Solved 7

SMART LEADERS IAS
TEST-7 EXPLANATION
GENERAL STUDIES MAINS
1. There are growing incidences of lone wolf attacks across the world. Do you perceive such a
threat of lone wolf attacks in India and if so, elaborate on your opinion?
Lone wolf attack: undertaken by a small group or individual in support of a larger cause,
without the support or overall supervision of a terrorist organization.
Eg: 2014 Sydney hostage crisis and Boston marathon bombing
Groups or individuals with access to explosives, light weapons and ammunitions-Strike a
place associated with their personal frustration
The threat is growing due to influences from Al Qaeda and ISIS India was largely free of
this development.
Recently, Al Qaeda urged religious minorities to mount a lone wolf attack [ by Al Qaeda in
Indian subcontinent, AQIS]
Emerging due to modern means for propaganda like Social media, YouTube, Skypeelectronic outreach
In India- these organizations arm to exploit the chasms in society as a result of religious
persecution
While lone wolf attack was reported, there were growing inclinations of individuals towards
these organizations.
o Mehdi Masroor Biswas a techie from Bangalore, suspected to have managed the
twitter handle of ISIS.
o Arrest of Salman Mohiuddin from Hyderabad when he attempted to flee country to
join ISIS.
Challenges
Gaining access to weapons in India is not easy compared to other countries. Only countrymade weapons available which are not suited for lone wolf attacks.
Indians dont have psychological willingness to take high risk attacks usually suicidal.
The possibility exists from the Indian Mujahideen(IM) group. Recently, certain factions of IM
joined ISIS.
A sense of alert in sensitive locations would demotivate such attacks.
States that witnessed communal riots and tensions are vulnerable, such as UP, MP,
Maharashtra, Gujarat and Karnataka.
Vulnerabilities
Response and preparedness of local police is inadequate
Heavy concentration of people in some areas vulnerable targets
Growing population with access to technologies can provide the opportunities to anti-social
elements.
India may not be as vulnerable as other countries. Still, there is a need to be pro-active and undertake
deradicalisation to prevent any eventualities from happening.
2. With the ambition of putting an end to the populism that had come to be associated with it in
the last few decades, the Union Cabinet has decided to bring the curtains down on the 92year-old tradition of presenting a separate Rail Budget. Discuss the pros and cons of the
recent governments decision on merging budgets.
Why we dont need a railway budget:
Integration of the general and railway budgets will enable formulation of a seamless national
transportation policy.
The move follows a suggestion to the effect by NitiAayog member BibekDebroy in his report on
restructuring the public transport behemoth.
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A committee headed by Debroy last year had recommended that the railway budget should be
phased out progressively and merged with the general budget.
The proposal comes at a time when the railway ministry is concerned that the implementation of
the 7th Pay Commission award, which has recommended a 23.6% hike in salary of Central
government employees and pensioners, will increase its wage bill by almost half, from Rs.53,000
crore to Rs.77,325 crore, in 2016-17, putting significant stress on its already weak
finances.Merging the railway budget and Union budget would mean the Indian Railways will not
have to separately bear the burden.
Now, the railway budget size is quite small at Rs.1.21 trillion compared to Indias overall budget
of Rs.19.8 trillion.
Debroy argued that there is no constitutional or legal requirement for a separate railway budget.
While the Union budget is a Constitutional requirement and is presented under Article 112 of
the Indian Constitution, which mandates an annual financial statement, the Constitution does
not talk about the railway budget in particular.
Debroy held that a lot of resources are wasted in the process of preparing the railway budget,
resulting in a very complicated relationship between the finance ministry and the Indian
Railways, and that needs to be simplified.
The railway budget has also become an avenue for populism with members of Parliament
demanding new trains and stops. However, Union Railway Minister Prabhu has shunned
pandering to this populism and focused on building the already announced railway lines.
India has 66,000 km of railway lines, of which only 17,000 km have been added since
Independence.
Debroy argued that decisions on the expansion of the railway network and introduction of new
trains should be taken by the railway board on a commercial basis and should not be left to
Parliament.
Cash-strapped Railways will save about Rs. 10,000 crore (Rs. 100 billion) annually as it will no
longer have to pay dividend if the separate Rail Budget is scrapped, which is likely to happen
from next fiscal.
Railways pays about Rs 10,000 crore as dividend a year after getting about Rs 40,000 crore (Rs
400 billion).
At present, the railways has to bear an additional burden of about Rs 40,000 crore on account of
implementation of the 7th Pay Commission awards, besides an annual outgo of Rs 33,000 crore
(Rs 330 billion) on subsidies for passenger service.
The delay in completion of projects resulted in cost overruns of Rs 1.07 lakh crore and huge
throw-forward of Rs 1.86 lakh crore in respect of 442 on going rail projects.
The report is also understood to have addressed the contentious issue of annual dividend
payment by the railways on account of receiving gross budgetary support (GBS).
However, the merger will have political implications as almost every railway minister,
particularly in coalition governments, has addressed his or her constituency by way of
announcing new trains and projects.
Why it should not be merged?
Doing so will reduce the Railways to just another government department, whereas it needs to be
run along commercial lines
It may be relevant to recall the factors that led to the separation in 1925.
The Railways were in bad shape at the turn of the last century. The 36,735-mile route was
pulling in different directions.
There were state lines worked by the state, state lines worked by guaranteed or independent
companies, company lines worked by companies, and lines belonging to the princely states.
The Railways failed to meet the demand from passengers as well as trade.
The facilities were utterly inadequate.
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Goods rotted on the platforms as there were no wagons or locomotives to move them.
Overcrowding and waiting for days at stations was quite common. The main reason for such a
state of affairs was the non-availability of funds for expansion, development, and repairs and
maintenance.
A question of funds
Even though the railway revenue formed a major portion of the government revenue, the
Railways were starved of adequate funds. In times of bad harvest and trade, when the revenue
fell, the budget allotment to the Railways was the first casualty.
The cut in expenditure was exercised even during the middle of the year resulting in suspension
of works in progress and disbanding of staff.
Late in the year if the financial situation improved, the finance member with equal suddenness
encouraged the Railways to spend more, leaving them little time in which to do so.
The system was further battered by World War 1, leading to a clamour from the public as
represented in the Imperial Legislative Council urged through repeated resolutions moved in
1914, 1915, 1917, and 1918 for the appointment of a committee to enquire into the
desirability of adopting direct state management of the Railways and emancipating the utility
from the finance department of the government.
In November 1920, a ten-member (three Indians) committee was appointed with Sir William
Acworth as chairman to go into the whole question of railway policy, financial and
administration.
The committee collected evidence and came to the conclusion that Indian Railways cannot be
modernised, improved and enlarged so as to give to India the service of which it is in crying need
at the moment until the financial methods are radically reformed and the essence of that reform
according to the committee was complete separation of the Railway Budget from the General
Budget.
This, then, was the beginning of the separation. Speaking in the Assembly while presenting the
Budget for 1924-25, the finance member of the council reminded members that I know of no
reform which offers greater benefits to our finances and Railways alike than a definite
separation.
This would enable the Railways to spend money according to the real needs of the system
unimpeded by the vagaries of the Budget figures and the requirements of the Budget accounting.
The separation started with the Budget of 1925-26.
Populist exercise
The practice of paying dividend to the general revenues on the capital invested from there
continues but the Railways since then have been responsible for earning and spending their own
money. Of course they do have to look for budgetary support from the general exchequer as the
money earned has never been enough to meet their needs. One reason for this has been their
inability to raise fares and freight commensurate with the rising cost of transport.
This politicisation of the Railways came along with Independence and India embracing
parliamentary democracy.
As a result, the Railway Budget over the years has become more a populist than a commercial
exercise.
The autonomy envisaged was fettered by not raising passenger fares in line with rising costs.
Indeed, passengers are being subsidised by goods traffic.
The Budget has also become an instrument in the hands of several railway ministers to build
their vote-bank. All this affected the finances, so that today, the Railways do not have adequate
funds for expansion, development or replacement of worn-out tracks or rolling stock. Besides,
there was the impact of Partition and World War 2.
During all these years of independence, though major landmarks were achieved, Indian Railways
still lagged behind in expanding and modernising its network for want of adequate funds.
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In 1950, we had 54,600 km of track. To this we could add hardly 11,000 km in all these years.
China had just 22,161 km in 1950. Today it has over 1 lakh km.
Our Shatabadis and Rajdhanis and even the latest Gatiman Express run at a maximum speed of
160 kmph. China has already achieved a speed of 300 kmph with the Beijing-Guangzhou bullet
train service.
It is not that our engineers are not capable of reaching those targets. It has always been the
constraint of funds. Internal resources were never enough.
The budgetary support from the general revenues was always limited.
External borrowings through the Indian Railway Finance Corporation are also restricted. So the
emancipation envisaged in the separation of railway finances from general finances was, to a
great extent, diluted by inherent flaws in our political system.
Parallel problems
The railway revenue will become part of the general revenue but so will the expenditure. In the
event of shortfall in revenue or gross receipts in the general budget, will the finance ministry
carry out the cuts in Railway expenditure? Certainly not.
There are some regular costs such as staff salaries, fuel, stores and equipment that cannot be
guillotined. The sacrificial lamb could again be the modernisation and expansion.
The constraint in raising passenger fares would be the same with the finance minister
presenting the General Budget as with the railway minister presenting the Railway Budget.
The merger will only make the Railways become one more government department; it will lose
its commercial character.
There is also a contradiction in the approach of intellectuals who were engaged in studying the
organisation. On the one hand, they talk of privatisation of the Railways and on the other, they
suggest merging the entity fully into the system, subverting its commercial nature which
requires separate treatment of its finances.
It would be better to leave the current nature and character alone and concentrate on
strengthening, modernising and expanding the Railways so that it can meet the demands and
challenges of transporting mind-boggling numbers of people and goods across the length and
breadth of this country
ALL INDIA SOCIOLOGY TOPPERS

MENTORED BY S.SIVARAJAVEL
2015
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Ms. SHARANYA ARI IAS (256/500) AIR-7

Dr. R.VAITHINATHAN IAS (262/500) AIR-37
2014
Mr.V.ATUL KULKARNI IPS (286/500)
2013
Mr.SELVANAGARATHINAM IPS (240/500)
2012
Mr.BASKARAN IPS (197/300)
2011
Mr. RAMKUMAR IFS (198/300)
SMART LEADERS IAS

3. The hot pursuit strategy of Indian security forces is an extension of cold start doctrine.
Comment with relevant examples.
Hot pursuit strategy: A new counter insurgency strategy involving crossing the international
or demarcated border to strike at anti-India insurgents. These insurgents used hit and run
strategy and were a constant irritant for the internal security management.
Eg: June 9, 2016 operation by elite commandos of 21 Para Special Forces in Myanmars Sagaing
division across Manipur and Nagaland borders, targeting NSCN-K and ULFA elements.
Recently surgical strike by Indian army inside LOC is also an example of this strategy.
Cold start doctrine:A military doctrine developed by Indian Armed Forces to put to use in case
of a war with Pakistan.
*Main objective: To launch retaliatory convention strike against Pakistan inflicting significant
harm on the Pakistan Army before any international community can intercede, but in no way
provoking Pakistan to make a nuclear attack. OP Vijayee Bhava (2001) is the trail run of cold
start doctrine.
Border infiltration, fueling insurgency and terrorism,is launched from western neighbours. But
Indian Security forces can act only within the Indian Territory, while the insurgents attack and
retreat across the border to their safe haven.
To act against terrorist safe havens across the border without an element of war is the hot
pursuit strategy termed as offensive-defensive strategy.
used by other countries also such as Israel
4. The OECDs BEPS (Base Erosion and Profit Shifting) action plan will make it easy for the
taxman to bring evaders into the net. Comment
In an increasingly interconnected world, national tax laws have not always kept pace with global
corporations, fluid movement of capital, and the rise of the digital economy, leaving gaps and
mismatches that can be exploited to generate double non-taxation.
This undermines the fairness and integrity of tax systems.
The BEPS project was initiated by OECD as a response to the 2008 economic crisis to create
sustainable economic growth, and step up the momentum of global recovery. The idea is to
strengthen "the foundations for long-term growth" and avoid policies that "promote growth at
other countries' expense"
Multinational businesses have over the years through a complex structuring process artificially
reduced their corporate tax outgo by shifting to lower tax jurisdictions.
OECD estimates that tax avoidance through base erosion and profit shifting has resulted in loss
of tax revenue to the tune of $100-240 billion every year - that is around 4-10% of global
corporate income tax revenue.
The BEPS plan aims to improve transparency - for business and governments - by introducing
commonly agreed minimum standards for tax administration across countries.
This includes alignment of taxation with the location of economic activity and value creation,
reinforcing substance requirements in tax rules globally.
Base Erosion and Profit Shifting (BEPS) refers to tax planning strategies that exploit
these gaps and mismatches in tax rules to artificially shift profits to low or no-tax
locations where there is little or no economic activity, resulting in little or no overall
corporate tax being paid.
BEPS is of major significance for developing countries due to their heavy reliance on
corporate income tax, particularly from multinational enterprises (MNEs).
BEPS is a global problem which requires global solutions.
For the first time ever in tax matters, OECD and G20 countries worked together on
an equal footing.
More than a dozen developing countries have participated directly in the work and more than 80
non-OECD, non-G20 jurisdictions have provided input.
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Fifteen actions equip governments with the domestic and international instruments needed to
tackle BEPS.
The final BEPS package gives countries the tools they need to ensure that profits are taxed
where economic activities generating the profits are performed and where value is created,
while at the same time give business greater certainty by reducing disputes over the application
of international tax rules, and standardising compliance requirements.
Hybrid entity refers to the companies which might be treated differently in two tax jurisdictions. A
hybrid instrument is one which is treated differently in two tax jurisdiction i.e. debt in one and
equity in other. The tax planners exploit the asymmetries between different tax jurisdictions
through the use of a hybrid entity or a hybrid instrument. The OECD action plan calls for developing
model treaty provisions regarding domestic rule to neutralize the effect of hybrid mismatch
arrangements.
The OECD/G20 BEPS Project has delivered 15 Actions to tackle tax avoidance, to improve the
coherence of international tax rules and to ensure a more transparent tax environment.
Action 1 -Addressing the tax challenges of the digital economy
Action 2 Neutralise the effects of hybrid mismatch arrangements
Action 3 Strengthen controlled foreign companies rules
Action 4 Limit base erosion via interest deductions and other financial payments
Action 5 Counter harmful tax practices more effectively, taking into account transparency and
substance
Action 6 Prevent treaty abuse
Action 7 Prevent the artificial avoidance of permanent establishment status
Actions 8-10 Assure that transfer pricing outcomes related to intangibles are in line with value
creation
Action 11 Establish methodologies to collect and analyse data on BEPS and the actions to
address it
Action 12 Require taxpayers to disclose their aggressive tax planning arrangements
Action 13 Re-examine transfer pricing documentation
Action 14 Make dispute resolution mechanisms more effective
Action 15 Develop a multilateral instrument
Transfer Pricing and BEPS
OECD agree that its vital that all countries can effectively and efficiently administer the transfer
pricing rules, and recognise that sometimes that can be challenging.
Thats one of the reasons why OECD was mandated to work on developing a practical toolkit to
help developing countries make the best use of available data as well as providing potential
options for dealing with situations where there are no comparables available.
These were also key considerations when drafting the outcomes of the BEPS Action Plan.
For instance, in the Report on Actions 8-10 of the BEPS Action Plan, it is recognised that the
risk of profit shifting is high in relation to transactions involving intangibles.
It is also recognised that comparables for such transactions may not be available.
These solutions illustrate that it is possible to develop approaches that are less reliant on
comparables within the boundaries of the arms length principle.
OECD has also developed a simplified approach for low value-adding services, which would be
available to help tax administrations better focus their limited resources on higher risk, higher
value, more complex transactions, while balancing that with greater transparency to help ensure
the approach doesnt create base-eroding opportunities.
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Other simplified approaches or safe harbours will also be developed for other kinds of
transactions in the future.
All the above will be part of the work on the tools on lack of comparables for developing
countries.
Benefits for Developing Countries
If we consider the example of OECDs work in Africa it is interesting to see the actual impact of
capacity building initiatives, especially in terms of revenue figures.
The OECD has in force programmes with the following countries aimed at building effective
solutions to address transfer pricing and other BEPS risks: Botswana, Ethiopia, Ghana, Kenya,
Malawi, Morocco, Tunisia, Zambia and Zimbabwe. Programmes in Nigeria and Senegal in
partnership with the European Commission and World Bank Group are about to start.
All these programmes have already had an impact. For example, new improved transfer pricing
legislation has been introduced in Ghana and Ethiopia and is expected to be introduced in the
near future in Botswana, Kenya, Zambia and Zimbabwe. The new legislation in all of the
countries is aligned with international standards and will assist countries to effectively address
transfer pricing risk to their tax base.
In terms of actual evidences, it is important to highlight the increases in revenue collected from
transfer pricing audits. For example in Kenya revenue collected from transfer pricing audits has
doubled from USD52m in 2012 to USD107m in 2014. In Zambia revenue from audits has
increased from USD3.22m in 2012 to USD7.91m in 2013.
We are expecting important outcomes also from the Tax Inspectors without Borders initiative.
Ghanaian and Netherlands officials are working on transfer pricing audits as are Rwandan and
UK officials. Assisting countries in developing capacity is therefore an important pillar to ensure
domestic resource mobilisation and to create a more sustainable and equitable environment.
Country-by-country reporting
The BEPS Connect:
Action 13 of the BEPS report recommends detailed documentation by multinationals that gives
tax authorities in every jurisdiction an overview of the operation of the entire group, thus
helping to evaluate transfer pricing deals and identify possible evasions.
A three-tiered structure was suggested by the OECD for reporting:
a. a master file containing standardised information relevant for all group members of a MultiNational Entity (MNE)
b. a local file referring specifically to material transactions of the local taxpayer and
c. a country-by-country report containing certain information relating to the global allocation
of the MNEs income and taxes paid together with certain indicators of the location of
economic activity within the MNE group.
The Budget proposal:
In line with the OECDs suggestion, the Finance Minister has said that from April 1, 2017,
multinational companies, resident in India and having a consolidated group revenue of over
750 million or Rs. 5,395 crore, shall submit a country-by-country (CbC) report containing
aggregate information on revenue, profit and loss before tax, amount of income-tax paid and
accrued, details of capital and reserves, number of employees, tangible assets in each country or
territory, along with details of each constituents residential status, nature and detail of main
business activity.
Foreign companies in India, belonging to international groups, shall provide details of the
country of residence of the parent.
Indian MNCs are also required to submit information for a master file as required by OECD BEPS
Action 13 report.
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This file will provide an overview of the groups business, its overall transfer pricing policies,
and its global allocation of income and economic activity in order to assist the taxmen in
evaluating the transfer pricing risk in the group.
Double tax treaties
Misuse of double tax avoidance agreements signed bilaterally between countries is one of the
common ways in which tax evasion takes place.
The BEPS Action 6 on Preventing the granting of treaty benefits in inappropriate circumstances
deals with such double tax agreements and the way to tackle their misuse.
Proposal in the Budget:
It is not surprising that the Finance Minister has not dealt with BEPS Action plan 6 in the Budget
since the General Anti Avoidance Rules that are to come into effect from April 1, 2017, already
deal with these issues.
The GAAR state that the tax authorities will have the right to scrutinise tax arrangements whose
sole purpose is to save on tax.
The Indian government has also been aware of the pitfalls in double tax treaties and the DTAA
with Singapore has a LoB clause that specifies only companies with minimum annual
expenditure of Singapore dollar 200,000 and track record of two years can avail the treaty
benefits.
There are reports that similar clauses are also being included in the DTAA with Mauritius. Once
that is done, the bane of Indian revenue will be dealt with.
Another reason why the Centre has not implemented Action 6 is because the threat of GAAR is
already resulting in incremental foreign portfolio and foreign direct investment flows coming in
from jurisdictions with whom the Indian government has signed more fool-proof DTAA such as
Singapore and the US.
Impact:
These rules affect the foreign portfolio investors investing in Indian equity and other
instruments.
It is no secret that many FPIs and FDIs have routed their investments through Mauritius in the
past to make the most of the DTAA between India and Mauritius and get away without paying
any capital gains tax on profits.
Investors investing through such brass-plate companies will now come under the taxmans lens.
Growing intolerance of India towards these practices means that these investors will now have
to get ready to pay additional tax.
Place of effective Management (POEM)
The BEPS connect:
Action 7 dealing with Preventing artificial avoidance of permanent establishment status deals
with this issue, which has been haunting Indian Tax Authorities for some time now.
The Budget proposal:
Upto financial year 2014-15, a foreign company was treated as resident of India, if during the
year, control and management of the affairs of that company was wholly situated in India.
As per the amendment brought in by Finance Act, 2015, a foreign company will be regarded as a
tax resident of India, if its POEM in that year is in India.
POEM has been defined to mean a place where key management and commercial decisions that
are necessary for the conduct of the business of an entity as a whole are, in substance made.
Determination of control will be based on place where meetings of Board of Directors are held,
place from where the chief executive officer and other senior management carry on their activity
and so on.
The implementation of the POEM rules has, however, been deferred by one year in the Budget
citing difficulties experienced by the stakeholders in changing to the new system.
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Impact: These rules will impact Indian companies that have formed overseas subsidiaries to which
a bulk of profits have been shifted using the Permanent Establishment rules. Some alternate
investment funds could also be impacted by these changes.
Impact:
These reporting requirements can have widespread ramifications for both companies as well as
investors. Many Indian MNCs will find the cost of complying with these requirements a drag.
Some companies that have been playing the tax arbitrage game will now have to re-think these
arrangements, resulting in increase in tax incidence.
These reporting requirements are likely to affect Indian companies which have subsidiaries
across the world and have group turnover exceeding Rs 5,395 crore. Major companies that
figure in this list include Tata Steel, Tata Motors, Hindalco, TCS and BhartiAirtel.
Many pharma companies such as Sun Pharma and Dr Reddys, etc. which have been aggressively
buying overseas companies, will now have to make higher disclosures and will also have the
taxman on their heels, sniffing at every deal.
The profitability of some Indian multinationals can be hit by larger tax incidence. This will hit
you as an investor.
Taxation of income from patents
The BEPS connect:
India has become a large R&D hub, especially in pharmaceutical research.
But the patents, once developed, are transferred to companies in low-tax jurisdictions to avoid
paying tax at a higher rate in India.
The Action Plan 5 of the BEPS project recommends the nexus approach which prescribes that
income arising from exploitation of intellectual property should be attributed and taxed in the
jurisdiction where substantial research and development activities are undertaken, rather than
the jurisdiction of legal ownership only.
The proposal in the Budget:
The Budget has recognised the need to retain the patents developed through research and
development activity in India, within the country.
The Centre, therefore, proposes to tax income from patents at a concessional rate. This is
expected to give an additional incentive for companies to retain and commercialise existing
patents and to develop new innovative patented products.
The royalty income received for a patent developed and registered in India shall be taxable at
the rate of 10 per cent (plus applicable surcharge and cess) on the gross amount of royalty.
Impact:
This will impact companies that have large research and development spends, such as pharma,
automotive, electronics and some chemical companies.
Due to the higher rate of corporate tax in India, over 30 per cent, the ownership of patents
created is shifted to subsidiaries in low-tax regimes so that profit by way of royalty is shifted to
these jurisdictions.
Lower tax on royalty income can now result in companies re-thinking these tax-planning
strategies.
The IT department is thus taking a softer route towards ending these tax-planning methods. If
companies take up this offer, there can be higher transparency in corporate accounts, as far as
ownership of intangible assets goes.
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5. The flow of foreign funds to NGOs and charity organizations operating in India is a growing
concern for the security management of the country. Why NGOs came under the scanner of
security agencies and what are the security concerns that emerges from the flow of foreign
funds to India through these NGOs?
The column marked miscellaneous in statement of accounts of NGOs who receive foreign funds
is turning out to be a headache for authorities.
This money could be either used to launder money, finance terror or even to carry out religious
conversions which are illegal in India.
MOHA: NGOs are getting over Rs 11,500 crore annually from foreign funds alone.
Nearly 85,000 NGOs are in the country out of which 68,000 are registered to collect funds. The
unregistered NGOs are the cause of concern.
According to IB, these NGOs show that they are working for a cause, but in reality are fronts to
fund terror and launder money.
MOHA report: NGOs are vulnerable to terror funds and money laundering.
There is a concern because of:
o unknown or undisclosed source of income,
o poor accounting methods, poor records on expenditure,
o active involvement in certain anti-development social movements,
o NGOs registered under FRCA did not submit statutory annual returns as mandated by
law.
Our Student, Ms. Sharanya Ari (AIR-7, Tamil Nadu Rank-1)

Felicitated by Mr.U.Sagayam IAS
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Threats
can become an unconventional source of funds for terrorism
money laundering
may cause social arrests and like in religious reconversions
can thwart bilateral relations with other countries a proxy to influence national policies to
favor or malign relations with other countries
NGOs are targets for money laundering because of availability of tax benefits to NGOs doing
charitable activities.
NGOs have unpredictable and unusual income and expenditure streams, so suspicious
transactions may be harder to identify.
NGOs have complex financial operations with multiple donors and informal money transfers.
6. Discuss about the road map for the capital goods sector in India and its recognition as
strategic sector.
Capital Goods Policy
This is first ever policy for Capital Goods sector with a clear objective of increasing production
of capital goods from Rs.2,30,000 crore in 2014-15 to Rs.7,50,000 crore in 2025 and raising
direct and indirect employment from the current 8.4 million to 30 million.
Manufacturing is a key contributor to the economic development of any nation; adding jobs as
well as increasing self-reliance.
The National Manufacturing Policy of 2011 envisaged manufacturing to contribute 25% to GDP
and create 100 million jobs.
In contrast, till date, manufacturing activity contributes to 17% of India's GDP and only 4 million
jobs are estimated to have been created in the sector since 2010. The gap to stated aspiration is
large.
The policy envisages increasing exports from the current 27 per cent to 40 per cent of
production.
It will increase the share of domestic production in Indias demand from 60 per cent to 80 per
cent thus making India a net exporter of capital goods.
The policy also aims to facilitate improvement in technology depth across sub-sectors, increase
skill availability, ensure mandatory standards and promote growth and capacity building of
MSMEs.
The policy proposes a comprehensive policy agenda to achieve these goals, as
summarized below:
Make in India initiative: To integrate major capital goods sub-sectors like machine tools, textile
machinery, earthmoving and mining machinery, heavy electrical equipment, plastic machinery,
process plant equipment, dies, moulds and press tools, printing and packaging machinery and
food processing machinery as priority sectors to be envisaged under 'Make in India' initiative.
To create an enabling scheme as a pilot for 'Heavy Industry Export & Market Development
Assistance Scheme (HIEMDA)' with a view to enhance the export of Indian made capital goods.
This will also require developing a comprehensive branding plan for the CG sector with the
support of India Brand Equity Foundation (IBEF).
Strengthen existing capital goods scheme: The policy recommends increasing the budgetary
allocation & scope of the present 'Scheme on Enhancement of Competitiveness of Capital Goods'
which include setting up of Centres of Excellence, Common Engineering Facility Centres,
Integrated Industrial Infrastructure Park and Technology Acquisition Fund Programme.
The policy recommends increasing the scope of the present 'Scheme on Enhancement of
Competitiveness of Capital Goods' by adding a set of components including technology, skills
& capacity building, user promotional activities, green engineering and energy, advanced
manufacturing and cluster development.
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To launch a Technology Development Fund under PPP model to fund technology acquisition,
transfer of technology, purchase of IPRs, designs & drawings as well as for commercialization of
such technologies of capital goods.
To create a 'Start-up Centrefor Capital Goods Sector' shared by DHI and CG
industry/industry association in 80:20 ratio to provide an array of technical, business and
financial support resources and services to promising start-ups in both the manufacturing and
services space. These services should focus on Pre-incubation, Incubation and Post-Incubation
phases of a start-up's growth to ensure that a robust foundation is established.
Mandatory Standardization which includes, inter alia, defining minimum acceptable standards
for the industry and adoption of International Organization for Standardization (ISO) standards
in the absence of other standards, to institute formal development program for promoting and
framing Standards with Standards Developing Organizations (SDOs) including Bureau of Indian
Standards (BIS), international standard bodies, test / research institutions and concerned
industry/ industry associations
To upgrade development, testing and certification infrastructure such as Central Power
Research Institute (CPRI), and set up 10 more CMTI like institutes to meet the requirements of
all sub-sectors of capital goods.
Skill development: To develop a comprehensive skill development plan/scheme with Capital
Goods Skill Council and to upgrade existing training centres and set up 5 regional State-of-theArt Greenfield Centres of Excellence for skill development of CG sector.
Cluster approach:-To provide schemes for enhancing competitiveness through a cluster
approach, especially for CG manufacturing SMEs. Thrust to be on critical components of
competitiveness such as Quality management, Plant maintenance management, Energy
management, Cost management, Human Resource management and prevention of corrosion
with the Government support to the extent of 80% of the cost.
To modernize the existing CG manufacturing units, especially SMEs by replacing the modern,
computer controlled and energy efficient machineries across capital goods sub-sectors, there is
need to create a scheme based on capital subsidy to promote the manufacturing of quality
products.
Support services: A robust mechanism for reporting data of production, export and import for
all capital goods sub-sectors with minimal time lag to facilitate continuous monitoring of policy
effectiveness and timely actions is proposed.
A monitoring and evaluation mechanism for governing and ensuring implementation of policy
recommendations is also proposed. This includes an inter-ministerial committee coordinated by
Ministry of Heavy Industries & Public Enterprises with Secretariat participation to annually
review the progress on policy objectives and driving coordinated action and a joint
implementation mechanism with State governments. These actions in tandem are expected to
unlock the potential of the Capital Goods sector, culminating in realizing the true manufacturing
potential of India and achieving the stated goals of 'Make in India'.
Governance Mechanism:
The policy proposes a governance mechanism for smooth implementation and effectiveness of
the policy. The mechanism will be in the form of inter-ministerial and inter-departmental
committees at the highest level to ensure due consideration of the interests of all stakeholders.
Periodic Review of Policy:
The capital goods sector operates in a dynamic local and global environment and it is imperative
for the policy to undergo a periodic review and revision to maintain its relevance.
The National Capital Goods Policy 2016 will be reviewed every five years and revised
appropriately to take account of progress in implementation and emerging trends in the national
and international environment.
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1.
2.
3.
4.
5.
6.
7.
8.
9.
Nine-point action plan: The policy has proposed a comprehensive set of policy actions which
would enable the achievement of the objectives for the sector and had recommended a set of nine
new initiatives and policy actions and they are:
Devising a long term, stable and rationalized tax and duty structure to ensure cost competitiveness
of the sector
Drafting a comprehensive public procurement policy with amended qualifying criteria and
introducing special provisions in contracts for domestic value addition
Promoting development of new technology through indigenous sources
Providing Technology Upgrade Fund Support across all capital goods sub-sectors
Creating a level playing field vis--vis imports by restricting imports of second hand machinery and
mitigating duty disadvantages
Supporting availability of short and long term of financing at competitive rates to capital goods
manufacturers
Enabling skill development by setting up sub-sector specific Skill Councils.
Enabling higher participation of India in standard creation and developing support system to
improve compliance.
Developing manufacturing clusters with shared facilities especially for SMEs
7. Briefly trace the contemporary developments on the issue of Maoist insurgency? Do these
developments alarm the preparedness of government in dealing with the issue or is it
welcoming?
Continuity and discontinuity have remained as important characteristics of Maoist conflict in
India.
While 2010 was the bloodiest year of Maoist insurgency, period after that shows a declining
trend.
This reversal may be due to sustained anti-maoist operations or a strategic move by maoists for
recruitment and making alliances.
Contemporary developments
1. Escalation and de-escalation of maoist violence:
- Violence basic in Charu Mazumdars annihilation doctrine. From 2003-2010, an upward
trend in violence but after 2010, there is downward movement.
2. Crisis of leadership
- Maoists have significant loss of cadre and leadership. Out of 16 polit bureau members, 2 are
killed and 7 are in custody. Also true for central committee members. There is an increasing
surrender also witnessed.
3. Inter-organizational and intra-organizational conflict
- Rise of splinter groups in Jharkhand like Tritiya Prastuti committee
4. The corporate maoist nexus that target infrastructure
- created an extortion industry, and financial and political muscle. Created a parallel economy
and justice system and involved in illegal mining.
5. Links with Islamist terrorism
- Report that LeT and CPI(M) (Communist Party of India (Maoist)) has established a
relationship. The arms and ammunitions recovered after 2013 January ambush attack bore
Pakistani markings.
6. International connections
- Since 1995, CPI(M) started making connections to Maoist groups in Philippines, Turkey,
Holland and Italy. CCOMPOSA (2001) meetings attended by CPI(M)
Its a welcoming trend. Low incidences of violence and growing presence of security forces
presents a sense of law and order is a lawless zone.
Security with development- the strategy ofclear, hold and develop must be strengthened
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8. Discuss the FDI in e-commerce policy and how it would benefit or harm the consumers as
well as businesses.
Some Important Guidelines:
E-commerce firm will not be permitted to sell more than 25 per cent of total sales from one
vendor or its group companies. The cap of 25% on sales by a vendor on marketplace will ensure
a broad basing of vendors for a true marketplace
E-commerce entities providing marketplace will not directly or indirectly influence the sale
price of goods or services and shall maintain level playing field
E-commerce marketplace may provide support services to sellers in warehousing and
logistics.However, such entities will not exercise ownership over the inventory. Such an
ownership over the inventory will render the business into inventory-based model.
In marketplace model, any warrantee/ guarantee of goods and services sold will be
responsibility of the seller.
So who gains from new e- commerce rules?
Its not just offline retailers who will benefit from the new restrictions imposed on e-commerce
players, but also wholly-owned Indian online retailers.
Thats because the restrictions on sourcing products and pricing do not apply to companies that
have not received foreign investment.
The Centre had announced that 100 per cent FDI will be allowed in online marketplaces.
However, these marketplaces cannot influence pricing of products directly and indirectly, and
cannot get more than 25 per cent of sales from one single vendor.
These riders are not applicable to online marketplaces completely-owned by Indian companies.
Reliance Group, Tatas, Aditya Birla Group and Mahindra & Mahindra are planning to enter the ecommerce segment and could have the edge as they can continue with the discounting model.
Even new start-ups that do not have foreign investments will not come under the ambit of the
new norms.
Companies such as Flipkart and Snapdeal have already received FDI through foreign private
equity and venture capitalist investors and, hence, have to immediately comply with the priceinfluencing norms.
In such a scenario, Reliance Retail, for example, which plans to enter the e-commerce segment
through a marketplace model, would have the upper hand over Flipkart, Snapdeal or Amazon,
when it comes to discounting. This also means they can influence pricing directly and indirectly,
gaining an edge over the competition in a market that is largely driven by discounts and cash
backs.
With over 150,000 vendors, the cash-rich Reliance will compete with Flipkart, which has been in
the business for over eight years and has about 40,000 sellers on its platform.
Amazon India has more than 50,000 sellers and Snapdeal has around 200,000 vendors. Reliance
plans to enter the market with electronics, appliances and apparel, the biggest categories for
online players.
Reliance Retail declined to make any comments for this story. Meanwhile, Tata Group has also
announced its entry into the e-commerce segment.
So, did the government come out with these regulations to promote the entrepreneurship
ecosystem?
Indian consumer is already addicted to online retailers and it will be interesting to see if these
customers buy on Reliance or Tatas platforms only for the discounts.
New norms would also benefit brick and mortar retailers (like Future Group), whose
profitability was being hurt because of aggressive discounting by online players.
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Facing what seemed like an existential crisis over the past couple of years, these retailers had
gamely fought back by reorienting store profiles, increasing private labels and sharpening focus
on tier II and III cities, thereby improving overall operating efficiency
Some Suggestions:
1. Competition commission of India should be given more teeth to regulate this sector.
2. Guidelines for Inventory Based Model are required on the similar lines with the Marketplace
Based model.
3. E-Commerce might lead to unemployment of small retailers. Note: a study reveals that for every
wall mart store 3000 jobs are being killed in the small retailers. E- Commerce is even more
dangerous.
4. Governmentt should have separate agency to monitor such markets.
In the model of mega retail profit is actually appropriated in terms of the market share. Once
you capture the market you can monopolise the market. For instance, Amazon in 2015 faced
6000 crores loss by offering discounts under the name of marketing promotion. Such Marketing
promotions which results in predatory dumping should be curbed.
9. Which security organization in India is termed as primary counter-insurgency force?
Critically analyse the organization of its performance and provide any recommendations to
improve its efficiency.
CRPF Central Reserve Police Force: largest central armed police force in India. Under the
control of Home affairs.
The main function is to assist state police agencies to maintain law and order and counter
insurgency operations.
Security force with highest casualty and also a prime target from maoist and terrorist
organizations.
Criticism
Incoherence in following SOP, during clearing, sweeping or counter-insurgency operations.
Role of command officers in operations not well-defined, as in most operations they have to
coordinate with the local police force.
The fractured leadership between state police forces and CRPF.
Using CRPF for other functions such as during elections.
Poor living conditions during operations that psychologically harms the CRPF jawans.
Training sessions should include awareness on human rights too.
10. Can the concept of social equity be given up just for the sake of increase in GDP or Common
Market? Comment.
The social dimension
The answer to this question leads us to the other aspect of the GST, to do with why it started to
get widely adopted (as VAT) from the 1970s, paralleling the rise to global dominance of neoliberal economic thought.
The GST, even in the diluted version proposed in the GST Bill, would still accomplish one thing:
widen the tax base and make it identical for both the Centre and the States.
That is because, unlike, say, an excise duty (whose base consists of manufacturers) the GST is
paid only by the final consumer.
The seller of the good or service remits this GST to the State after deducting the taxes already
paid by him earlier in the supply chain.
In other words, while the GST, like all indirect taxes, is a tax on consumption, in seeking to
institute a uniform rate on all forms of consumption, it tightens the tax net currently riddled
with numerous holes in the form of multiple rates and exemptions and classifications in
addition to widening it.
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Many countries that have embraced the GST have also exempted essential commodities from it,
or kept lower rates for select goods.
But the very logic of GST is such that it works best when the exemptions are zero or minimal.
New Zealand comes closest to the GST purists dream with very few exemptions.
Once implemented in however compromised a form this is the direction GST regimes
gravitate toward: fewer exemptions, higher rates.
SOCIOLOGY OPTIONAL OVERWHELMS IN

IAS 2015 16 FINAL RESULT
NAME
Ms.Saranya ARI
Dr.Vaithinathan R
Mr.Ram Krishnan R
Mr.Karthikeyan G
Ms.Sruti Vijayakumar
Mr.Pavankumar G Giriyappanavar
Mr.Sarveshwaran
Mr.Balachandar D
Mr.Prakash B
ALL INDIA RANK

7
37
268
301
381
420
655
701
906
OPTIONAL
Sociology
Sociology
Sociology
Sociology
Sociology
Sociology
Sociology
Sociology
Sociology
ALL THE ABOVE SUCCESSFUL CANDIDATES WERE MENTORED BY
MR.S.SIVARAJAVEL
New Zealand introduced GST at 10 per cent, today it is 15 per cent. In the countries where the
GST rate was reduced over time, it was made possible by a broadening of the base by minimising
exemptions.
This brings us finally to the question that has monopolised the GST debate of late: what should
be the taxation rate? The report of the 13th Finance Commissions Task Force on GST
recommended 12 per cent (7 per cent for SGST and 5 per cent for CGST). That was in 2010.
In 2014, a panel of State government representatives mooted a revenue-neutral rate or RNR
(rate at which tax revenues for states and the Centre will remain the same as before GST) of 27
per cent (12.77 per cent and 13.91 per cent for CGST and SGST respectively.
Both these rates might be unrealistic. A 12 per cent GST will most definitely mean substantial
revenue losses for states, as the general VAT rate for many states hovers around the 13-14 per
cent mark.
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And from this week, the service tax (levied by the Centre) has gone up from 12.36 per cent to 14
per cent, a move, ironically enough, intended to smoothen the transition to a GST regime.
A GST rate of 27 per cent, on the other hand, would impose an enormous tax burden on the
wage-earning classes, and could prove fatal for any elected government.
Understandably, Mr. Jaitley has been quick to clarify that the GST rate would be much lower than
27 per cent.
In fact, the ideal way to bring down the GST rate without incurring revenue losses is to widen
the base by including as many goods and services under its purview as possible.
But this could mean that some essential goods currently taxed at a lower rate could end up being
taxed at a higher rate under a GST, but it would hit the lower income groups harder.
This might explain why in some developed countries, including Canada and Australia, the
introduction of the GST was opposed fiercely by the local working classes, especially the trade
unions.
The resistance to it was so strong in Canada that the then Prime Minister Brian Mulroney had to
invoke an obsolete, colonial era provision of the Constitution drawing on special powers of
the Queen to get the law passed in the Senate.
At any rate (pun unintended), the GST can only be implemented, believes Ms. Rao, by a leap of
faith. She elaborates, You cant do a calculation to the last penny and say only at this revenueneutral rate will I implement GST.
It has to be acceptable to the masses, because at the end of the day, it is the average citizen who
has to cough up the money.
The shift towards indirect taxation:
Around the world, governments, faced with declining tax revenues, and too fearful that higher
corporate taxes will lead to capital flight (or capital slumber), have been turning their attention
to indirect taxes, which have a wider base than direct taxes, are more difficult to evade, easier to
administer, and not income-dependant beyond a point.
Its because the poor and the working classes spend a greater proportion of their income on
essential consumption compared to the classes that are better off, that indirect taxes are
considered regressive compared to direct taxes, which are typically proportional to the abilityto-pay. India isnt immune to this global shift in favour of indirect taxation, accompanied by
lower taxes on capital and reduced social spending.
The National Democratic Alliance government has already ticked two of those boxes.
The 2015-16 budget, which fixed a roll-out date for GST (April 1, 2016), also abolished the
wealth tax, and announced a lowering of corporate tax rate from 30 per cent to 25 per cent over
a four-year period.
This is despite that fact that Indias direct taxes contribute only 37.7 per cent of total tax
revenue, according to a 2013 study by the Centre for Budget and Governance Accountability
which makes Indias taxation regime already more regressive than that of other emerging
markets such as South Africa (57.5 per cent from direct taxes) or Indonesia (55.85 per cent).
Benefits of GST:
GST will increase the resources available for poverty alleviation and development.
This will happen indirectly as the tax base becomes more buoyant and as the overall resources
of the Central and State governments increase.
But it will also happen directly because the resources of the poorest States for example, Uttar
Pradesh, Bihar, and Madhya Pradesh who happen to be large consumers will increase
substantially.
Second, the GST will facilitate Make in India by making one India.
The current tax structure unmakes India, by fragmenting Indian markets along State lines.
These distortions are caused by three features of the current system: the Central Sales Tax (CST)
on inter-State sales of goods; numerous intra-State taxes; and the extensive nature of
countervailing duty exemptions that favours imports over domestic production.
In one fell swoop, the GST would rectify all these distortions: the CST would be eliminated; most
of the other taxes would be subsumed into the GST; and because the GST would be applied on
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imports, the negative protection favouring imports and disfavouring domestic manufacturing
would be eliminated.
Third, the GST would improve even substantially tax governance in two ways.
The first relates to the self-policing incentive inherent to a valued-added tax.
To claim input tax credit, each dealer has an incentive to request documentation from the dealer
behind him in the value-added/tax chain.
Provided the chain is not broken through wide-ranging exemptions, especially on intermediate
goods, this self-policing feature can work very powerfully in the GST.
The second relates to the dual monitoring structure of the GST one by the States and one by
the Centre.
Critics and taxpayers have viewed the dual structure with some anxiety, fearing two sources of
interface with the tax department and hence two potential sources of harassment.
But dual monitoring should also be viewed as creating desirable tax competition and
cooperation between State and Central authorities.
Even if one set of tax authorities overlooks and/or fails to detect evasion, there is the possibility
that the other overseeing authority may not.
Other benefits such as the boost to investment have been documented in the Report on the
Revenue Neutral Rate that was submitted in December last year.
Of course, these benefits will only flow through a well-designed GST.
The GST should aim at tax rates that protect revenue, simplify administration, encourage
compliance, avoid adding to inflationary pressures, and keep India in the range of countries with
reasonable levels of indirect taxes.
11. What do you understand by the term soft counter-terrorism strategy? Analyse its suitability
to Indian settings.
This is an Era of growing radicalization and violent extremism, to handle which
conventionadvocates an iron approach.
Soft approach is one that is designed to win the hearts and minds of radicalized individuals by
employing non-coercive methods.
Seeks to undo the radicalization process by engineeringthe individuals return to moderate
society by providing a stable support network, probing their original reason for extremist
tendencies and divorcing them from extreme beliefs and social contacts.
To eliminate extremism, it is necessary to understand and refute the ideology behind it; War on
ideas rather than war on terror
In May 2016, 4 youths indoctrinated to JeM ideology were released by Delhi police after a set of
counseling sessions, weekly visits to psychologist and Muslim scholar.
A rare occasion of positive reinforcement.
Successfully followed in Singapore a bilayered strategy.
Suitability to Indian Settings:
Force based approach proven to be inadequate in India.
Indias vulnerability to extremism necessitates a multi pronged approach-using both soft and
hard tactics.
Strong social ethos, cultural diversity and supportive religious scholars are the assets towards
the new strategy.
Should encourage inter-faith platforms and community engagement.
12. Goods and Services Tax is good for business but snag for federalism. Elucidate.
Buoyed by the euphoria over the passage of a major hurdle in his reforms push, Modi made the
candid admission that the many doubts he had had about the GST when he was Chief Minister
of Gujarat helped him understand the worries of State governments.
This was an obvious reference to the concerns raised by many States such as Tamil Nadu,
Gujarat, Maharashtra and Goa.
The fact that the GST is essentially a tax on consumption implies that the States in which final
consumption occurs get the privilege of collecting the tax.
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The serious implication this has for States that have an edge in manufacturing explains the
opposition to the GST from States such as Tamil Nadu, Gujarat, Maharashtra and Haryana.
Typically, when a large industrial house establishes a base in a particular State, aiming to serve
the national market, it is obvious that only a fraction of its output would be sold within its home
base.
It, thus, exports goods and services to not only other States but overseas too and these are the
sites of final consumption of its products.
The GSTs design as a destination-based consumption tax has important implications for States
that are the home base of these manufacturing companies.
They are worried that after having wooed these companies with fiscal incentives over the years,
they now stand to lose revenues because of the GSTs design.
Example of the Korean car major Hyundai, whose main base in India is near Chennai, to explain
why States that are major sites of manufacturing activity are worried. Hyundai sells only about
10 per cent of its cars within Tamil Nadu; 40 per cent of its cars are sold in other parts of India
and the rest exported.
During the manufacturing process the company would have procured goods and services from
within the State, for which it would have paid a tax component.
Now the providers of these components, capital goods, other inputs and services will take credit
for the taxes they have paid.
But if the final sales are mostly happening in other States, such tax credit would be apportioned
to those destinations from the tax revenue gathered in the State where the manufacturing
occurred.
So, even if the production has happened in one State, a portion of the GST revenue gathered in
the manufacturing base has to be transferred to the State where the final consumption happens.
In the case of exports, the State would have to refund to the manufacturer on a proportionate
basis the portion of the GST revenue paid by the company.
So, in the case of a company such as Hyundai, the State may end up losing a significant portion of
the overall revenue that it earns.
This also highlights the fact that the GST could actually be a fiscal disincentive to States aspiring
to becoming manufacturing centres by climbing on to Modis Make in India bandwagon.
Note:
When you move to a GST regime in a federal set-up, some curtailment of the States freedom is
inevitable. All goods and services will be divided into certain categories.
The rates will be fixed by category, and if I am a state, I cannot shift a commodity from a lower to
a higher rate, or put it in the exempt category.
This is not the only limitation. The rates for both, the CGST and the SGST, will be fixed by the GST
Council, whose members will be State finance/revenue ministers and chairman will be the Union
finance minister.
Once the rates are set by the GST Council, individual States will lose their right to tax whichever
commodities they want at the rates they want.
This development needs to be viewed in the context of steady erosion in the states freedom to
decide on taxes and tax rates.
According to the Constitution, the States have complete autonomy over levy of sales taxes,
which, on average, accounted for 80 per cent of their revenue.
An attempt was made to curtail this autonomy with the introduction of VAT.
But it did not totally succeed because the VAT still had four different rates that states could play
with. But with the GST, which mandates a uniform rate, even this limited autonomy would be
gone.
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In other words, while the loss in revenue of the States may well be compensated by the Centre
(as provided for in the GST Bill), how does one make good a States loss of the political right to
fix its own tax rates?
However, a GST regime where each State has a different tax rate for different goods and services
doesnt sit well with the industry demand for a single national market with a uniform tax regime.
Besides, if rates will be different, the taxes will be dual, and the dual taxes will be administered
independently by the States and the Centre, why not just streamline the existing tax architecture
instead of erecting a new one?
GST Council:
The design of the GST Council, which is to decide the rates, especially the RNR, and act as a body
to settle disputes between States and the Centre is another issue raised by critics.
It is also being burdened with the task of determining the nuts and bolts of the GST structure to
become operational.
Although all States are to carry a vote in the Council, the Centre is to have a one-third share of
the votes. But any decision by the Council would require a three-fourths majority.
By virtue of its share of votes in the Council, the Centre has an effective right to veto any move
not to its liking.
It is indeed laughable that a poor (or a weak or small) State with limited resources at its
command would be able to get a favourable verdict in the Council without the blessings of the
Centre, no matter how logical or fair its case may be, even if it has the support of other States.
Moreover, given the nature of Centre-State financial relations, it is inconceivable that such States
would wish to antagonise the Centre and jeopardise the discretionary transfer of resources to
them from the Union government.
If the Council works like a kattapanchayat (or khaps as they are called in the northern badlands)
attempting to settle disputes among States and the Centre, there is the danger that the long
history of tax jurisprudence may be jettisoned, raising the possibility of prolonged and messy
litigation.
It is well known that indirect taxes are regressive in nature for two reasons.
First, a consumption tax such as the GST falls equally on everybody irrespective of the disparities
in income levels.
Moreover, there is no escape from the tax because it is built into the price; this is not the case
with income tax or other direct taxes because there are ways in which they can be avoided or
evaded.
A genuine pursuit of reforms in order to engender equity and build a fairer direct tax regime
would have logically required the enlistment of the States as partners in the levy of such taxes.
Two characterisations of the GST have been repeatedly made by those championing its cause,
most notably sections of large business houses.
The first is its simple structure, which, it is claimed, would have an almost automatic impact on
tax buoyancy.
The second is the uniformity in the rate, which, it is claimed, would actualise the move towards
India emerging as a unified common market.
The fetish of these two elements, at the cost of the neglect of all the canons of taxation, reflects a
mind-set that promotes the sectarian interests of a tiny minority in the name of furthering the
public interest.
Surely the pursuit of uniformity would be the nemesis of a democratic polity.
Note: With Respect to Local Bodies
Principle relating to the share of local bodies in revenue buoyancy must be discussed in the GST
Council.
According to the government, State Finance Commission can resolve this issue.
But what is the reality with respect to the State Finance Commission?
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In principle Centre Finance Commission recommendations are accepted by the centre.

But this is not the case with respect to State Finance Commission Recommendation.
Constitutional obligation to protect local bodies with respect to sound finance should be
protected.
13. Is there any link between organized crime and terrorism in India? In addition, briefly
comment on the recent verdict of Supreme Court to set up a new Organized Crime
Investigating Agency in India.
Crime and terrorism can potentially have a close linkage.
Organized Crime (OC) a well-knit, hierarchical organization with purely economic motives and
usually causes law and order problems.
Organized crime mafia in India most prevalent in Mumbai, and also in Delhi (ransom), UP
(Babloo gang), Liquor mafia in Ahmadabad and Bihar.
Links between OC and terrorism
In NE, extortion is the fundamental basis of funding for all forms of extremism. Also includes
cattle smuggling and small arms.
In Jammu and Kashmir, counterfeit currency is the main source of funding for terrorism.
What was a crime syndicate later turned into a terrorist outfit- Dawood gang.
In Dec 2015, SC set a deadline of Dec 1, 2016 to set up Organized Crime Investigative Agency to
exclusively probe human trafficking cases.
Also directed to frame a comprehensive anti-trafficking legislation within 6 months and
rehabilitation of children caught in trafficking and Rs.100 crore to be given to the agency from
Nirbhaya fund in response to aPIL filed by an NGO Prajwala.
About 1100 girls went missing in Gujarat alone. Most trafficking goes unregistered and no
effective legislation to prevent them.
Largest cases registered in Maharashtra, TN, WB, Rajasthan and Karnataka.
According to UN office on Drug and crime, (UNODC), human trafficking in South Asia is one of
the fastest growing transitional organized crime, for sexwork, labor, forced marriages , organ
trade.
Our Student, N.L. Beno Zephine, India's 1st visually challenged IFS Officer
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14. Promise of any immediate benefits from grand government plans should typically be taken
with a load of salt but Sagarmala seems to be cruising already and the project timeline has
been reduced from ten to just five years. Discuss how Indian ports and coastal regions are set
to witness a sea change through Sagarmala Project
The Sagarmala is a series of projects to leverage the countrys coastline and inland waterways to
drive industrial development. It was originally mooted by the Vajpayee government in 2003 as the
waterways equivalent of the Golden Quadrilateral. Sagarmala, integrated with the development of
inland waterways, is expected to reduce cost and time for transporting goods, benefiting industries
and export/import trade.
The project is humongous with 150 initiatives with a total outlay of Rs 4 lakh crore, spread across
four broad areas.
1. Modernise port infrastructure, add up to six new ports and enhance capacity.
2. Improve port connectivity through rail corridors, freight-friendly expressways and inland
waterways.
3. Create 14 coastal economic zones or CEZs and a Special Economic Zone at Jawaharlal Nehru
Port Trust in Mumbai with manufacturing clusters to enable port-led industrialisation.
4. Develop skills of fishermen and other coastal and island communities.
To implement this, State governments would set up State Sagarmala committees, headed by the
chief minister or the minister in charge of ports. At the central level, a Sagarmala Development
Company (SDC) will be set upto provide equity support to assist various special purpose vehicles
(SPVs) set up for various projects.
Key Objective:
The key objective of Sagarmala project is to develop port infrastructure in India that results in
quick, efficient and cost-effective transport to and from ports.
It also includes establishment of rail / road linkages with the port terminals, thus providing last
mile connectivity to ports; development of linkages with new regions, enhanced multi-modal
connectivity including rail, inland water, coastal and road services.
Three Pillars of Sagarmala Project:
The current version of Sagarmala initiative focuses on three pillars of development as follows:
Supporting and enabling Port-led Development Port Infrastructure Enhancement, including
modernization and setting up of new ports Efficient Evacuation to and from hinterland.
The administrative framework National Sagarmala Apex Committee At apex level, a National
Sagarmala Apex Committee (NSAC) will be created to provide overall policy guidance.
It will be headed by shipping minister.
As part of the efforts to promote port-led development in the country, the Sagarmala
Development Company (SDC) has been incorporated under the Companies Act, 2013. The company
will have an initial Authorized Share Capital of Rs. 1,000 Crore and a subscribed share capital of Rs.
90 Crore Sep, 2016 update.
The Union governments Sagarmala project, aimed at promoting port-led development in India,
could lead to annual logistics cost savings of Rs 35,000 crore and boost Indias merchandise
exports to $110 billion by 2025, the Sagarmala National Perspective Plan report said.
It said the Sagarmala programme will also create one crore new jobs, of which 40 lakh will be in
the nature of direct employment.
Union Minister for Shipping, NitinGadkari, told that the objective of the plan is to substantially
reduce export-import and domestic trade costs with minimal investment.
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SMART LEADERS IAS
The minister said: This plan is based on four strategic levers: Optimising multi-modal
transport to reduce the cost of domestic cargo, minimising the time and cost of exportimport cargo logistics, lowering costs for bulk industries by locating them closer to the
coast and improving export competitiveness by locating discrete manufacturing clusters
near ports.
Countries such as the US, Japan, Korea and China (the Shenzhen Port) have leveraged their
coastline and waterways to drive industrial development. The Sagarmala programme aims to
replicate these successes in India.
Mr Gadkari said the government's plan identifies specific opportunities for transportation of
commodities such as thermal coal, fertilizers, foodgrain, cement and steel by coastal shipping
and inland waterways.
Sagarmala aims to deliver the desired result through over 150 projects and the initiatives
spanning four broad areas. These include modernisation of existing ports and establishment of
five to six new ports to augment capacity, focus on port connectivity through the heavy-haul rail
corridor, freight-friendly expressways, and development of strategic inland waterways.
The project will try to tap into the potential of port-led industrialisation through coastal special
economic zones, which house a number of industrial clusters, and harness the potential of
coastal communities through skill development and increased economic opportunities.
Mr Gadkari said the release of the plan is the first step towards a new era of port-led
development in India. He said that on the Prime Ministers instructions, the time frame of the
project has been reduced to five years from 10 years.
15. The unevenness of border management on eastern and western frontiers is an important
reason for the continuing unrest in North Eastern India. Critically comment on the statement.
India a soft target for terrorism and conflicts with neighboring countries manifests as issues in
border management.
Border management was largely dictated by the concerns and threats from external sources.
The conflict with Pakistan and continuous tension results in disproportionate response of
military deployment to strengthen border surveillance and security on the western boundaries.
But eastern boundaries are porous and possess threat to the regional peace and fuels insurgency.
The most affected is Assam, whichhas been a source of concern since Indo-Pak war of 1971 with
the Independence for Bangladesh.
Caused increased flow of illegal immigrants into Assam causing competition for livelihood,land
and space. Nellie massacre (1983) and most recent Assam riots (2012) are mainly due to illegal
immigration.
Recently elected government in Assam also took illegal immigration as their important goal.
Much of borders in NE India are riverine or under forest cover, hence it becomes notorious for
porosity
The smuggling of arms, drugs and cattle also complicates the issue.
Fencing, technological solutions, improving deployments, bilateral negotiations onborder
management involving local communities on the borders are some of the solutions that can be
adopted.
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SMART LEADERS IAS
Some of our IAS Toppers with Mr.U.Sagayam IAS, Mr.S.Bharath, Former Civil Judge and our
Founder-Directors Mr.S.Sivarajavel & Mr.M.A.Sadik.
16. Is it justified to use unutilized funds lying under Compensatory Afforestation Fund
Management and Planning Authority to realize the objectives of Green India Mission?
Substantiate your views in the light of the Parliamentary Standing Committee Report on
Science & Technology, Environment & Forests in this issue.
CAMPA-established in 2009 in response to SC judgment for monitoring technical assets and
evaluation of compensatory afforestation activities at centre and state level.
As a way to compensate forest land diverted to non-forest uses.
Since 2009, collected nearly 40,000 crore
To utilize the aggregated fund, a bill was introduced in RS as compensatory afforestation bill,
2015
Compensatory Afforestation Fund
Under public accounts
Money received under permissions
Also establishes a monitoring Group to assist the national authority.
Present scheme of artificial regeneration of forest doesnt work.
According to the act, NPV (net present value) of the diverted forest is calculated for 50 years and
recovered from the user agency thats diverting.
Issues
Non availability of land for afforestation
Degraded forest cannot be chosen as it requires twice the funding that is needed for afforestation
of a bare land.
Fund envisaged for compensatory afforestation but the bill envisages enables the fund to be used
for general afforestation programmes under Green India mission.
Purpose: Forest protection, forest management,forest and wildlife related infrastructure, wildlife
conservation and even relocation of people in the forest areas. The last three purposes are largely
unrelated to afforestation and will take away the prime objective of the fund.
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SMART LEADERS IAS
There is a separate Green India programme that has separate budgetary grants to deal with
issues related above. Therefore, diverting CAF to aid GIM will not be judicious use of the fund.
17. Bring out the background data on the proposal of United Nations' International Civil Aviation
Organisation to freeze carbon emissions. What is Indias position in this issue and criticism
raised on the proposal?
ICAO: UN Specialised agency
Increase in air travelresulted in increase of emissions. But in UNFCCC negotiations airline sector
was left out.
In this context, ICAO plans for carbon neutral growth from 2020. Plans to achieve this through
carbon offsets.
Emissions from airline doubled between 1990 and 2006. By 2020, will increase by 70%.
Proposed measures
o Improve fuel efficiency of fleet by 1.5% per annum (goal already missed)
o To stabilize CO2 emissions by 2020
o To halve the CO2 emissions by 2050.
To implement the above, it proposed for carbon emission tax
Members have to either limit emissions or buy carbon credits.
Deal will be voluntary between 2021 and 2026. But mandatory from 2027 onwards.
Indias concern
Slowing down of airline sector
Already running on their margin profit
Can increase fare charges
Scramble the industry to search non-fossil fuels.
Investment constraints in efficient engines, lighter air craft and bio fuels.
Offsetting doesnt reduce emissions but merely shifts emissions from one to another sector.
Our Student, Dr.R.Vaithinathan (AIR-37, Tamil Nadu Rank-2)

Felicitated by Mr.U.Sagayam IAS
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SMART LEADERS IAS

18. What are the main recommendations of Kelkar Committee report on Revamping and
Revitalizing Public Private Partnership?
Rapid urbanization and industrial growth led to the demand for basic infrastructure such as
water supply and sanitation, transportation and energy. In order to augment economic growth, the
government initiated several policy and enabling measures to support the creation of high-quality
infrastructure and efficient delivery of services to its citizens.
The Twelfth Five Year Plan (2012-2017) was formulated against the backdrop of a remarkable
performance of the infrastructure sector during the Eleventh Plan. The Twelfth Plan projected an
investment of Rs.55.75 lakh crores (at current prices) in infrastructure during the Plan period
(2012-17), which was more than twice that achieved during the Eleventh Plan period.
The performance in the first two years of the Twelfth Plan suggests that infrastructure
investment has slowed and there will be a shortfall of approximately 30%, with the shortfalls in
public investment (central and states combined) and private investment at 20% and 43%
respectively.
The use of PPP an as instrument of procurement for creation of infrastructure assets and
delivery of public services has been recognized globally. Given the enormity of investment required
and the limited availability of public resources for investment in physical infrastructure in India, the
projected infrastructure requirements have made it imperative for the government to explore
avenues for increasing investment in infrastructure through a combination of public investment and
the PPP mode of delivery. While augmenting delivery and financing of public projects, PPPs are
expected to bring in new and cost-effective technology for creation of infrastructure assets,
managerial efficiency, and superior competencies in service standards for the operation and
maintenance of public assets. There is a contractual accountability for the private party to guarantee
timely and high-quality infrastructure services to end users.
Key recommendations of the committee
Significance: Speeding up of the PPP model is urgently required for India to grow rapidly and
generate a demographic dividend for itself and also to tap into the large pool of pension and
institutional funds from aging populations in the developed countries.
Indias success in deploying PPPs as an important instrument for creating infrastructure will
depend on a change in attitude of all authorities dealing with PPPs-public agencies, government
departments supervising and auditing and legislative institutions.
The Government may take early action to amend the Prevention of Corruption Act, 1988which
does not distinguish between genuine errors in decision-making and pretensions. This is
necessary to make punishable only the malafide action of public servants and not errors.
Experience has also underlined the need to further strengthen the three key pillars of PPP
frameworks namely Governance, Institutions and Capacity, to build on the established
foundation for the next wave of implementation.
The Committee strongly endorsed setting up of the 3PI (dedicated institute for PPPs) which
can, in addition to functioning as a centre of excellence in PPPs, enable research, review and roll
out activities to build capacity, etc. Independent regulators should be set up with a unified
mandate that encompasses activities in different infrastructure sub sectors to ensure
harmonized performance by the regulators.
Model concession agreements to be issued only when 80 per cent of the land for a project has
been acquired.
The committee advised against adopting PPP structures for very small projects, since the
benefits of delivering small PPP projects may not be commensurate with the resulting costs and
the complexity of managing such partnerships over a long period.
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SMART LEADERS IAS
Unsolicited Proposals (Swiss Challenge) may be actively discouraged as they bring information
asymmetries into the procurement process and result in lack of transparency and fair and equal
treatment of potential bidders in the procurement process.
Since state owned entities SoEs/PSUs are essentially Government entities and work within the
government framework, they should not be allowed to bid for PPP projects.
The Committee recommended the government to notify comprehensive guidelines on the
applicability and scope of access to, under RTI and Art 12 of the Constitution, and auditingof
financial related matters in order to avoid any delays in public asset provision.
Banks and financial institution should be encouraged to issue Deep Discount Bonds or Zero
Coupon Bonds (ZCB) to mobilise long term capital at low cost.
Ministry of Finance may develop and publish a national PPP Policy document and it should
be endorsed by the Parliament to impart an authoritative framework to implementing executive
agencies as well as to legislative and regulatory agencies charged with oversight responsibilities.
19. While the indigenously engineered GM mustard DMH-11 is a shot to arm in terms of
ownership, the field trials of the GM crop raises crucial questions that need to be answered.
Comment
DMH-11- developed in Delhi University. Makes it better suited for breeding. Will allow local crop
developers to easily develop varieties of hybrid mustard.
A technical body under MoEF-ruled that GM mustard is safe for human health and environment.
Increase in yields in GM cotton is proven since 2006. But the issue with it was that the GM crop
was not indigenous and creates a vicious cycle of dependency on GM crop manufacturers.
The GM Mustard is an indigenous crop, which is a good improvement.
As one independent report from 2008 to 2014, out of 138 GM crop field trials only 39 were
properly monitored
The field trials of GM mustard in Punjab and Delhi and its post-harvest monitoring was missing.
3 states: MP, Haryana and Rajasthan accountfor 70% of mustard production.
DMH-II is herbicide tolerant crop (GLUFOSINATE)
Large scale field trials is of complex issue- safety
GEAC approved DMH-II
20. The issue of solid waste disposal in India is not due to dearth of technology but can be traced
to non-segregation of waste at source. In this context, analyse how Municipal Solid Waste
(MSW) Rules, 2015 aims to deal with this issue through segregation at source.
Recently notified rules SWM rules 2016,replaces municipal solid waste (management and
handling) rules 2000.
Segregation at source:
o To channelize the waste to wealth by recovery.
o Segregation into 3 streams as biodegradable, dry (plastic, wood) and domestic hazards.
o Institutional generators, market associations, event organizers are directly responsible for
sorting and segregation of waste and mange in partnership with local bodies.
Collection and disposal of sanitary waste
o Manufacturers are responsible for creating awareness and providing proper pouch
(cover) for disposal.
Collect back schemes for packaging
o Brandowners should collect back non bio-degradable wastes.
User fee for collection
o Local bodies authorized
o Spot fine for dumping waste
o Integration of rag pickers
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SMART LEADERS IAS
Waste processing and treatment

o Processed treated and disposed through bio-methanation within the premises of the
institutions involved as far as possible
Segregation at source
o Heart of the SWM
o So far, the strategy of segregation has failed in almost all of major cities. The concern to
this failure is aptly recognized and incorporated in the new rules. The feature of spot fine,
responsibility on institutional generators will bring the necessary awareness and
obedience, if the rules are properly implemented.
Criticisms
o No alternatives are available for managing non-segregated wastes.
o Landfills, as a matter of convenience and feasibility, are located near cites. Of the waste
that cannotbe disposed otherwise, only non-usable, non-recyclable, non-biodegradable,
non-combustible, should reach landfills.
o When segregation is contracted to private player enforcement is an issue.
o Landfill tax can be levied to discourage resorting to the method of landfill.
Page 29 of 30
SMART LEADERS IAS
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