made through banks. The digital payment facilities have eliminated the use of physical cash for high value transactions.
3.PPIs: For small value transactions, digital payments are used. PPIs are tied with bank accounts and this discourages black money transactions.
4.Higher disclosures for high value transactions under KYC norms minimizes the propagation of black money.
5.Demonetisation enhanced tax compliance through the promotion of formal and recorded transactions.
6.The GSTN has reduced the scope of unaccounted production and trading because of mandatory reporting. This reduces illegal monetary payments and non- reporting of income.
7.Technological developments including digitalization of income flow reporting, tax reporting etc. led to shrinkage of the informal sector.

4.Infrastructure plays a crucial role in the economic development of India. In this context discuss the various sources and challenges of infrastructure financing in the country. (10 Marks)

Answer: Infrastructure plays a crucial role in the economic prosperity and the need for an effective and efficient system provides financial resources to this sector is just as important.

Role :
1.It has a domino effect on the other sectors of the economy as it helps improve productivity by removing infrastructural bottlenecks, which impede economic growth.
2.It helps determine the success of manufacturing and agricultural activities
3.Investments in infrastructure like water, sanitation, energy, housing, and transport improve lives and help reduce poverty.
4.New information and communication technologies promote growth, improve delivery of health and other services, expand the reach of education, and support social and cultural advances
5.Promotion of inland transport will ease the road traffic and reduce the carbon footprints of the country as well.
6.It helps in attracting foreign capital to the country
7.Infrastructure development will benefit Government’s Ease of Doing Business.
8.Developing Renewable Energy sector will help in mitigating climate change.

Sources of Infrastructure financing :
The infrastructure industry in India will require an investment of $270 billion every year at a time when barely half of the requirement is being put into the sector.

Domestic Sources:
(a)Equity Funds : domestic investors and government owned funds
(b)Debt funds like infrastructure debt funds and bond market
(c)Financial Institutions like banks and specialised institutions
(d)Participation from the private sector through the PPP mode
(e)Infrastructure investment trusts

External Sources:
1.Foreign investors
2.Multilateral agencies like world bank

Challenges in infrastructure financing :
1.Infrastructure projects carry an array of risks which can lead to cost overruns and reduce financial returns. Roughly 27% of the nearly 1500 infrastructure projects being undertaken by the Central government are running behind schedule, while about 20% have overshot original cost estimates.
2.Domination of banking system as a source of finance is a major concern as seen in the recent period.
3.Infrastructure projects are long term and are therefore subject to various risks including those due to changes in policies, delays in clearances, etc.

5.Discuss the issues associated with agricultural marketing in India. (10 Marks)

Answer: With about 50% of the total population of India depending upon the agriculture sector for their livelihood, it is imperative to improve the present issues in agricultural sector.

Issues associated:
1. Fragmented marketing structure: Absence of a pan-India operation to meet the demand across the country. Therefore multiple states have multiple fees and associated laws regard to argi. Marketing.
2. Non adoption of the new Agriculture Produce Marketing Committee (APMC) Act 2017 by the States which could facilitate single-point levy of taxes, promote direct interface between farmers and end-users, and give freedom to farmers to sell their produce to who they wish.
3. Infrastructural bottlenecks such as poor road transport and facilities, lack of adequate cold storage facilities, inefficient agricultural forward linkages, inadequate accessibility for farmers to the market reduces their opportunity to have price realisation.
4. Farmers’ participation in agriculture markets is equally worrisome. The Dalwai Committee on Doubling Farmers’ Income has pointed out that the share of farmers in consumer’s price is very low.
5. This indicates the presence of large share of middlemen in the supply chain who are responsible for farmers not realising a reasonable price for their produce, lowering farm income and profitability.
6. As per the reports, Almost 40 per cent of all fruits and vegetables are lost annually in India between the grower and the consumer mainly due to lack of storage facilities, a weak transportation system and bad roads.
7. Along with that, cartelisation, hoarding to inflate food prices etc. are a regular practise in the mandis which affect the end consumers.

The recent measures by the government such as adoption of e-NAM, e-Rakam, Operation Greens, Price Stability Scheme, GrAMs etc. are a vital step to improve the agricultural marketing standards in India. This can help to improve the farmer’s income by 2022.