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SECURE SYNOPSIS: 10 February 2017

 


SECURE SYNOPSIS: 10 February 2017


NOTE: Please remember that following ‘answers’ are NOT ‘model answers’. They are NOT synopsis too if we go by definition of the term. What we are providing is content that both meets demand of the question and at the same time gives you extra points in the form of background information.


General Studies – 1;


Topic:The Freedom Struggle – its various stages and important contributors /contributions from different parts of the country.

1) How did British policies impact Indian agriculture and farmers during the period 1700 – 1857? Critically examine. (200 Words)

Struggle for India’s Independence, Bipan Chandra

Introduction-

The main burden of providing money for the trade and profits of the East India Company (EIC), the cost of administration and the wars of British expansion in India had to be borne by the Indian farmers and peasants. Policies of EIC therefore were directed to extract as much as revenue possible from Indian peasantry.  

Land revenue policy-

  • Permanent settlement (PS) was introduced in Bengal and Bihar in 1793 by Lord Cornwallis. Under PS peasants were left to the mercies of zamindars that raised the rents to the unbearable limits, compelled them to pay illegal dues and perform forced labor and oppressed them at will.
  • By 1815 nearly half of the landed property of Bengal had been transferred from old zamindars, who had resided in the villages and who had tradition of showing some considerations to their tenants. But the new landowners who were mostly urban moneyed elements were quiet ruthless in collecting revenue irrespective of difficult circumstances.
  • Further, introduction of urban elements as landlords led to new phenomenon of Absentee landlordism and Sub infuedation. Increase in subinfeudation and overcrowding of land led to subdivision and fragmentation of land into small holding most of which could not maintain their cultivators.
  • Ryotwari and Mahalwari Settlement- In these areas Government took the place of the zamindars and levied excessive land revenue which was in the beginning fixed as high as one-third to one-half of the produce. Gradually the cultivators sank deeper and deeper into debt and more and more land passed into the hands of money-lenders, merchants, rich peasants etc.
  • The harmful effects of an excessive land revenue demand were further heightened by the rigid manner of its collection. Land revenue had to be paid promptly on the fixed dates even if the harvest had been below normal or had been failed. Whenever the peasant failed to pay the land revenue, the government put up his land on sale to collect the arrears of revenue.
  • The evils of high revenue demand were made worse because the peasants got little economic returns for it. The government spent very little on improving agriculture.

Heavy assessment of the land was one of the main causes of the growth of poverty and the deterioration of agriculture in the 19th century.

Pro-rich legal-judicial system-

  • Inability to pay the high revenue often drove the peasant to borrow money at high rates of interests from the money-lender. Money-lenders were greatly helped by the new legal system which put into their hands enormous power of the law.
  • Money-lenders used the power of the purse to turn the expensive process of litigation in his favour and to make the police serve his purposes.
  • Moreover the literate and shrews money-lenders could easily take advantage of the ignorance and illiteracy of the peasant to twist the complicated processes of law to get favourable judicial decisions.

Commoditization of land-

  • By introducing transferability of land the British revenue system enabled money lender or the rich peasants to take the possession of the land of poor peasants.
  • By making the land commodity which could be freely brought and sold introduced a fundamental change in the existing land systems of the country. The stability and the continuity of the Indian villages got shaken.

Commercialization of Agriculture-

  • The growing commercialization of agriculture also helped the money- lender cum merchant to exploit the cultivator. The poor peasants were forced to sell his produce just after the harvest and at whatever price he could het as he had to meet in time the demands of the government or landlord.

De-industrialization-

  • The de-industrialization and lack of modern industry caused loss of the land and the over-crowding of land. This compelled the landless peasants and ruined artisans to become either tenants of the zamindars by paying rack-rent or agricultural labourer at starvation wages.

Conclusion-

Thus peasantry was crushed under the triple burden of the Government, Zamindars and the money-lenders. The overall condition of the peasantry deteriorated and gradual impoverishment worsen their woes.  


Topic: The Freedom Struggle – its various stages and important contributors /contributions from different parts of the country. 

2) Critically analyse how did the 1857 Revolt affect various aspects of India’s struggle for Independence. (200 Words)

Bipan Chandra, Struggle for India’s Independence

Introduction-

The revolt of 1857 was not just a mere sepoy discontent but it was popular expression of the overall discontent of Indians due to the exploitative, insensitive and unethical British rule. It began with a mutiny of the sepoys of the company’s army and soon engulfed the wide regions and involved large sections of Indian society.

The revolt of 1857 affected India’s struggle for independence in two ways. One due to the policies adopted by British after the revolt and other due to the legacy of revolt itself.

Effect of policies adopted by British after the revolt of 1857 on various aspects of India’s struggle for independence-

  • India was the most priceless colony for Britain and British were determined to keep India under its rule at any cost. Thus after revolt of 1857 army was reorganized to increase the proportion of British soldiers in the army. For British army was the most important pillar to maintain their hold. This reorganized army was used to suppress any kind of nationalistic activity in India hereafter. Army proved to be the strong challenge for patriotic aspirations of Indians.
  • Revolt of 1857 witnessed strong unity between Hindus and Muslims. British saw it as a threat to their existence. Therefore after the revolt British followed the policy of divide and rule and alienated Muslims from entering into mainstream politics. This proved be the single greatest challenge to the Indian national movement. The emergence of Muslim league, separatist movements and eventual partition of India had their seeds in the policies followed by British after 1857.
  • After the revolt British felt the need of associating Indians in the task of administration. Thus council acts of 1861, 1892 and 1909 were effected. This gave new turn to the India’s struggle for independence. A strong group of moderates emerged on the Indian politics that had great faith in the constitutional politics. Their adherence to constitutional politics even resulted into the split in INC hampering the progress of national movement. However the contribution of moderates and other constitutionalists proved to be important as they continued the struggle inside the legislature when mass movements were not possible. Also they rooted the seeds of strong democracy in India.

 

Effect due to the legacy of revolt itself on various aspects of India’s struggle for independence-

  • The uprising underlines the importance of fighting imperialism at all costs. The 1857 rebels fought and died for a cause – the cause of national liberation from an alien rule. This led Indians to carry out incessant struggle against British even after 1857.
  • Rebels raised the standard of rebellion when the English power in India was at its ascendant height, and fought relentlessly shoulder to shoulder for a national cause till the last hour, ignoring religious, ethnic and local divides. It inspired Indians to think beyond local identity. The process of nation-in-making had finally begun after the revolt of 1857.
  • The unorganized efforts of rebels were responsible for their defeat. It led Indians to make organized efforts involving common masses. The establishment of Indian national congress was result of this lesson.
  • Further, rebels of 1857 lacked clear ideology and positive vision for the future. This drawback was removed as leaders of the national movement visualized India as democratic, republic and secular nation. This greatly embolden the efforts to achieve independence at all costs.
  • The heroic and patriotic struggle of 1857 left an unforgettable impression on the minds of the Indian people, established the valuable local traditions of resistance to British rule and served a perennial source of inspiration in their later struggle for freedom.

Conclusion-Although revolt of 1857 was brutally suppressed, it stands as the glorious landmark in Indian history. Its direct and indirect results culminated into strong, organized, non-violent mass movement which finally brought independence to India. 

(Above two questions are part of our New Initiative, for Details and Timetable, Click Here)


General Studies – 2


Topic: Issues relating to development and management of Social Sector/Services relating to Health, Education, Human Resources.

3) The Good Samaritan law has not sufficed to create the confidence it takes to act in an accident scene. Critically examine why people are apprehensive to act and how this behaviour can be changed. (200 Words)

The Hindu

Context- Recent incident in Koppal in Karnataka where a young man laid bleeding on a road while onlookers took pictures of him and made a video.

Introduction-

Good Samaritan (helpful bystander) is a person who offers assistance to the accident victim without fear of any criminal or civil liability. The objective behind effecting Good Samaritan law is to protect the bystanders from getting embroiled into police investigation or be subjected to harassment due to the legal procedures involved if they decides to help accident victims or even inform hospital and police.

Need of the Good Samaritan law-

India reports on an average 15 deaths per hour due to road accidents.  In a report in 2006, the Law Commission estimated that 50 per cent of accident victims would have survived had they got medical attention within an hour. The major impediment for bystanders in helping accident victims is harassment by police and other complex judicial processes.

Despite enactment of Good Samaritan law people are reluctant to help accident victims because-

Crowd discourages individual to take any initiative or lone action. The pressure to behave like everybody else greatly increases when someone stands in a mass. So it is natural for people standing in a crowd to simply stare rather than to do something.

There are almost no or little positive feedbacks of people helping accident victims even after Supreme Court guidelines. Thus fear of getting entangles into police investigation and long drawn judicial procedure still runs through the minds of bystanders.

Most of the people are still unaware of such Good Samaritan guidelines given by Supreme Court. Most of the states are yet to make laws in the same.

Police are failing to create confidence into the minds of people that they would receive the good treatment for such noble act of helping. During investigating sessions, the person who is not the perpetrator of a crime but merely a helper of the victim is subjected to the same routine ruthlessness that the perpetrator might deserve. 

Mobiles are playing a role of spoilers as there is increasing tendency of taking photos and shooting the accident scene. This liberates one from the gnawing thought that he/she did nothing because of getting paralyzed or scared. It also offers some relief from the feeling that he/she just stood there and watched a person bleed. It provides the satisfaction of doing something while maintaining the relief.

How this behavior can be changed?

All the states should enact Good Samaritan laws so that there is legal backing to the bystander’s concerns. This would also help in increasing the awareness among people these guidelines.

There is urgent need of reforming police behavior and methods of investigation towards good Samaritans. Police particularly working on ground level must be sensitized towards citizen’s concerns that deter them from offering help.

 The crowd tendency would not change overnight and there is need of engaging civil society along with government efforts to change the mindset of people.

To imbibe the culture of Good Samaritans government should incentivize by rewarding people or publishing there name so that mute spectators are encouraged.

There is need to educate people about the use of mobile phones. In fact mobile phones can improve the quickness of help and service delivery by informing respective authorities like ambulances, police station etc. without any delay.

Imbibing values of selfless service and help among children should begin from the home. Also education would prove biggest tool to bring this change.

Conclusion-

These are still early days in the history of the Good Samaritan law. It will take a long time for people to feel secure under its provisions. The will of the society to bring positive change would save many premature deaths.


Topic:Bilateral, regional and global groupings and agreements involving India and/or affecting India’s interests

4) It was said that the Trans-Pacific Partnership  (TPP) Agreement’s damaging ambitions were most evident in the proposed provisions concerning intellectual property. Do you think these provisions will be defunct as TPP now stands cancelled? Critically examine. (200 Words)

The Hindu

Introduction:-

TPP in a nutshell:-

  • Twelve countries that border the Pacific Ocean signed up to the TPP in February 2016, representing roughly 40% of the world’s economic output.
  • The pact aimed to deepen economic ties between these nations, slashing tariffs and fostering trade to boost growth. Members had also hoped to foster a closer relationship on economic policies and regulation.
  • The agreement was designed so that it could eventually create a new single market, something like that of the EU.
  • But all 12 nations needed to ratify it, before it could come into effect.
  • Once Donald Trump won last year’s election, the writing was on the wall for the TPP.
  • US participation was the major linchpin for the deal. It may be possible for the other countries to forge a smaller scale pact in its place, but it can’t go ahead in its current form.
  • Those other member states are: Japan – the only country to have already ratified the pact – Malaysia, Vietnam, Singapore, Brunei, Australia, New Zealand, Canada, Mexico, Chile and Peru.

For and against:-

  • Former President Barack Obama treated trade deals as a priority during his tenure, and this particular deal would have bolstered America’s position in the Asia-Pacific region, where China is growing in influence.
  • But US opponents have characterised the TPP as a secretive deal that favoured big business and other countries at the expense of American jobs and national sovereignty.
  • On the campaign trail Donald Trump called it a “horrible deal”.
  • But it’s not just Mr Trump who opposed the deal. Critics on the left also said it had cost US jobs and said the TPP would pave the way for companies to sue governments that change policy on, say, health and education to favour state-provided services. And it was also seen as intensifying competition between countries’ labour forces.

How big a deal was the TPP?

  • Pretty big. The 12 countries involved have a collective population of about 800 million – almost double that of the European Union’s single market. The 12-nation would-be bloc is already responsible for 40% of world trade.
  • The deal was seen as a remarkable achievement given the very different approaches and standards within the member countries, including environmental protection, workers’ rights and regulatory coherence – not to mention the special protections that some countries have for certain industries.
  • The US pulling out will be seen as big blow for other nations that signed up.

TRANS PACIFIC AGREEMENT AND INTELLECTUAL PROPERTY RIGHTS:-

  • TPP was opposed extensively by progressives for the last two years because of its far-reaching provisions that increased corporate power over trade at the expense of workers and consumers.
  • The TPP provided explicit protections for ‘biologics’ (drugs manufactured in a living organism, rather than through chemical synthesis), the first trade agreement to do so. More damagingly, the agreement mandated the protection of clinical test data submitted for marketing approvals, with pharmaceutical data obtaining five to eight years of protection.  
  • This provision, called ‘data exclusivity’ or ‘marketing exclusivity’, prevents a generic company from relying on the clinical test results of the originator in order to prove the efficacy of its drug.
  • It was justified using the argument that clinical trials are the most expensive part of drug development and hence there is a necessity to provide drug developers the ability to limit access to that data so as to incentivise research.

DOES THE PROVISIONS FOR IPR STANDS DEFUNCT?

  • The developed world’s ambitions for intellectual property will not die with the agreement. Indeed, what seems to be likely is that these damaging provisions will simply migrate to other agreements. 
  • S. withdrawal from the TPP may change the U.S.’s approach to trade and intellectual property more in form than in substance, by switching from trade agreements that include several countries to bilateral free trade agreements (FTAs).
  • Despite the public health impact of the TPP’s provisions having gripped public discussion on the agreement, it is unlikely that these concerns will guide U.S. trade or foreign policy.
  • In reality, the TPP had been dead long before President Trump’s executive order was signed. Still, it is evident that the stealthy global subversion of access to medicines through trade agreements and diplomatic pressure by the U.S. will continue. 

 

But there are possibility that the harsh and unethical provisions may no longer be continued:

  • China and India both are part of RCEP and may influence the policies for public health safeguards and their growing generic market.
  • The pressure of social activist and the possible intervention of UN for protecting citizens of under developing and developed countries may be the beacon of hope for the generic drug developers.

Conclusion:-

With events like Brexit, Trump win in US elections and Europe refugee crisis happening around the world there will be no surprise if the major economies endorses such inward looking policies. TPP though appears to be dead at present might take a rebirth in future foreign policies of many.


Topic: Functions and responsibilities of the Union and the States, issues and challenges pertaining to the federal structure, devolution of powers and finances up to local levels and challenges therein. 

5) Recently, the Nagaland government declared local body elections as “null and void” after some tribal bodies, opposed to reservations for women, sought to disrupt the process. In your opinion, what should have government done in this situation? Justify. (200 Words)

The Hindu

About the issue:-

  • Article 371A of the Constitution secures a special status for Nagaland.
  • But as the civil society groups striving for reservation have argued, urban local bodies are not part of traditional Naga society, and ULBs are constitutional bodies to which customary Naga laws cannot be applied.
  • The conduct of the long-delayed elections was achieved after a protracted legal struggle led by women’s groups. Arguments against women’s reservation invoking Naga customs have been consistently quashed by the courts, ultimately paving the way for elections to be announced for February 1.
  • The State government later submitted to pressure exerted by the Naga Hoho, an apex group of 16 tribal groups, which smelled blood and sought Chief Minister T.R. Zeliang’s resignation.

Background:-

The Article 371(A) in the constitution says, “Notwithstanding anything in this Constitution, (a) no Act of Parliament in respect of (1) religious or social practices of Nagas, (2) Naga customary law and procedure, (3) and administration of civil and criminal justice involving decisions according to Naga customary law, (4) ownership and transfer of land and its resources, shall apply to the state of Nagaland unless the Legislative Assembly of Nagaland by a resolution so decides.”

What should the government have done? :-

  • Application of Rule of Law:- Instead of bowing down to the pressure groups government should have forced the rule of law in order to hold on the reservation system
  • Persuasion of Tribal bodies: – Negotiations and persuasions stands out to be an important tool in such processes. The protesting tribal bodies should be persuaded, showing them the examples and results of providing such quota in other rural areas, which has helped improve local governance, enhancing outcomes in delivery of civic services, such as drinking water supply, sanitation and irrigation etc.
  • Listening to the public opinion rather than to the pressure groups: – Despites bands and disruptions a large number of people participated in the election process.
  • Tackling the insurgency issues: – Government needs to wipe out the insurgency problems in order to prevent such incidences in future.
  • Infusing modern ideas while keeping the Naga customs intact:In order to bring out positive changes and to promote gender equality and emancipation of women and uprooting patriarchy it’s necessary to infuse modern ideas while keeping Naga customs intact.
  • The male members objecting reservation should have been convinced by showing the benefits of quota in improving local governance, enhancing outcomes in delivery of civic services related to basic amenities of life.
  • Government should also have started the initiatives on a smaller scale first in order to understand the problems and required strategies to implement the policy on bigger platform.

Conclusion:-

The state has a tight rope to walk here. But it is the duty of the state to ensure the justice and rule of law prevails over populist ideas. Civil society and people with progressive mind-set can be collaborated with to pass this message to the bottom most strata of the society. The Centre also should ensure the rule of law, upholding the Constitutional provision of women’s representation instead of seeing Nagaland merely from the lens of the still-pending peace accord.


General Studies – 3


Topic: Role of external state and non-state actors in creating challenges to internal security

6) Critically comment on the significance of the decision by Pakistan to raid the office of the Jamaat-ud-Dawa (JuD) in Lahore recently and put its leader Hafiz Saeed and some of his associates under preventive house arrest for an indefinite period. (200 Words)

The Hindu

Introduction:-

Hafiz Muhammad Saeed (born 1948) is a co-founder of Lashkar-e-Taiba and the chief or amir of Jama’at-ud-Da’wah, which operates mainly from Pakistan and has had sanctions placed against it as a terrorist organisation by the United Nations. He is an internationally designated terrorist even though he is influential in Pakistan among certain religious groups. India considers him as one of its most wanted terrorists because of his alleged ties with Lashkar-e-Taiba and his alleged involvement in attacks in India such as the 2008 Mumbai terror attacks2006 Mumbai train bombings and 2001 Indian Parliament attack . Therefore Saeed is listed on the NIA Most Wanted list and India has banned his organisation as a terrorist organisation.

The significance of decision:-

·        It reflects the shades of changing ideology of Pakistan over the issues of Good Militant and Bad militant

·        It represent the strengthening of social activist and intellectuals view point and influence on Pakistan’s administration who are continuously opposing the fertility of any type of terrorism on Pak’s soil.

·        The global clamouring and Trump’s tough stand against Terrorism may somehow influenced Pak’s for such stand, and this could further check the Pak’s action which remains uncontrollable till now.

·        This would help in smoothening relation and building ties between India and Pakistan.

Critical Aspects:-

·        Pakistan has not filed any strong legal case and this fact could be exploited by the Saeed to claim his freedom.

·        Mass protest and rallies against the action reflects the problem is deeply rooted and militant groups are exploiting and brain washing illiterate section and fuelling the hatred against India.

Conclusion:-

There is a need of Consensus and solidarity against the serious issue of Pakistan, it should understand that no religion preaches hate and massacre, and the fire it is playing with may burn itself someday


Topic: Employment

7) Recently the Finance Minister claimed that he was making the highest ever allocation to Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS). Do you think there are issues beyond higher allocation of funds which should be looked at? Critically analyse. (200 Words)

Livemint

The MGNREGA is one of the successful programmes of government to provide ‘guaranteed 100 days a financial year of paid-employment’ in rural areas. World Bank has applauded this programme as one of the best initiatives in tackling poverty. The higher budget allocation for the scheme this year is a welcome step, considering that the scheme faced shortage of funds in the previous few years. However, there are other issues beyond higher allocation of funds that need to look at.

  1. NOMINAL V/S REAL ALLOCATION –
  • 2017 budget has set aside Rs48, 000 crore for the MGNREGS for 2017-18. This is marginally more than Revised Estimate value of Rs 47,499 crore for 2016-17.
  • Deflating MGNREGS allocations with Consumer Price Index Rural (CPI-R) with 2012 as the base year shows that real allocation for MGNREGS in 2017-18 might come down from 2016-17. These adjustments mean that real allocation figures for 2016-17 and 2017-18 would be slight overestimates.
  1. DELAYED PAYMENTS –
  • As per reports, more than 50 % of the payments in 2016-17 were delayed by 15 or more days.
  • Ddelayed payments have increased in comparison to 2012-13 and 2013-14. This is despite the Supreme Court asking the government to ensure prompt payments under the scheme in November 2015.
  • If potential job-seekers start believing that payments would be delayed, they would not seek work under the scheme.
  1. SUPPLY OF FUNDS AS THE DRIVING FACTOR –
  • Only 86% of the households that demanded employment under MGNREGS were provided employment in 2016-17 (data till 7 February)—the lowest in the last five years.
  • MGNREGS works on the principle of employment guarantee, wherein failure to provide employment should lead to the government paying the applicant the stipulated wage. But most people do not know about this provision, and wait for MGNREGS work to open in their villages, which in turn depends on supply of funds. This has turned the scheme upside down from being demand (for jobs) driven to supply (of funds) driven. There have been very few cases where unemployment allowance has been paid due to failure to provide work.
  1. INEFFICIANT USE OF FUNDS –
  • MGNREGS leads to wasteful expenditure because of lack of creation of productive assets.
  • Delay in payments leads to abandoning of projects midway, implying a loss of utilized
  1. LEAKAGES AND CORRUPTION-
  • Fake registrations of projects, proxy names for laborers, diversion of un-employment allowances.
  • Bribes for bringing projects to the villages and infusion of large scale private money into project-works.

Thus, these problems in project-fundings under MGNREGS can neutralize the effect of higher fund allocation. To prevent this following steps should be taken –

  • The fund allocation should consider inflation Vis a Vis a base year to count real value and avoid over or under estimation.
  • Quick disbursal of money should be done to avoid payment-delays and wastage of resources.
  • Public awareness-Work should be provided to all those who demand for it and in case of failure to do so un-employment allowance should be paid. 
  • Quality infrastructure and productive assets should be built under the scheme. Geo-tagging of the assets with the help of ISRO is a right step in this direction to track the process.
  • Center and the states should co-operate so that the funds allocated are efficiently used. Gram Panchayat officials should be trained to make efficient use of the allocated funds by helping build productive assets.
  • Most of the demands are from the rural women, therefore efforts should be made to provide employment to such women in nearby areas, so as to make it accessible not hinder their household responsibilityI
  • Direct Benefit Transfer should be employed in all the states to plug leakage and corruption.

WAY FORWARD –

   For the MGNREGS to live up to expectations, political will to sincerely honor government’s commitment of proving employment must be complemented by reforms at grass root levels, which ensures that the funds allocated are not wasted and are used efficiently.


Topic: Indian economy – Growth and Development

8) What do you understand by household debt? Discuss its effects on economy. (200 Words)

Livemint

HOUSEHOLD DEBT –

‘The amount of money that all adults in the household owe financial institutions. It includes consumer debt and mortgage loans.’

RELATION WITH ECONOMY –

Household debt boosts consumption and GDP (gross domestic product) growth in the short run (1-5 yrs.). But in the long run, household debts have a negative effect on growth – having “real costs” in stimulating economy via credit-expansion. Eg: 2008 financial crisis in USA – excess mortgage debts beyond servicing capacity of households.

A significant rise in the level of this debt coincides historically with many severe economic crises and was a cause of the U.S. and subsequent European economic crises of 2007–2012.

INFLUENCING FACTORS –

  1. Degree of legal protection to creditors
    Credit portfolio – institutional vs non-institutional credit
    3. health of banks, market stability

NSSO (70th ROUND) RESULTS-

  • The National Sample Survey Office (NSSO) Survey 70th round, the results of which were published in November 2016, studies household indebtednessfor the period January-December 2013 in India.
  • The data shows that about 31.4% of Indian rural households and 22.4% of urban households are in debt. The incidence of indebtedness grew much faster in rural India than in urban India, with 35% of cultivator households being indebted in rural areas in 2012, as against 25.9% in 1991. Again, one in about five households in urban areas at the national level were indebted households.
  • Regionally, the indebtedness was far greater in the southern states of Andhra Pradesh, Kerala, Telangana and Karnataka, with the incidence being above 40-50%.
  • More important is the declining role of cheaper institutional credit in the total cash debt in rural segments, vis-à-vis the exploitative traditional sources of non-institutional credit such as agricultural moneylenders, landlords, traders, etc. The share of institutional credit decreased steadily from 61% in 1981 to 56% in 2012. In contrast, the institutional share in urban indebtedness increased and was about 85% in 2012.
  • More than 40% of rural loans were on compound interest terms. Non-institutional loans to rural households were at rates as high as 20%. Further, 69% of the total rural household loans and 58% of urban household loans comprised such high-interest loans from non-institutional agencies.
  • Moreover, both rural and urban households seemed to be borrowing less for productive purposes, with the percentage of productive loans coming down from 69% to 40% for rural, and from 42% to 18% for urban, households over the period 1981-2012.

EFFECTS ON ECONOMY

Short-term (Mostly positive)

  1. 1. GDP-GROWTH – owing to increased consumption and high demand of products, and promotes less savings.
    INVESTMENTSAs demand for products increases, investments in supply chain capacity and efficiency are increased
    3. EMPLOYMENT – The boom cycle provides opportunity for short-term employment and increase in wages as business revenues increase which further push demand higher.
    4. IMPROVED SOCIAL INDICATORS -Pushes social indicators higher with improvement in health, education spending and decrease in IMR, MMR, incidence of diseases, and also lowers GINI coefficient and leads to women empowerment for a brief period promoting inclusive growth.

The short term impact depends on interest rates. The lower they are, the larger multiplier effects would be experienced.

Medium-Longer term (Mostly negative)

  • HIGHER RISKS OF RECESSION1% increase in the HD/GDP ratio in longer term lowers output growth in the long run by 0.1%, especially in a demand-driven economy leading to weakened consumption, and loss of jobs.
  • DELEVERAGING -Large debts from informal sources (high interest rates) and for unproductive purposes (unsecured debt) leads to excessive burden/exploitation of the poor
  • INCREASES GINI COEFFICIENT -Transfer of income from low-saving agents (debtors) to high-saving agents (creditors), thus exacerbating inequality
  • DEGRADING SOCIAL PARAMETERS -Higher dropout rates, low spending on health with increasing prevalence of NCDs related to heart and mind due to excess stress, also increasing poverty leads to increase in IMR, MMR and other diseases
  • POPULIST POLITICS – Support for leaders who would provide fiscal excessiveness through policies like MGNREGA, waiving of agri-loans, extension of loans putting more pressure on exchequer, while also increasing ineffectiveness of monetary policy.

CONCLUSION –

High debt coupled with high income of household (ability to pay interest) won’t lead to much negative impact, but high debt with low income acts as a signal of upcoming sluggishness/recession in the economy. While the Economic Survey and the budget document have raised concerns about corporate debt and government debt, growing household debt should also be a cause of concern.