WAT PI Prep For IIM Sample Essays

Issues
for IIM PI Process http://www.essaysforIIM.com
'Essays for IIM' brings to you a holistic e-book on Current Essays/Notes with topics ranging from
Political, Economic to Business Affairs. Some sample essays can be read on the following pages. The
essays have been written and compiled after extensive analysis by our research team. For ordering the
complete package visit www.essaysforIIM.com for more information or call us on 099532 45572
Make for India or Make in India The debate begins!
WithRBIgovernorRaghuramRajanprovidingthestrongestcritiquetothegovernmentsMakeinIndiastrategy
thefiretothedebatehasbeenkindled.ItisanuancedstatementmadebytheRBIgovernorandhisimport
canbeunderstoodclearlyasbelow:
a) HehassaidthatgiventhehugedemandpotentialforIndia,makeforIndia,albeitinIndia,maybea
betterstrategy.
b) Cautioned against an exportled strategy but clarified that through his Make for India he is not
advocatingexportpessimism.
a. Astrategyforexportledgrowthinvolvessubsidizingexporterswithcheapinputsaswellasan
undervaluedexchangeratemightnotworksimplybecauseofcurrentdemandconditions
i. Slow global economic recovery, especially in the industrial countries is expected
atleastfornext5years.
ii. Otheremergingmarketscertainlycouldabsorbmore,andaregionalfocusforexports
willpayoff.
iii. Anotherquestionisiftheworldasawholewouldbeabletoaccommodateanother
exportledChina
b. An incentive driven approach leads to buildup inefficiencies in the system and is not self
sustainingasremovalofincentiveswouldmakethemuncompetitiveonceagain.
c. Moreover,notonlyaretheircoststoprovideincentivesintheformofsubsidies,giventhe
informationagethebuyersareawareofincentivesandhencenegotiatecontractstakinginto
accounttheincentives.Hence,apartoftheincentivesflowtoforeignnationals.
c) Cautioned against Importsubstitutionstrategy as it may not work in the current global economic
scenarioasitasaneraofGlobalValueChainsandwecannotbeseenbytheworldastryingtocurb
imports.
a. An import substitution strategy creates barriers leads to reduced domestic competition,
creatinginefficientproducersleadingtoincreasedcoststoconsumers.
b. Insteadweneedtobemoreopenandcreateanenvironmentthatmakesourfirmsableto
compete with the rest of the world, and encourages foreign producers to come and take
advantageofourenvironmenttocreatejobsinIndia
d) Cautioned against picking a particular sector such as manufacturing for encouragement simply
becauseithasworkedwellforChina.
a. Themainfocusofthegovernmentshouldbeoncreationofagenericenvironmentwithavery
high Ease of Doing Business. Which sector to invest in and focus should be left to the
entrepreneurs.Weshouldfocusonprovidethepublicgoodsthataretherequirementofeach
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Issues for IIM PI Process http://www.essaysforIIM.com
sector and provide them at a faster renewed pace. For eg: MSMEs will benefit more if we
provide multiple product quality certification agencies, marketing support by building
platformstosellandafinanceplatformtosellreceivables.
e) This means we have to work on creating the strongest sustainable unified market we can, which
requires a reduction in the transaction costs of buying and selling throughout the country,
improvementsinthephysicaltransportationnetwork,moreefficientandcompetitiveintermediaries
inthesupplychainfromproducertotheconsumer.AwelldesignedGST(goodsandservicestax)Bill,
byreducingstatebordertaxes,willhavetheimportantconsequenceofcreatingatrulynationalmarket
forgoodsandservices,whichwillbecriticalforourgrowthinyearstocome
USCHINAENVIRONMENTDEAL
Goals
announced
China
Asemissionsriseitsetsatarget
foremissionstopeakin2030or
earlier.FirsttimeChinahasset
anydeadlineforstopping
emissions
US
Setsagoaltomakeits2025
emissionsbetween2628%lower
thantheywerein2005
WouldhelptheU.S.achieveits
longertermgoalofbringing
emissions80%lowerthan2005by
2050.
Wouldincreasetheshareof
cleanenergysourceslikewind
andsolarpowerto20percentby
2030,aboutdoublewhatitis
today.
U.S.emissionspeakedin2007,but
abouthalfthereductionssince
havebeenduetotherecession.
Significanceof
Targets
Challenges
Chinaisthebiggestsourceofgreenhousegaspollution,withabouta
quarteroftheworldsemissions.TheU.S.isNo.2withabout15%
ThetwocountriesareoftenadversariesatU.N.climatetalks,andtheir
unprecedentedjointannouncementsendsanimportantsignalthata
dealispossiblenextyear.
Lastmonth,theEuropeanUnionsaidthatits2030emissionswouldbe
40percentlowerthanin1990.
Withpledgesfromthetopthreeemittersonthetableayearaheadof
theParisclimatesummit,pressurenowbuildsonothercountries
includingIndia,RussiaandJapantopresenttheirowntargets.
Coalstillfuelsabout80%ofChinas
Asignificantproportionofpromised
electricity.Moveawaywouldneed
reductionshingeoncuttingcarbon
transformationinwholeeconomyas pollutionfromcoalfiredplants.But
heavyindustriessuchassteel,

cementandchemicalsheavily
dependoncoal.
Republicansarefightingtheplansboth
atthestatelevelandinCongress.
Thegovernmenthasalreadybeen
tryingtoboostlesspollutingsectors
oftheeconomy,suchashightech,
andinfactcoalusefellbya
percentagepointlastyear.Still,
quittingcoalwillrequireamassive
investmentinnaturalgasand
renewableenergy.
Lawsuitshavealreadybeenfiled
againsttheproposals,settingthestage
foralengthybattlethatslikelyto
continuewellbeyondObamasterm.
Withoutthesupportofthenext
president,thenewpollutionstandards
arentlikelytosurvive.
Whatotherissuesneedtobesolvedforaglobalclimatedeal?
a) DevelopingcountrieswantaKyotoprotocolstyledealwithnolegallybindingcommitmentsforthem
b) DevelopedcountriesincludingUSwantdevelopingalsototakecommitments
o Sincetheybeganmorethantwodecadesago,theU.N.climatetalkshavebeenboggeddown
byargumentsbetweenrichandpoorcountriesoverwhoshoulddowhattofixglobal
warming.Richcountriessaydevelopingcountriesneedtoactbecausetheyaccountformost
ofthegrowth.Developingcountriessaytherichhavealreadypumpedoutsomuchpollution
forsolongthattheyshouldtakethelead.
o TheU.S.andChinahavebeenonoppositesidesofthatdebate,whichiswhytheirjoint
announcementisseenassuchabreakthrough.
c) LowchancesofUScongressratifyinganybindingtreaty
d) Developingcountrieswanttherichnationstomakefirmcommitmentstoliveuptotheirpledgesfor
eg:thepledgetoprovide$100billionayearby2020topoorcountries
WhatimpactwilltheUSChinadealhaveonglobalwarming?
ThegraphofChinascommitmentsisveryunclearwithonly1sanctityi.e.peakinyear2030.No
clarityontheyaxis(emissions)astohowhighthatpeakwillbe.Noclarityonxaxis(time)asto
whetheremissionswouldplateauordeclinequicklyorslowlyafterthat.
Moreover,Chinasincreaseinemissionstill2030willdwarf,USsdecreasesandhenceoverallglobal
emissionswillcontinuetorise.
Globaltemperatureshaverisen0.8degreesCelsiussincepreindustrialtimes,andtheU.N.climate
talksareaimedatkeepingthatnumberfromtopping2degreesC.

TheU.N.sexpertpanelsaysthatwouldrequirecuttingglobalemissionsby40percentto70percent
by2050andtozerobytheendofthecentury.
OILPRICE
Majorstakeholders:
a)
b)
c)
d)
OPEC(a12membercartelofhydrocarbonrichcountries)Supply
USespeciallyitsShalegasproducersSupply
DevelopingcountriesDemand
DevelopedcountriesDemand
Howmuchhavepricesfallen
Fromroughly$114perbarrelinJune,pricesbegantohoveraround$90inthesecondhalfoftheyear.
Nowitisbeingspeculatedthatpricesmayevenfalltothe$40levelinthenearfuture.
OnDec1st,onebenchmark,WestTexasIntermediate(WTI)wastradingatlessthan$65perbarrel.
Anotherglobalindicator,BrentCrude,stoodjustabove$67perbarrel,tumblingfurtherfromthe$72per
barrellastweek.Thesepricelevelsarethelowestsince2009.
SomeFactsandrecenthappenings:
OPECSupplies30millionbarrelsperday(bpd).Hasdecidedtokeepproductionatthatlevelfornowwhile
manyanalystswereexpectingthemtocutproductionasglobalpriceshavebeenfalling.Ledtoadownward
swinginprices.
Thestoryoffallingoilpriceshastwoparts.
a. Onereasonforthisdeclinewasthediscoveryofhugenontraditionalhydrocarbonsources,especially
shalereservesinNorthAmerica.Ascrudeoilpricesrose,productionofshaleoil,otherwise
consideredeconomicallyunviable,becameattractive.Graphbelowshowsincreasedproductionof
USmainlyduetoshalegas
b. TheincreaseinoilandproductstocklevelsinOECDcountriescoupledwiththeongoingriseinnon
OECDinventories,areindicationsofanextremelywellsuppliedmarket.

WhyOPECkeptproductionconstant:
a. ThedecisionnottocutproductionwentagainstthedemandofOPECmemberslikeIranand
Venezuela,whohaddemandedthatproductionbecut.Afallingoilpriceishurtingthesecountries
badlygiventhatmoneyearnedfromsellingoilisamajorsourceofrevenuefortherespective
governments.Also,inthepast,OPEChasbeenquicktocutproductionwheneverpriceshavefallen
andthathasensuredthatpricesdon'tfallanyfurther.Butthatdoesn'tseemtobehappeningthis
timearound.
b. Decisionwasmotivatedbyexistingoilinventoriesandthediminishingreturnsfromanyproduction
cutbacksforthecartel.Anydecreaseinsupplywheneconomicgrowthisslowwillleadtoadecrease
inconsumptionandnotincreaseinpricesofoil.
c. ManyanalystsbelievethatOPECsdecisionisaresponsetoShaleoilthreat.Theywanttobleedout
competitorsbymakingshaledevelopmentunviable.ThebreakevenpriceforShalehasbeen
estimatedintherangeof$5070byvariousstudies.Aspricesgosouth,shaleplayersbecome
unviableandcouldbedrivenoutofmarket.[Hasfollowedthisstrategyearlierinmid80swhenit
droveoilpricefromtojustunder$10abarrelby1986.]
d. Itwouldalsofundingalternativesourcesofenergyunviableandslowdowntheresearchand
developmentprocessofnewtechnologies.
Risksandopportunities
Themomentglobalgrowthisrestored,pricesmaymarchnorthagain.Hence,lockinginlongterm
pricesisimportantforcountrieslikeIndiawithahugeimportdependenceonoil
ForIndia,thisisarecipeforcontinuingdependenceonimportedoilandgas.

Cheaperoilmeansalowerimportbill,abettercurrentaccountbalanceandconsequently,lowerfuel
inflation.
Thegoodcomesfromtheboostthatloweroilpricesprovidetoconsumersandmanufacturersinoil
importingeconomies
Thereisalsoapositivedistributionaleffectwithintheseeconomies,althoughitismarginalrather
thandecisive.Becauseenergyspendingconstitutesabiggerpartofthebudgetforlowerincome
families,loweroilpriceshelpcountersomeforcesthathaveworsenedtheinequalityofincome,
wealthandopportunities.
Foronething,theyleadtoimmediatecutsinenergycompaniesinvestmentbudgets,bothinthe
traditionalsectorandamongpromisingalternativetechnologies.Asaresult,longertermenergy
potentialwillbeundermined,bothoverallandinitsmoreenvironmentallyfriendlycomponents.
Theloweroilprices,whichwouldnormallybeseenasproducinggooddisinflationinoilimporting
countries,couldaccentuatethegeneraldeflationarytendencyinEuropeonethatcouldbequite
detrimentaltothecontinentsimmediateandlongertermeconomicwellbeing.
Athirdriskrelatestocertainsegmentsofthefinancialmarkets.Lookfortheplungeinoilpricestobe
disruptiveforthecommoditiesmarketsasawhole,andforsecuritiesissuedbyenergycompanies
andoilexportingcountries.Giventheweightofinvestmentsinthesesecuritiesincertainemerging
marketandhighyieldindexes,theresultcouldmeangeneralizedpressuretosellintheseasset
classes
PAYMENTBANKS
Background
IntheUnionBudget20142015,theHonbleFinanceMinisterannouncedthat:RBIwillcreateaframework
forlicensingsmallbanksandotherdifferentiatedbanks.Differentiatedbanksservingnicheinterests,local
areabanks,paymentbanksetc.arecontemplatedtomeetcreditandremittanceneedsofsmallbusinesses,
unorganizedsector,lowincomehouseholds,farmersandmigrantworkforce.
KeyfeaturesofthePaymentsBanksguidelinesare:
i)
Objectives:tofurtherfinancialinclusionbyproviding(i)smallsavingsaccountsand(ii)
payments/remittanceservicestomigrantlabourworkforce,lowincomehouseholds,small
businesses,otherunorganisedsectorentitiesandotherusers.
ii)Eligiblepromoters:

c. ExistingnonbankPrepaidPaymentInstrument(PPI)issuers;NBFCs,corporateBusiness
Correspondents(BCs),mobiletelephonecompanies,supermarketchains,companies,realsector
cooperativesetc
d. Apromoter/promotergroupcanhaveajointventurewithanexistingscheduledcommercialbank
subjecttoequitystakeasperBankingRegulationAct,1949.
e. fitandproperwithasoundtrackrecordofprofessionalexperienceorrunningtheirbusinessesfor
atleastaperiodoffiveyears
f. Promoter'scontribution:minimuminitialcontributionatleast40%forfirst5years
g. Foreignshareholding:asperFDIpolicyforprivatesectorbanks
iii)Scopeofactivities:
b. Acceptanceofdemanddeposits.WillinitiallyberestrictedtoholdingamaximumbalanceofRs.
100,000perindividualcustomer.
c. IssuanceofATM/debitcards.Paymentsbanks,however,cannotissuecreditcards.
d. Paymentsandremittanceservicesthroughvariouschannels.
e. BCofanotherbank,subjecttotheReserveBankguidelinesonBCs.
f. Distributionofnonrisksharingsimplefinancialproductslikemutualfundunitsandinsurance
products,etc.
iv)Deploymentoffunds:
a. Thepaymentsbankcannotundertakelendingactivities.
b. SeparateSLRrequirement:requiredtoinvestminimum75%ofits"demanddepositbalances"in
StatutoryLiquidityRatio(SLR)eligibleGovernmentsecurities/treasurybillswithmaturityuptoone
yearandholdmaximum25percentincurrentandtime/fixeddepositswithotherscheduled
commercialbanksforoperationalpurposesandliquiditymanagement.
v)Capitalrequirement:MinimumpaidupequitycapitalshallbeRs.100crorewithleveragerationotless
than3%i.e.outsideliabilitiesshouldnotexceed33.33timesitsnetworth
viii)Otherconditions:
a. Theoperationsofthebankshouldbefullynetworkedandtechnologydrivenfromthebeginning,
conformingtogenerallyacceptedstandardsandnorms.
b. ThebankshouldhaveahighpoweredCustomerGrievancesCelltohandlecustomercomplaints.

HUMAN DEVELOPMENT: INTERNATIONAL COMPARISON

TheHumanDevelopmentReport(HDR) publishedbytheUnitedNationsDevelopment Programme (UNDP)
estimatesthehumandevelopmentindex(HDI)intermsofthreebasicparameters:
livealongandhealthylife,
tobeeducatedandknowledgeable,and
toenjoyadecenteconomicstandardofliving.
AccordingtoHDR2013,IndiawithanHDIof0.554in2012hasslippeddownafewnotcheswithitsoverall
globalrankingat136(outofthe186countries)asagainst134(outof187countries)asperHDR2012
Indiahasalongwaytogoasitisstillinthemediumhumandevelopmentcategorywithcountrieslike
China,Egypt,Indonesia,SouthAfrica,andevenVietnamhavingbetteroverallHDIrankingwithinthesame
categoryandSriLankamovingtothehighhumandevelopmentcategoryfrommediuminthe2012HDI
rankingdespiteyearsofinternalconflicts.
TheexistinggapinhealthandeducationindicatorsinIndiaascomparedtodevelopedcountriesandalso
manyofthedevelopingcountrieshighlightstheneedformuchfasterandwiderspreadofbasichealthand
education.LifeexpectancyatbirthinIndiawas65.8yearsin2012,comparedto81.3yearsinNorway,78.7
yearsintheUnitedStates,73.8yearsinBrazil,75.1yearsinSriLanka,73.7yearsinChina,andtheglobal
averageof70.1years.
HowevertheIndianlifeexpectancyfigureissignificantlyhigherthanthatofSouthAfrica(53.4years)which
hashigherHDIrankandevenhigherpercapitaincomewithinthesamecategory.
TheIndianperformanceinmeanyearsofschooling(4.4years)isnotonlymuchbelowthatofcountries
like China, Brazil, Sri Lanka, and Egypt which have higher per capita incomes but also below that of
Bangladesh and Pakistan which have lower per capita incomes. It is also much lower than the global
averageof7.5years.
ThoughlowerinHDIranking,intermsofaverageannualHDIgrowthratefor200012,Indiaiswellahead
ofmanycountrieswithhighandveryhighhumandevelopment.With1.50percentaverageannualHDI
growthitisaheadofChina(1.42),Brazil(0.73),Egypt(0.92),andBangladesh(1.46),thoughitisbehind
Pakistan(1.74).WhileChinaandEgyptperformedverywellintermsofHDIgrowthinthe1980sand1990s,
therewasadecelerationinthe2000s.Ontheotherhand,India,whichseemstohavefalteredinthe1990s,
haspickedupagainduring200012
INEQUALITY
TheHDRmeasuresinequalityintermsoftwoindicators.
The first is the income Gini coefficient which measures the deviation of distribution of income (or
consumption)fromaperfectlyequaldistributionamongindividualswithinacountry.
o ForIndia,theincomeGinicoefficientwas33.4during201112.Inthisrespect,inequalityinIndia
islowerthaninmanyotherdevelopingcountrieslikeSouthAfrica(63.1),Brazil(54.7),Malaysia

(46.2),China(42.5),SriLanka(40.3),theRussianFederation(40.1),Thailand(40.0),Turkey(39.0),
andVietnam(35.6),aswellascountriesliketheUSA(40.8),Poland(34.1),andSwitzerland(33.7)
thathaveotherwiseveryhighHDIranking.
o NotonlyisinequalitylowerinIndiathanmanyothercountries,ithasalsodecreasedasreflected
ina9.2percentfallinitsGinicoefficientfrom36.8during201011to33.4during201112.
Thesecondindicatoristhequintileincomeratio,whichisaratiooftheaverageincomeoftherichest20
percentofthepopulationtothatofpoorest20percent.
o The quintile income ratio for India was 4.9 in 201112. Countries like the United States (8.4),
Switzerland(5.5),Turkey(7.9),Poland(5.5),theRussianFederation(7.3),Brazil(20.6),China(9.6),
Malaysia(11.3),SouthAfrica(25.3),Philippines(8.3),andThailand(7.1)hadhigherratios.
o ThisimpliesthattheinequalitybetweenthetopandbottomquintilesinIndiawaslowerthanina
largenumberofcountries.
Arelatedissueistheruralurbandisparity.
o Oneoftheparametersusedtoestimatetheruralurbangapisthemonthlypercapitaexpenditure
(MPCE),whichisdefinedasavalueassignedtoeachhouseholdformeasuringthelevelofliving.
o According to the findings of the NSS 68th round (201112), the average MPCE based on URP
estimatesatcurrentpricesisRs.1278.94andRs.2399.24respectivelyforruralandurbanIndia
indicatingruralurbandisparities.However,atconstantprices(200405),itisRs.703.42andRs.
1353.82.
o TherealMPCEatconstantpriceshasgrownoversevenyears(200405to201112)by25.9per
centinruralIndiaandbyahigher28.6percentinurbanIndia.
FIVE PRONGED STRATEGY TO CONTROL INFLATION

Thestrategytocontrolinflationhastotakeintoaccountthefollowingfactors:
1. Movetomarketprices:Itisimportanttobecognizantofthefactthatderegulationofdieselprices,power
sector reforms, and generally the move from administered to marketdetermined prices will release
suppressedinflationintheshortrun.Nevertheless,theconsequentreductioninsubsidyandfiscaldeficit
willhavethesalutaryeffectofreducinginflation.
2. Improvingefficiencyofpublicprogrammesandbreakingthewagepricespiral:Theprojectsselectedfor
schemes like the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) do not
improve the productivity of the agricultural sector commensurately. The increasing wages under such
schemeshavereportedlycreatedshortageoflabourintheagriculturalsectoraswellascausedawage
pricespiral. The solution liesin selection of productivityenhancingprojectsfor ambitiouspublic policy
programmesliketheMGNREGS.
3. Rationalizationofgovernmentsupporttofarmers:IfthepolicyofsupportingfarmersthroughMSPand
procurementistocontinue,theMSPshouldbescrupulouslylinkedtothecostofproduction.Procurement
shouldnotbeopenended,andthepracticeofsomestategovernmentsofchargingashighas1415per
centmandifee/taxandpayinghighbonusesoverandabovetheMSPmustbediscouraged.Experiencehas
shownthattheFoodCorporationofIndia(FCI)hasnotbeenabletoreleaseenoughstocksinthemarket

tosoftencerealpriceswhilerecoveringitseconomiccost.Whilefarmerscanbeincentivizedbygradually
removingrestrictionsonexports,theFCIcanlearntoprocurestocksfrommarketsmoreefficientlyand
managerisksthroughthefuturesmarket.
4. Role of APMC Acts: The State Agricultural produce marketing committee (APMC) Acts have created
monopoliesanddistributionalinefficiencies.Theyconstituteamajorroadblockinthewayofcreatinga
national market for agricultural commodities. Apart from breaking the monopoly and dissuading state
governmentsfromtreatingtheAPMCsasliberalsourcesofrevenue,substantiveeffortshavetobemade
tocreatealternativetradingplatformsintheprivatesectorwhereitispossibletoreducethelayersof
intermediation.Sincethismaytaketime,fruitsandvegetablesshouldbetakenoutofthepurviewofthe
APMCActsimmediately.Aprocessorshouldbeabletobuydirectlyfromfarmerswithouthavingtopay
anymandifee/taxtotheAPMC.
5. Roleofpublicdeficits:Fiscaldeficitshouldbebroughtdownbysettingstringenttimeboundtargetsunder
theFiscalResponsibilityandBudgetManagement(FRBM)Act
MAKE IN INDIA OPPORTUNITY

1.Indiahasalmostmissedthe
manufacturingbus.Indiahasfailedtoride
themanufacturingwavethathelpedso
manycountriesinAsiaemergeoutofmass
poverty.PrimeMinisterNarendraModis
exhortationtocompaniestomakein
Indiaisoneindicationthathewantsto
replicatetheAsianmanufacturingsuccess
storiesinIndia.Onepopulardepictionisof
Chinaasthefactoryoftheworldwhile
Indiaisviewedastheglobalbackoffice.
Thereasonsforthisarecomplex.Yet,the
harshfactisthatIndiahasfailedtobuild
enoughfactoriestoprovidejobsforthe
millionswhoareleavingfarms.

2.Thereisanopportunitytogetbackinthegame
Economichistorytellsusthatindustrializationfollows
aninvertedUpattern.Verypoorcountriesdependent
onfarmingdonothavemuchmanufacturing.Theshare
offactoryoutputbeginstogrowascountriesdevelop.
Manufacturinglatercedesspacetomodernservicesin
affluentsocieties.Theshareofmanufacturingin
economicoutputbeginstoacceleratewhenthe
averageincomeofacountryintermsofpurchasing
powerparityisaround$5,000.Itpeakswhenthe
averageincomeis$10,000.AccordingtoWorldBank
datafor2013,Indiahasanaverageincomeof$5,410
thatisclosetothelevelwhenmanufacturingtakesoff
whileChinahasanaverageincomelevelof$11,904
whenmanufacturingisexpectedtopeakasa
proportionofanyeconomy.
3.Futuresuccesswilldependonstrategic
clarity.A2012studybyMcKinseyGlobal
Instituteshowsthatglobalmanufacturing
monolithic.Therearefivevariants:global
innovationsusedforlocalproductssuch
cars,regionalprocessingindustriessuch
food,manufacturingactivitiessuchas
petroleumrefiningthatuseenergyor
commoditiesintensively,global
technologyinnovationssuchas
electronicsandlabourintensive
productionforexportssuchastextiles.A
countryaslargeasIndiamayhaveto
straddleseveralofthesecategoriesifitis
buildadiversifiedindustrialbasethatwill
thecountrystrategicdepthintermsofgeopolitics.
isnot
as
as
to
give

4.Thenatureoftheglobalsupplychain
matters.ManyAsiancountrieshave
progressedbylinkingtothemassivesupply
chainsthatconnecttheglobaleconomy.
Threeeconomists,GregLindenofthe
UniversityofCalifornia,JasonDedrickof
SyracuseUniversityandKennethKraemer
oftheUniversityofCalifornia,studiedthe
economicsoftheiconiciPodtoillustrate
howvalueissharedinthecomplex
manufacturingprocess.Thelowervalue
workisdoneinAsiawhilethemore
innovativestuffisdoneintheUS.The
NarendraModigovernmentwillhaveto
figureoutwhereIndiacanbepositionedin
similarsupplychains.
5.Excessiveregulationstillhobbles
manufacturingandIndiaisoneofthemost
unfriendlyplacestodobusiness:policy
uncertainty,poorinfrastructure,rigid
lawsandtheInspectorRajarejustsome
commoncomplaints.Powerfulcompanies
therequisitepoliticalcontactscansail
throughtheseroughwatersbutthesmall
entrepreneurisoftenathiswitsend.
isalreadyspeculationthattheModi
governmentwilltrytomakeIndiaaless
placetodobusiness.Hereisalookatwhat
startinganewbusinessentailsinIndia.
labour
ofthe
with
There
tough
TWOFACTORIDENTIFICATIONISSUE
TheRBIhasshuttheoverseaspaymentgatewayforcreditcardtransactionswithinIndia,sayingthattherules
needtobefollowedwithrespecttoecommercecreditcardtransactionsessentiallytakingplacebetween
tworesidentsinIndia.

ThismeansthatfirmssuchasUberwillhavetofollowthetwostepauthenticationprocedurethatitwasable
toevadebyvirtueofhavinganoverseaspaymentgateway.
2Factorauthenticationmeanswhenaconsumerbuyssomethingonlineusingcreditordebitcardthere
needstobeanadditionalmeansofauthentication,suchasVerifiedbyVisa,3DSecureorgeneration
OneTimePassword(OTP)
Servesasaneffectivepreventionmechanism.Infact,EUhasmandatedmultifactorauthenticationstarting
Feb2015
Initially,RBIhadmadeitmandatoryforbankstoputinplaceadditionalauthentication/validationbased
oninformationnotvisibleonthecardsforallonlinecardnotpresent(CNP)transactions
Whilesomecompaniesimplementedit,othersstilldidnotdoitvariousreasonsincludingthattheywere
usingforeignpaymentgatewayswhichdoesnotcomeunderthepurviewofRBI.
Thisyear,extendedtheruletocredit/debitcardsandotherpaymentgateways
Additionally, they will need to tieup with an Indian bank payment gateway, without which Indian
consumerscannotmakepurchases.
Thiscreatesabarrierformultinationalecommercecompaniesfromdebitingchargesdirectlyfromthe
customerscredit/debitcards.
Theapexbankaskedbankstomakesurethatpaymentsshouldbeinrupeesincaseswhenthecreditcardis
not presented physically. The move from RBI will have an immediate impact on the much contended taxi
business,especiallyUber,whichhasswiftlyattractedusersinIndia.TheSanFranciscobasedcompanyhasso
far been able to charge credit cards of users without authentication. The users of Uber are automatically
chargedattheendoftheirridebasedoncarddetailsfurnishedatthetimeofenrollment.Theyareabletodo
sobecauseauthenticationisnotneededwhensomeonebuysfromwebsitesbasedoverseas.Thisloopholehas
nowbeenclosedbythecentralbank.
TheRBIhasclarifiedthatsuchcamouflagingandfloutingofextantinstructionsoncardsecurity,whichhas
been made possible by merchant transactions (for underlying sale of goods / services within India) being
acquired by banks located overseas resulting in an outflow of foreign exchange in the settlement of
transactions, is not acceptable as this is in violation of directives issued under the Payment & Settlement
SystemsAct2007besidestherequirementsundertheForeignExchangeManagementAct,1999.
Inordertopreventfraudulentactivitiesthecentralbankhad madeitmandatoryforbankstoputinplace
additionalauthenticationbasedoninformationnotvisibleonthecardsforallonlinetransactions.
BITCOIN AND THE VIRTUAL CURRENCY

WhatisBitcoin?
BitcoinisadigitalcurrencydesignedbySatoshiNakamoto,apseudonym,inJanuary2009.Bitcoinallowsusers
tosendpaymentswithinadecentralized,peertopeernetwork,andisuniqueinthatitdoesnotrequirea
centralclearinghouseorfinancialinstitutionclearingtransactions.Usersmusthaveaninternet

SatoshiisthesmallestunitofBitcoin;1Bitcoincontains100millionSatoshi.Bydesign,thesupplyofBitcoins
cannotexceed21millionBitcoins(2,100trillionSatoshi).ThetotalamountofBitcoinincirculationwillincrease
predictably, based on its underlying code, until reaching the cap in 2140. The current supply is 12 million
Bitcoinsor57%oftheeventualtotal.
ExchangesallowtheconversionbetweenrealworldfiatcurrenciesandBitcoin.Theparticipationinexchanges
requiresconsumerstotakeoncreditriskbytransferringBitcoinsfromapersonalaccounttoathirdpartys
account,whichissimilartoentrustingreallifecashtodepositoryinstitutions.
Money/currenciesaregenerallythoughttohavethreedistinctroles:asaunitofaccount,mediumofexchange,
and store of value. To the extent that Bitcoin offers users many benefits and efficiencies as a medium of
exchange,thismeansitpossessessomefundamentalvaluethatmayincreaseovertimeasitgainswideruse.
However,asaunitofaccountandstoreofavalue,ithasconsiderableshortcomingswhichwebelievewill
ultimatelyhinderitfromascendingtointernationalcurrencystatus.
Advantages
As a medium of exchange, Bitcoin is attractive as it offers low transaction costs. It does so by

eliminating the need for a central clearing house or financial institution to act as a third party to
financial transactions. Using a decentralized, peertopeer network, transactions are verified
independently by network users (i.e., miners) who are rewarded for their work withnewly minted
Bitcoins.Inaddition,itprovidesanalternativepaymentmethodtouserswhomaynothaveaccessto
creditordebitcards,or,otherformsofelectronicpayments.
Bitcoinoffersanattractivealternativetocashintermsofsecurity,transparencyoftransactions,and
counterfeiting.Bitcoinsresideinanencryptedformatontheirownerscomputer,makingitdifficult,
though not impossible, for hackers to access and steal electronically. Physical Bitcoin theft is also
possible,butitseemsnoeasiertocarryoutonalargescalethanforcash.Inaddition,giventheirdigital
format,Bitcoinsaremucheasiertocarrythancash,whichcouldbeaparticularbenefitineconomies
wherelargescaletransactionsareconductedincash.Bitcoinalsooffersthebenefitofbeingeasierto
trackthancashgiventhateachcoincontainsanelectronicrecordofeachtransactionthatcoinhas
gone through since it was created. Not only is each transaction recorded on each Bitcoin, but all
transactions are recorded in an online public ledger, offering a level of transparency that is not
availablewithcash.Suchtransparencyoffersregulatorsmeanstotrackpotentiallyillicitactivity.Lastly,
thedigitalformatwithautomaticverificationalsomakesitimpossibletocounterfeit.
ThereisafinitesupplyofBitcoins.ThedesignofBitcoinseekstomimicthesupplyofgoldinthatthe
systemwillcreateafinitesupplyofthecurrency,whichitsproponentsseeasawaytoprotectitsvalue
fromprofligategovernmentsorcentralbanks.
Bitcoinsrelativeanonymityisadvantageoustocitizensofcrisiscountries.Ithasbeenreportedthat
somebelieveBitcoincanbeusedbythoseseekingtoavoidevadehightaxes,capitalcontrols,and
confiscation.
WinnerTakesAllmarketensuresthatincreasingacceptanceandpopularityofBitcoinincreases
likelihoodofsuccess.AsBitcoinbecomesmorepopular,competitorswillfacehigherbarrierstoentry,

makingitlesslikelytheywillbesuccessfulinsupplantingBitcoinsmarketshare.Severalotherdigital
currencieswithsimilarfeaturestoBitcoinhavebeenintroducedwithlimitedsuccess.However,we
believethestructureofthedigitalcurrencymarketisoneofwinnertakesallwherebyasBitcoin
becomesmorepopularandiseasytouse,consumerswillhavemuchlessincentivetoexperimentwith
analternativecurrencywithsimilarfeatures.
Disadvantages
Bitcoinsroleasastoreofvalueisseriouslycompromisedbyitselevatedpricevolatility.Thedollar
priceofBitcoinhasmoved10%onadailybasissinceitsinceptionincludingdayswhenthepricemoved
190%fromthatdayshighstolows.Itcanbearguedthattheseswingsreflectshiftsinestimatesabout
the fundamental value of Bitcoin as more people become aware of it, or, use it. For example, the
Bitcoinsdollarpriceincreased50%to$785followingaSenateHearingonNovember18thafterwhich
a couple regulators took a more positive stance towards the use of Bitcoin as another form of
payment..
HighvolatilityalsounderminesBitcoinsroleasamediumofexchangeaslargeretailersaremuch
less likely to accept it as a form of payment with prices so volatile. Stores accepting it now are
effectivelyinternalizingthecostsofthisvolatilityandnotpassingitontoconsumers,butwewouldnot
expectsuchlikelyunprofitablepracticestolast.
RegulatorscouldtrytoimposecontrolsthatwouldincreasethetransactioncostsforusingBitcoin
despiteitsefficiencyandthetransparencyrelativetocash.Firstly,thegovernmentisunlikelytowant
to promote a new currency that could be viewed as one that could help facilitate black market
activities,or,taxevasion.Asaresult,regulatorsarecurrentlythinkingabouthowBitcoinwillfitinto
thebroaderpaymentandtaxsystem,andwhatmakessenseintermsofregulation.Thebottomlineis
any new regulation will raise Bitcoins transaction costs, offsetting and/or eliminating one its main
benefits.Inaddition,theeasewithwhichBitcoincanbeusedinternationallyincreasestheneedfor
international regulatory coordination. While coordination raises the risk of an uneven regulatory
landscapeforBitcoin,stringentregulationbyafewlargecountries/regionswouldsignificantlyincrease
thecostsofusingBitcoin,thuslimitingitsusefulnessasamediumofexchange.
ThequalityofBitcoinexchangesecurity,whereconsumersexchangedollarsforBitcoins(andvice
versa) is suspect. For Bitcoin users not able to mine their own Bitcoins, their only alternative is to
exchangetheirlocalcurrencyforBitcoinsatanexchange.AsidefromtheFXrisksthesecustomerstake,
alargenumberofBitcoinexchangeshavebeenhackedwithlargeamountsofcustomerBitcoinsstolen.
InonereportedcaseBitcoinica,anexchange,lost18,547Bitcoinsfromitsdepositsafteritssystems
were hacked. More recently, a European exchange called BIPS lost 1,295 Bitcoins (or $990,000)
followingasecuritybreach.4AsthevastmajorityofpotentialBitcoinuserscannotminetheirown
Bitcoins,exchangeswillbecriticalforlinkinglocalcurrencieswithBitcoin.Withoutdeposit(FDIC)or
investment(SIPC)protection,Bitcoinusers/investorshavelittlerecoursetoretrievestolenfundssoin
additiontoinvestmentrisktheyarealsocarryingcreditrisk.
A 50 minute wait before payment receipt confirmation is received will prohibit wider use. Fifty
minutesisthetimeneededforenoughadditionalblockstobeaddedtothechaintoprotectagainst

doublespending.Thisislessofanissuefortwopartiesthatknoweachotherbecausetheytrustthe
otherwillnotdoublespend,butwhendealingwithananonymouscounterpartythiscreatesahigh
level of unhedgeable risk. As a result, in the absence of a central counterparty verifying
transaction/clearingBitcoinislikelytoremainilliquid,andwillpreventitfrombecomingasignificant
internationalcurrency.
Bitcoins use as an international currency will likely be hindered by the fact that it is not a legal
tender.Unlikefiatmoney,nobodyisunderanyobligationtoacceptBitcoinsasameanofpayment.
Therefore,itsvalueisonlyasgoodastheperceptionofitsworthbyitsusers. Withoutabackstop
buyer, Bitcoin could disappear very quickly should perceptions of its usefulness decline. Repeated
boutsofvolatilityandfurthercyberattackswhichputconsumerandinvestormoneyinjeopardywill
certainlyinformthisperceptionevenasBitcoindoesoffermanybenefits.
JUDICIAL ACTIVISM
Judicial activism is a philosophy of judicial decision-making whereby judges allow their personal views about
public policy, among other factors, to guide their decisions. It can be narrowly defined as one or more of three
possible actions: overturning laws as unconstitutional, overturning judicial precedent, and ruling against a
preferred interpretation of the constitution. (For instance widening the right to life to include right to free
legal aid, right to privacy, right to healthy environment etc)
The chief instrument through which judicial activism has flourished in India is Public Interest Litigation (PIL).
In normal course of law, an individual can approach the courts only if he/she has been personally aggrieved.
But in the case of PIL, the case is filed not by the aggrieved persons but by others on their behalf. Many public
spirited citizens and voluntary organisations (eg. Center for PIL - CPIL represented by Prashant Bhushan and
Shanti Bhushan) sought judicial intervention for protection of existing rights, betterment of life conditions of
the poor, environment etc.
Detractors of judicial activism charge that it usurps the power of the elected branches of government or
appointed agencies, damaging the rule of law and democracy. They argue that an unelected or elected judicial
branch has no legitimate grounds to overrule policy choices of duly elected or appointed representatives,
in the absence of a real conflict with the constitution. In some instances, government regulation by appointed
officers in government agencies are overturned by elected judges.
Defenders of judicial prerogatives say that many cases of so called "judicial activism" merely exemplify judicial
review, and that courts must uphold existing laws and strike down any statute that violates a superseding law.
Some recent instances of Judicial Activism can be
o Distribution of food under Public Distribution System to poor free-of-charge instead of letting it rot in
godowns
o The SC ordered the Delhi Government not to demolish night shelters in Delhi for the homeless in the
midst of winters as it is against the right to life. The court had taken suo moto cognizance from news
paper reports
o The brawl on the appointment of CVC PC Thomas
In India, even as Prime Minister Manmohan Singh frowned upon judicial overreach, Supreme Court former
chief justice K G Balakrishnan had welcomed its outcome as a desirable tension between the judicial and the

legislative and executive branches. The source of the tension, however, lies in the vacuum created by the lapses
of both the legislative and executive branches.
The judiciary is giving the impression of stepping in to fill the vacuum by often forcing the executive to take
action (against the privileged sons of politicians, as in the Jessica Lal case) or compelling Parliament to enact
laws (for example, to curb sexual harassment at workplaces). This has encouraged the Indian urban middle
class to repose its faith in the new-found concept of judicial activism, and to wish that the judiciary replaces the
corrupt legislature and bureaucracy as the benevolent authority. But there is a catch in this wishful belief. Barring
a few recent cases of judicial intervention, which have had some positive effect on governance, the Indian
judiciary on the whole has not displayed any spontaneous will to act on behalf of the common people.
Even though this phenomenon has been welcomed by many, it has many negatives
o It has overburdened the courts leading to delayed justice for normal cases
o It has blurred the line of distinction between the legislature on the one hand and the judiciary on the
other.
o It has made the balance among the three organs of government very delicate. Democratic government
is based on each organ of government respecting the powers and jurisdiction of the others. Judicial
activism may be creating strains on this democratic principle.
Even though Judicial review is essential to maintain the fundamental rights of citizens, the constitution
clearly defines the legislature as the law making body. Any aberration in either of these will be against the spirit
of the constitution. The two parts should try to work together without stepping into the jurisdiction of each
other for the benefit of the nations common man.
IMPACT OF RUPEE DEPRECIATION

There are three important effects:
1. Some people had borrowed in dollars, and left it unhedged since they were speculating that the INR would
appreciate. They get hurt in the process. But this is fine as in a market economy, many people place bets about
future fluctuations of financial prices, and half the time the speculator loses money. (If the rupee had not
depreciated sharply, these speculators would have been gained).
2. When the rupee depreciates, imports become costlier and India's exports become more competitive. So
exports (X) gradually start going up and imports (M) gradually start going down. The net gain in X-M is
increased demand in the local economy. Hence, INR depreciation is good for aggregate demand (and
conversely INR appreciation pulls back demand). However, we have to bear in mind that these effects are
small and take place with long lags.
Many things in India are tradeable. It is important to focus on the things that are tradeable and not just on the
things that are imported. As an example, there are many transactions between a domestic producer of steel and a
domestic buyer of steel. The buyer and seller are both in India. But the price at which they transact is the world
price of steel (which is quoted in dollars) multiplied by the INR/USD exchange rate. This is called `import parity
pricing'. Through this, the domestic prices of tradeables goes up when the rupee depreciates.

INFLATIONS IMPACT ON ECONOMY

Inflation has an adverse impact on the real economy. The following points are worth noting
1. High and persistent inflation imposes significant socio-economic costs. Given that the burden of inflation is
disproportionately large on the poor, high inflation by itself can lead to distributional inequality. Therefore, for
a welfare-oriented public policy, low inflation becomes a critical element for ensuring balanced progress.
2. High inflation distorts economic incentives by diverting resources away from productive investment to
speculative activities.
3. Inflation reduces households saving as they try to maintain the real value of their consumption. Consequent
fall in overall investment in the economy reduces its potential growth.
4. As inflation rises and turns volatile, it raises the inflation risk premia in financial transactions. Hence, nominal
interest rates tend to be higher than they would have been under low and stable inflation.
5. If domestic inflation remains persistently higher than those of the trading partners, it affects external
competitiveness through appreciation of the real exchange rate.
6. As inflation rises beyond a threshold, it has an adverse impact on overall growth.
7. RBI's current assessment suggests that the threshold level of inflation for India is in the range of 4-6%. If
inflation persists beyond this level, it could lower economic growth over the medium-term.
Hence there is a need for a monetary policy response by the Central Bank to control inflation
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Make for India or Make in India The debate begins!

HUMAN DEVELOPMENT: INTERNATIONAL COMPARISON

FIVE PRONGED STRATEGY TO CONTROL INFLATION

MAKE IN INDIA OPPORTUNITY

BITCOIN AND THE VIRTUAL CURRENCY

As a medium of exchange, Bitcoin is attractive as it offers low transaction costs. It does so by

IMPACT OF RUPEE DEPRECIATION

INFLATIONS IMPACT ON ECONOMY

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