Economic Survey 2016 17

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(1)General Knowledge Today. nikaloprelims | [email protected] | www.gktoday.in/iaspoint/target2017. Economic Survey 2016-17. IAS General Studies - 2017 Last Updated: February 15, 2017 Published by: GKTODAY.IN GKToday © 2017 | All Rights Reserved GKToday has authorized the download by you of an unrestricted number of copies of this document in PDF format. GKToday grants you a nonexclusive, non-transferable license to use this document for your personal use only. The document is a property of GKToday and is protected by India and international copyright and other intellectual property laws. Unauthorized duplication, redistribution and resale of this document and content herein is not permitted..

(2) Economic Survey 2016-17. Contents ......................... ..... _ ........ ...... ..... ...................................................... Model Questions .................................................................................................................................................. 3 Introduction .......................................................................................................................................................... 4 Difference between Budget and Economic Survey ...................................................................... 5 Economic Survey 2016-17 ................................................................................................................. 5 Summary of Economic Survey Chapters ........................................................................................................ 5 Chapter-0: Eight Interesting Facts About India .................................................................................... 5 Chapter-1: Economic Outlook and Policy Challenges ......................................................................... 6 Key Economic Reforms in 2016 ...................................................................................................... 6 Dubious perception of the ratings agencies .................................................................................. 7 Current Structural challenges for Indian Economy ..................................................................... 8 Key Global Developments and Their implications for India ...................................................... 8 Political Carrying Capacity of the West for Openness and Impact on India .......................... 9 Outlook on GDP ................................................................................................................................. 9 Trends in Inflation ............................................................................................................................. 10 Trends in External Sector ................................................................................................................ 10 Trends in Fiscal Sector ..................................................................................................................... 10 nikaloprelims | [email protected] | www.gktoday.in/iaspoint/target2017 Economic Outlook for 2017-18 ...................................................................................................... 11 Chapter-2: Economic Vision For Precocious, Cleavaged India ......................................................... 11 From Socialism to something like a Washington Consensus ................................................... 12 Reforms of 25 years and transformation of India ....................................................................... 12 Challenges that make India a “precocious, cleavaged democracy” ........................................ 12 Ambivalence towards private sector and property rights ......................................................... 13 Weak state capacity to deliver the essential services .................................................................. 13 Extensive but Inefficient Redistribution ......................................................................................... 14 Explaining the precocious, cleavaged democracy ....................................................................... 14 Chapter -03: Demonetisation: To Deify or Demonize? ................................................................... 14 The Helicoptor Hoover .................................................................................................................... 14 Rationales of demonetisation ........................................................................................................... 15 Reason for targeting high denomination ...................................................................................... 15 Impact of demonetization ................................................................................................................ 15 On Money/interest rates .................................................................................................................. 15 On Financial System Savings ........................................................................................................... 16 On Corruption .................................................................................................................................... 16 On Private Wealth .............................................................................................................................. 16 On public sector wealth ................................................................................................................... 16 On formalization / Digital transactions ........................................................................................ 16 On real estate ...................................................................................................................................... 16 On broader economy ........................................................................................................................ 16 © 2017 GKToday | All Rights Reserved | www.gktoday.in IAS General Studies - 2017. 2.

(3) Economic Survey 2016-17 On GDP ............................................................................................................................................... 16 Benefits of demonetization .............................................................................................................. 16 Steps taken by Government to promote digital transaction .................................................... 17 Way forward and Survey Recommendations .............................................................................. 17 Chapter-04: The Festering Twin Balance Sheet Problem ............................................................... 18 Understanding Twin Balance Sheet Problem .............................................................................. 18 Effect on corporate ............................................................................................................................ 18 Effect on banks ................................................................................................................................... 18 What is unique about TBS in Indian context? ............................................................................. 19 Is the financing strategy sustainable? ............................................................................................ 19 What has been done and issues with it? ...................................................................................... 20 Chapter-05: Fiscal Framework: The world is changing should India change too ? ................... 21 Fiscal Activism .................................................................................................................................... 21 Why Fiscal activism? .......................................................................................................................... 21 Case for India ...................................................................................................................................... 21 The 1991 and 2013 experience ...................................................................................................... 22 Turning to Debts ............................................................................................................................... 22 Fiscal Activism: Gyan for Finance Ministry and Way Forward ............................................... 22 Chapter-06: Fiscal Rules: nikaloprelims Lessons| [email protected] from the States ............................................................................ 23 | www.gktoday.in/iaspoint/target2017 Fiscal Responsibility Legislations .................................................................................................... 23 Assessment of FRL and Lessons to be Learnt ............................................................................. 24 Chapter-07: Clothes and Shoes: Can India Reclaim Low Skill Manufacturing? ........................ 24 Why textile and footwear? .............................................................................................................. 24 Why East Asia Example? .................................................................................................................. 25 Issues in India ..................................................................................................................................... 25 Measures taken .................................................................................................................................. 26 What more needs to be done? ....................................................................................................... 26 Chapter-08: Review of Economic Developments .............................................................................. 26 GDP Growth Rate ............................................................................................................................ 26 GVA {Gross Value Added} Growth Rate .................................................................................... 26 GVA Growth in Agriculture ........................................................................................................... 26 GVA Growth in Industry ................................................................................................................. 27 Growth in Service Sectors .............................................................................................................. 27 Gross Fixed Capital Formation (GFCF) to GDP Ratio ............................................................. 28 Fiscal Deficit ....................................................................................................................................... 28 Expenditure ......................................................................................................................................... 28 Prices .................................................................................................................................................... 28 Food inflation ..................................................................................................................................... 28 Core inflation ..................................................................................................................................... 28 Asset Quality and Profits of Banks ................................................................................................ 29 Credit growth .................................................................................................................................... 29 © 2017 GKToday | All Rights Reserved | www.gktoday.in IAS General Studies - 2017. 3.

(4) Economic Survey 2016-17 Measure to strengthen corporate bond market ......................................................................... 29 Foreign portfolio investments ......................................................................................................... 29 India’s merchandise trade ................................................................................................................ 29 Export: ................................................................................................................................................. 29 Import: ................................................................................................................................................. 29 Balance of payment ......................................................................................................................... 29 External Debt ..................................................................................................................................... 29 Outlook for the economy: 2017-18 ............................................................................................. 30 Agriculture and Food management: ............................................................................................. 30 Agriculture credit .............................................................................................................................. 30 Industrial, service corporate and infrastructure sector ............................................................. 30 Service sector ...................................................................................................................................... 31 Social infrastructure, employment and Human development ................................................. 31 Education sector ................................................................................................................................ 33 Health Sector ...................................................................................................................................... 33 Inclusive policies ................................................................................................................................ 33 Climate change .................................................................................................................................. 34 Chapter-09: Universal Basic Income .................................................................................................... 34 Idea and Componentsnikaloprelims ...................................................................................................................... 35 | [email protected] | www.gktoday.in/iaspoint/target2017 Why UBI Needs Attention? ............................................................................................................. 35 Argument in favour of UBI ............................................................................................................. 35 Argument against UBI ..................................................................................................................... 36 Problems with existing welfare programmes .............................................................................. 36 UBI and Psychological benefits ...................................................................................................... 37 How Universality can remain but at the same time exclude rich? ......................................... 37 How to implement UBI gradually ? .............................................................................................. 38 Conclusion .......................................................................................................................................... 38 Chapter-10: Income, Health & Fertility: Convergence Puzzle ......................................................... 38 The Convergence Puzzle ................................................................................................................. 39 Explanation ......................................................................................................................................... 39 Case of Health Convergence .......................................................................................................... 39 How does this progress compared on a global scale ? ............................................................ 40 Case of Fertility ................................................................................................................................. 40 Conclusion .......................................................................................................................................... 40 Chapter-10: One Economic India: For Goods and in the Eyes of the Constitution ................... 40 De facto, India is economically integrated internally ................................................................ 40 Balance of Trade between States ................................................................................................... 41 Chapter-12: India on the Move and Churning: New Evidence ........................................................ 41 Chapter-13: The ‘Other Indias’: Two Analytical Narratives (Redistributive and Natural Resources) on States’ Development .............................................................................................. 42 Peninsular Model of Development ................................................................................................ 43. 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(5) Economic Survey 2016-17 Other models of development ........................................................................................................ 43 Does foreign aid translate into growth? ...................................................................................... 43 What is RRT? ..................................................................................................................................... 44 Way ahead for development ........................................................................................................... 45 Making governance- contingent transfers ................................................................................... 45 Chapter-14: From Competitive Federalism To Competitive Sub-Federalism: Cities As Dynamos ................................................................................................................................................................ 45 Need to study the changing dynamics of urbanization ............................................................ 45 Understanding Competitive sub-federalism ................................................................................ 46 Zipfs law and India ........................................................................................................................... 46 Challenges Faced by Urban Local Bodies .................................................................................... 46 Poor Governance Capacities .......................................................................................................... 46 Large infrastructure deficits ............................................................................................................ 47 Inadequate finances .......................................................................................................................... 47 Resource mobilization Problems of ULBs ................................................................................... 47 Empowering ULBs financially ........................................................................................................ 47 Dilemma in devolution of fund with respect to political economy challenge ..................... 48 Data and transparency ..................................................................................................................... 48 Key Concepts ..................................................................................................................................................... 48 nikaloprelims | [email protected] | www.gktoday.in/iaspoint/target2017 Total Social Financing {TSF} ................................................................................................................. 48 Credit Expansion ....................................................................................................................................... 48 Objective of Credit Expansion ........................................................................................................ 48 Link between Credit Expansion and Economic Growth .......................................................... 49 Credit Expansion in India and China ............................................................................................ 49 Trade-GDP Ratio ...................................................................................................................................... 50 Trade GDP Ratio – World, India and Other countries ............................................................ 50 Trade-GDP Ratio as indicator of Globalization .......................................................................... 51 Gross Domestic Product .......................................................................................................................... 51 Calculation of GDP ........................................................................................................................... 52 The Components of GDP from expenditure side ...................................................................... 52 Consumption ...................................................................................................................................... 52 Investment ........................................................................................................................................... 52 Government Spending ..................................................................................................................... 53 Exports and Imports ......................................................................................................................... 53 GDP at Current Prices and Constant Prices ................................................................................ 53 GDP at Factor Cost .......................................................................................................................... 53 India’s GDP in 2016-17 ................................................................................................................... 54 Gross Value Added ................................................................................................................................... 54 Difference between GDP and GVA .............................................................................................. 55 Trends in India’s GDP and GVA ................................................................................................... 55 GVA {Gross Value Added} Growth Rate ..................................................................................... 55 © 2017 GKToday | All Rights Reserved | www.gktoday.in IAS General Studies - 2017. 5.

(6) Economic Survey 2016-17 GVA Growth in Agriculture ........................................................................................................... 55 GVA Growth in Industry ................................................................................................................. 56 Growth in Service Sectors .............................................................................................................. 56 JAM .............................................................................................................................................................. 57 Demographic Dividend ............................................................................................................................ 57 Demographic Dividend Across the World .................................................................................. 58 Essential Policy Environment .......................................................................................................... 58 Survey Notes: Demographic Dividend for India ........................................................................ 58 Consequences .................................................................................................................................... 60 Cash-to-GDP Ratio .................................................................................................................................. 60 Implications of higher Cash-GDP Ratio ....................................................................................... 61 India’s Cash-to-GDP Ratio vis-a-vis other countries ................................................................. 61 Public Sector Asset Rehabilitation Agency ........................................................................................... 61 The NPA Problem ............................................................................................................................. 61 Twin Balance Sheet Problem (TBS) ............................................................................................. 62 Current Institutional Framework around Bad Loans ................................................................ 62 Different Approach ........................................................................................................................... 63 Working of PARA ............................................................................................................................. 63 Comment and Conclusion .............................................................................................................. 63 nikaloprelims | [email protected] | www.gktoday.in/iaspoint/target2017 Economic Territory .................................................................................................................................. 63 Savings, Investment and Capital Formation ........................................................................................ 64 Trends in Gross Savings ................................................................................................................. 64 Gross Capital Formation ................................................................................................................. 65 Trends in Capital Formation .......................................................................................................... 65 Tax-GDP Ratio .......................................................................................................................................... 66 India’s Tax-GDP Ratio ..................................................................................................................... 66 Reasons for Low Tax GDP Ratio .................................................................................................. 67 Ways to Increase Tax-GDP Ratio ................................................................................................. 68. GJBYG © 2017 GKToday | All Rights Reserved | www.gktoday.in IAS General Studies - 2017. 6.

(7) Economic Survey 2016-17. Model Questions Prelims MCQ Topics Difference between Budget and Economic Survey, Washington Consensus, property rights, evergreening of loans, Helicoptor Money, Helicoptor Hoover, Fiscal Activism, Fiscal Responsibility Legislations, GDP and GVA Growth rates, Share of Agriculture and Industry in current GVA, Trends in Service Sector, Fiscal Deficit, Tax-GDP Ration, Cash-GDP Ratio, UDAY scheme and its implications for fiscal deficits of states, Peninsular Model of Development, Redistributive Resource Transfers’ (RRT), Dutch disease, Zipfs law, Total Social Financing {TSF}, Credit Expansion and Contraction, Demographic Dividend, Public Sector Asset Rehabilitation Agency, Economic Territory, Savings, Investment and Capital Formation.. Mains Model Questions 1. Critically examine the key structural challenges faced by Indian economy in current times. 2. “While competitive federalism has been a powerful agent of change in relation to attracting investment and talent, it has been less in evidence in relation to essential service delivery.” nikaloprelims | [email protected] | www.gktoday.in/iaspoint/target2017 Discuss critically. 3. Examine the current trends with respect to globalization across the world and their significant consequences for India. 4. “Despite of being a successful democracy and a achieving a remarkable growth, the country has not been able to reach an optimal development model.” Discuss explaining the reasons. 5. Examine the steps taken by Government in recent times to promote digital transactions. 6. In what way the over-leveraged & distressed corporate and bad loans encumbered banks create problem for Indian Economy? What has been done so far to solve these problems? Is there any alternative solution available? Discuss. 7. “India’s fiscal position has an inbuilt bias towards higher deficit and it must be the aim of the government to prevent high spending during booms and constrains during downturns.” Elucidate. 8. What are Fiscal Responsibility Legislations {FRLs}? To what extent, they have been able to help the states to achieve their fiscal targets in recent years? Discuss. 9. What are the reasons that India has underperformed in comparison to East Asian countries with respect to industries such as leather? Discuss. 10. In the light of the misallocation of resources and leakage in the welfare schemes, do you think that Universal Basic Income is a pragmatic alternative idea. Discuss highlighting its pros and © 2017 GKToday | All Rights Reserved | www.gktoday.in IAS General Studies - 2017. 3.

(8) Economic Survey 2016-17 cons. 11. It is argued that despite of economic growth, the developed states are not catching up; instead they are on average falling behind richer states. Analyze the reasons. 12. “Despite of low level of health expenditures, there has been convergence on key health indicators among states in India.” Elucidate. 13. Discuss the key trends in inter-state trade in India keeping in focus the first ever estimates for inter-state trade. 14. Analyze the key trends in Internal migration in India in recent years. 15. To what extent, Geography has helped the peninsular states in India to enable them to grow faster and advanced more rapidly economically? Discuss. 16. “The key challenges faced by Urban local bodies include Poor governance capacities, Large infrastructure deficits and Inadequate finances.” Amplify. 17. Discuss various Resource mobilization Problems of Urban Local Bodies in India. 18. Establish the link between Credit Expansion and Economic Growth. Why uncontrolled credit expansion is dangerous for economies? Discuss. 19. Critically examine the nikaloprelims recently| [email protected] proposed Public Sector Asset Rehabilitation Agency (PARA) | www.gktoday.in/iaspoint/target2017 towards solving India’s Twin Balance Sheet problem.. Introduction Economic survey is presented every year shortly before presenting the Union Budget. This document sets the backdrop for the Budget. The rationale of an Economic survey is that the Parliament can better appreciate the Budget proposals with the background Knowledge provided by the Survey. Economic Survey also provides an opportunity for the government to spell out its economic agenda. India’s first economic survey was presented for the financial year 1950- 51. We can find the Economic Survey documents from the finance ministry website from 1957-58 onwards. Before 1964, Economic Survey was circulated along with the Budget documents. However, from 1964 onwards, it was de-linked from the budget and circulated in advance, so that a context to the budget can be provided. The first draft of the economic survey is prepared by the department of economic affairs in the finance ministry. Then, this draft is cleared by the Chief Economic Advisor and secretary of economic affairs. The final version is scrutinized by the Finance Secretary and Finance Minister. Most of the data are given by Central Statistical Office (CSO) of Ministry of Statistics & Programme GJBYG © 2017 GKToday | All Rights Reserved | www.gktoday.in IAS General Studies - 2017. 4.

(9) Economic Survey 2016-17 Implementation (MOPSI).. Difference between Budget and Economic Survey The constitution of India neither uses word budget or economic survey. Article 112 says that every year the president of India shall cause to be laid in parliament an “annual financial statement”. This statement and some other documents are commonly called budget. Thus, while budget is a constitutional obligation for Union government, Economic Survey is neither a constitutional nor statutory obligation. Further, while budget is prepared in utmost secrecy in the North Block, which houses finance ministry; Economic Survey is printed outside in one of the government presses. Most of its data is already in public domain, so there is no secrecy about it.. Economic Survey 2016-17 The Economic Survey 2016-17 is a 335 page single volume document with 14 chapters. It has been divided into 3 sections viz. Perspective, The Proximate, and The Persistent. It has also an added section called “Eight Interesting Facts About India“. Economic Survey highlights its piracy at Amazon Economic Survey’s official paperback copy is published by Oxford University Press. nikaloprelims | [email protected] However, numerous unauthorized publishers| www.gktoday.in/iaspoint/target2017 have sold the pirated copies of the survey on online e-commerce sites such as Amazon.in last year. Survey has highlighted this issue in its preface saying – “There is indeed a higher form of flattery than imitation: brazen pirating” We note here that if government wishes, they can collaborate with Amazon or other such sites to get the pirated copies delisted. However, this was not done. Interestingly, the authors of the survey console themselves with these lines – “anguish suffered by this violation of our intellectual property rights was more than offset by the gratitude we felt in achieving wide circulation for the Survey. We strive to do better this year, risking that the Survey might be consigned to the ranks of popular fiction.”. Summary of Economic Survey Chapters Chapter-0: Eight Interesting Facts About India The survey 2016-17 has put together eight interesting facts, which actually hint towards larger issues related to the country. These facts are as follows: 1. The work-related migration in India is increasing. The Railway passenger traffic data reveals that around 9 million people migrate for work within the country annually. This is double of what was suggested by 2011 census. 2. Rating agencies follow dubious practice in sovereign ratings. India’s rating by rating agencies such as “Standard & Poor’s” is questionable. Why? They have © 2017 GKToday | All Rights Reserved | www.gktoday.in IAS General Studies - 2017. 5.

(10) Economic Survey 2016-17 upgraded China’s rating since 2010 despite of a historic credit expansion and record credit-GDP ratio of that country. On the other hand, despite of dramatic improvement in growth and macroeconomic stability since 2014 in India, the rating has been kept unmoved at BBB-. Thus, the survey slams the S&P for its double standard and not considering India for a ratings upgrade. 3. Welfare scheme in India suffer from acute misallocation. The poorest districts in the country have greatest shortfall of funds. The poorest districts in many states have received least / insufficient funds. The survey says that the districts accounting for the poorest 40% receive 29% of the total funding. 4. India is largely as tax non-compliant country. India has 7 taxpayers for every 100 voters ranking us 13th amongst 18 of our democratic G-20 peers. Thus, while we are a political democracy, we are far away from fiscal democracy. 5. India is fast approaching its demographic dividend peak. They survey points that India’s demographic dividend will peak by 2020; as the share of working age to non-working age population is to reach its max by that year. It also points out the peninsular states would be peaking sooner than the hinterland states. 6. India’s Trade-GDP Ratio is now greater than China. Since 2011, India’s trade-GDPnikaloprelims ratio [aka openness]| www.gktoday.in/iaspoint/target2017 has overtaken that of China. This is interesting | [email protected] because so far, China is known for using trade as engine of growth. 7. Spatial dispersion in income is rising. The survey points out that spatial dispersion in income in the country is still rising, the poor becoming more poor and richer becoming richer. The forces of convergence are still elusive in the country 8. Property Tax Potential Unexploited. The survey says that governments in India have been not able to exploit the property tax. We note here that the previous economic surveys have also advocated higher property taxes in the country to improve “local government finances”.. Chapter-1: Economic Outlook and Policy Challenges This is a summary of the chapter 1 of the Economic Survey 2016-17. Key Economic Reforms in 2016 At domestic front, year 2016 was marked by two major policy developments viz. passage of GST bill and demonetisation. The GST will create a common Indian market, improve tax compliance and governance. The government enacted demonetisation of higher currency notes as a radical governance-cumsocial engineering measure with four major aims viz. curbing corruption, counterfeiting, terror finance, and accumulation of black money. Demonetisation is expected to give long term benefits GJBYG © 2017 GKToday | All Rights Reserved | www.gktoday.in IAS General Studies - 2017. 6.

(11) Economic Survey 2016-17 despite of its short term costs. However, the public debate on demonetisation has raised three questions viz. design and implementation of the move; its economic impacts in short and long term; and future conduct of the economic policy. Apart from this, the government has: overhauled the bankruptcy laws to address the exit problem that pervades Indian Economy. Codified the institutional arrangements on monetary policy with RBI {Monetary Policy Committee}. Solidified the legal basis of Aaadhar by passing the Aadhaar law to realise long term gains from JAM {Jan Dhan-Aadhar-Mobile}. Enacted a package of measures to assist the export oriented clothing sector. NPCI successfully finalized the Unified Payments Interface (UPI) to unleash the power of mobile phones in achieving digitalization of payments and financial inclusion, and making the “M” an integral part of the government’s JAM initiative. Implemented FDI reforms which allowed India to become world’s one of the largest recipients of FDI. | [email protected] | www.gktoday.in/iaspoint/target2017 At international front, Brexit nikaloprelims and Trump victory in US Presidential elections may herald a tectonic shift in global environment with “darker possibilities” for Indian economy. The follow up to these policy actions are fast and demand-driven remonetisation; further tax reforms {which include bringing land and real estate into GST}, reducing tax rates and stamp duties, and allay fears of tax administration.. Dubious perception of the ratings agencies They survey has questioned the role of rating agencies and accused them of biased perception towards India’s sovereign ratings. The key arguments given are as follows: The role of rating agencies was questionable in US financial crisis also when some of them had given AAA ratings to dubious mortgage-backed securities. The rating agencies They could not warn in advance the financial crisis. Often, they downgrade the ratings “post-facto“, which means that they fail to identify the problem in advance. Their perception of India has also been questionable. In 2016, the S&P had ruled out possibility of rating upgrade for India for considerable period. It was not clear what methodology was followed to come at this conclusion. They have been unimpressed by the strong fundamentals, fiscal discipline and growth trajectory of India. © 2017 GKToday | All Rights Reserved | www.gktoday.in IAS General Studies - 2017. 7.

(12) Economic Survey 2016-17. Current Structural challenges for Indian Economy The Key structural challenges faced by Indian economy at the moment are: reducing inefficient redistribution strengthening the state capacity in delivering the essential services and regulating markets dispelling ambivalence about property rights; and embracing the private sector. Government needs not only political will but also overcome the vested interests to address these challenges. Reducing inefficient distribution. The survey points out that there are 950 central sector and centrally sponsored schemes and subschemes run by central government alone. There are rationales for many of them but then there are intrinsic limitations for many of them in terms of effectiveness of targeting. The government has been making efforts to improve redistributive efficiency and one of the vital components towards this is JAM {currently pilot scheme for DBT transfer in fertilisers is on}. Strengthening the state capacity. In terms of state capcity, the survey points out that the delivery of services such as health and education, which are mainly in domain of state governments, continue to remain impaired. The nikaloprelims | [email protected] | www.gktoday.in/iaspoint/target2017 survey notes that “while competitive federalism has been a powerful agent of change in relation to attracting investment and talent, it has been less in evidence in relation to essential service delivery“. But there are exceptions as well, for instance, improvement in PDS in Chhattisgarh, incentivisation of agriculture in Madhya Pradesh, power sector reforms in Gujarat, efficient social programmes of Tamil Nadu and so on. However, there are no good models on delivery of health and education, that can be replicated throughout India. The survey says that: “Competitive populism needs a counterpart in competitive service delivery.” dispelling ambivalence about property rights and embracing the private sector. For decades, there are no signs of political dynamic to remove the ambivalence towards private sector and property rights. Some of the major issues in this context are inability to advance in strategic disinvestments, over-indebtedness if the corporate and banking sectors, issue of retroactive taxation and litigations, intellectual property rights in seeds; reforms on civil aviation sector etc.. Key Global Developments and Their implications for India There are three main external developments that are of significant consequence for India. First is the implications of US elections on that country’s fiscal / monetary policy and its implications for India. Second, the world appears to have reached to political carrying capacity for globalization in the wake of recent events. This hints towards a stagnant of declining trade at global level. Third, the developments in US may lead to rise in Dollar and will have implications for China’s currency. © 2017 GKToday | All Rights Reserved | www.gktoday.in IAS General Studies - 2017. 8.

(13) Economic Survey 2016-17 Implications on India will depend on how China handles this issue. If China successfully rebalances its economy, it will have positive spill over impacts for Indian economy. However, if Chinese Yuan further declines, it will have negative impacts for India. China has to handle its domestic credit expansion, which is posing as a threat to it for short as well as long term.. Political Carrying Capacity of the West for Openness and Impact on India The economic survey has highlighted the fear of rise of anti-globalization and protectionist trends in US and other countries in west. It says that “world cannot bear too much globalization.” and has tried to link stagnant Indian exports with this. The key things which survey has pointed out are as follows: The political backlash against globalization and China’s difficulties in rebalancing its economy may have major implications for Indian exports. The political carrying capacity for globalization is not only relevant for India’s goods exports but also services exports. India is a service based economy. Currently, global service-exports/GDP ratio is 6.1%. If India’s service exports grow rapidly, this ratio can increase by 0.5% which shall be substantial. Thus, India’s service exports growth would test the globalization carrying capacity in services. World’s carrying capacity may be much larger for India’s services exports in comparison to nikaloprelims | [email protected] | www.gktoday.in/iaspoint/target2017 China’s goods exports. This is a positive aspect of inherent strength of Indian Economy. We note here that this statement comes at a time when Trump was preparing executive orders on H1-B and other visas and stringent curbs on them.. Outlook on GDP The baseline forecast for 2016-17 for GDP is 7%. As per economic survey, this is expected to slow by 0.25-0.5% showing the after-effects of demonetisation. The survey says that economic will recover in next fiscal and could grow between 6.75 to 7.5%. The below graphics shows the relative growth of various sectors in recent years in terms of GDP.. GJBYG © 2017 GKToday | All Rights Reserved | www.gktoday.in IAS General Studies - 2017. 9.

(14) Economic Survey 2016-17. As per the survey, the main highlights of sectoral growth outcome in first half of 2016-17 are as nikaloprelims | [email protected] | www.gktoday.in/iaspoint/target2017 follows: There has been a moderation in industrial and nongovernment service sectors There was modest pick-up in agricultural growth on the back of improved monsoon; and strong growth in public administration and defence services.. Trends in Inflation As per the survey, Retail inflation is likely to be well below RBI’s target of 5 per cent in the current fiscal mainly because demonetization would discourage any price rise.. Trends in External Sector In the first half of FY 2017, the current account deficit is 0.3% of GDP. Foreign exchange reserves are at comfortable level at USD360 billion at December 2016 end. Net FDI inflows grew from 1.7% of GDP in FY2016 to 3.2% of GDP in FY2017. These have helped India in balance of payments. The trade deficit has declined in first half of 2016 mainly because of contraction of imports as well as exports whereby fall in imports was much steeper. The ongoing rise in oil prices would put upward pressure on the import bill in medium term.. Trends in Fiscal Sector The survey has been a bit pessimistic over fiscal sector. It says that government is committed to achieve its fiscal target of 3.5% of GDP. The key points highlighted by survey are as follows: Government committed to contain fiscal deficit within targets © 2017 GKToday | All Rights Reserved | www.gktoday.in IAS General Studies - 2017. 10.

(15) Economic Survey 2016-17 There was an increased consumption in petroleum products (gasoline/ diesel) and this helped to get more excise duties. The scene in non-tax revenue is not so bright because there was a shortfall in spectrum and disinvestment receipts also. The public sector enterprises are still stressed and thus have given out lesser dividends. The scene at states is also not encouraging as their consolidated deficit has increased from 2.5% to 3.6% of GDP {from 2014-15 to 2015-16}.. Economic Outlook for 2017-18 The economic survey presents an outlook for Indian Economy in the light of pangs of demonetisation. While the short terms effects of demonetisation are clear viz. aggregate demand shock and aggregate supply shock, the survey is not very clear on long term impacts. The GDP outlook as mentioned earlier is 25 basis points lower than earlier projected. The exports may recover in the wake of increased global activities. Fiscal position of the government would strengthen due to rise in Tax-GDP ratio and oil windfall {due to fall oil prices}. Also the survey hopes it best that government would get high profits from high denomination notes which don’t return to RBI {though stats show otherwisenikaloprelims that most of these notes have already returned}. It also emphasises | [email protected] | www.gktoday.in/iaspoint/target2017 improvement in fiscal position of the government due to increases collection of taxes in Pradhan Mantri Garib Kalyan Yojana. It also underpins the importance of smooth transition to GST but also cautions the central government about its commitment to states for any shortfalls in GST collections. With respect to exports, it cautions the government to increase India’s competitiveness, particularly due to rise in competitiveness of the countries such as Vietnam, Bangladesh and Philippines. With respect to trade, survey cautions the government about the possible resurgence of protectionist pressures in west and makes a case for need for reaching to open markets aboard. It says that events such as US withdrawal from TTP may result in increased relevance of WTO. Thus, there is a need for India to proactively pursue for “multilateralism” and revival of WTO.. Chapter-2: Economic Vision For Precocious, Cleavaged India “Democracy” has allowed India to show a robust performance in economic growth yet, there are serious challenges that underline the poor democracy with deep social fissures in the country. Due to these challenges, the economic survey calls India a precocious, cleavaged democracy. As highlighted in chapter-1, these long-standing challenges include: ambivalence about property rights and the private sector; deficiencies in state capacity, especially in delivering essential services, and inefficient redistribution.. © 2017 GKToday | All Rights Reserved | www.gktoday.in IAS General Studies - 2017. 11.

(16) Economic Survey 2016-17. From Socialism to something like a Washington Consensus After independence, socialism remained the economic vision for India for around half a century, marked by economic nationalism and protectionism, dominance of public sector and government monopoly, and its interference in private firms and their investment, production and trade. This came to an end in 1991 with the advent of liberalization, privatisation and globalization in 1991. What followed was an economic vision that resembled the so called “Washington Census” i.e. open trade, open capital, and reliance on the private sector. This development model has been successful in several countries in Eastern Asia.. Reforms of 25 years and transformation of India Due to continuous reforms in last 25 years, there has been a remarkable transformation of India from a closed economy to an open and thriving economy with respect to several standard measures such as openness to trade, openness to foreign capital, share of government expenditure in overall spending etc. With respect to openness to trade, the fundamental fact is that geographically larger countries tend to trade less with other countries mainly because of presence of large internal markets in them. India also follows this principle but overall India’s trade is much larger than what one nikaloprelims | [email protected] | www.gktoday.in/iaspoint/target2017 of would expect of its geographical size. In last 25 years, India’s trade GDP ratio has shown steep rise and it has become larger than China and United States. {note that India’s trade-GDP ratio has been around 55-58% in recent years}. With respect to the openness to foreign capital, the survey says that despite significant capital controls, India’s net inflow of foreign capital has been quite normal and is comparable to other emerging economies. India’s FDI has risen sharply over the time and in most recent year, India received FDI of USD 75 Billion which is not very short of China. With respect to the share of government expenditure in overall spending, the survey says that when we compare the size of the government expenditure to GDP ratio, India’s share is much larger than other countries with similar development levels. In summary, these reforms have allowed Indian economy to grow significantly and the survey pats the country on its back for remarkable development on these three standard measures. This growth has been particularly remarkable because it has been achieved in a fully democratic political system.. Challenges that make India a “precocious, cleavaged democracy” Despite of being a successful democracy and a achieving a remarkable growth, the country has not been able to reach an optimal development model. There may be numerous reasons but survey has particularly highlighted three reasons – (1) the country is still not able to embrace the private sector. © 2017 GKToday | All Rights Reserved | www.gktoday.in IAS General Studies - 2017. 12.

(17) Economic Survey 2016-17 and protect the property rights. There is still over-reliance on state for the activities that could be left for private sector (2) the state capacity to deliver the essential services has been week (3) extensive but inefficient redistribution {of income}. Ambivalence towards private sector and property rights. Though ambivalence towards private sector is everywhere because of the intrinsic paradox – the profit maximization aim of private sector does not match with social concerns of government. However, this ambivalence is greater in India, if we compare attitudes to the private sector in India with other countries. This ambivalence manifests in several forms, for example: It is difficult to privatise the public sector enterprises even if there are strong arguments for the same. This is evident in civil aviation sector, banking & finance sector. We have still to wait for the day when our airlines are “world class”. In farming sector, the requirement to sell the produce only via APMC is archaic. It distorts the prices against the favour of both producers and consumers; and when the prices rise much far, the Essential Commodities Act is invoked to impose stock limits etc. With respect to property rights, these rights were initially included as Fundamental Right {Article 19 (1) (f)} but nikaloprelims later were converted to ordinary legal right {Article 300-A} via 44th | [email protected] | www.gktoday.in/iaspoint/target2017 amendment. But this downgrade of rights to property has resulted into the “retrospective taxation’ problem and is lingering around even today {survey say so, I think they overlooked the circumstances in which the 44th amendment was enacted}. This was evident in a number of recent cases such as those involving Vodafone and Monsanto. This is further aggravated by the Twin Balance Sheet Problem – in corporate and in banking sector {discussed later}. Weak state capacity to deliver the essential services. Almost all emerging economies started as weak states at the time of their independence. However, as their economies developed, the state capacity also improved. Unfortunately, this did not happen in India. Indian state has low capacity and high level of corruption, clientalism, rules and red tape. The survey says that while competitive federalism in the country has been a powerful agent of change with respect to attracting investment and talent, it has failed to improve essential services delivery with few exceptions such as improved PDS of Chhattisgarh, incentivasation of agriculture in Madhya Pradesh, power sector reforms of Gujarat, and improved delivery of social services in Tamil Nadu etc. As far as delivery of health and educational services is concerned, the competitive federalism has not been able to bring much changes. The weakness of state capacity has not only resulted in inhibition of service delivery but also heavy constraints in policy making. Since the policy making needs to be such a way that it does not result in vested interests, there is an adherence to strict rules which may sometimes not be optimal public GJBYG © 2017 GKToday | All Rights Reserved | www.gktoday.in IAS General Studies - 2017. 13.

(18) Economic Survey 2016-17 policy {example- auction of public assets}. For example, the transparent spectrum auction may be a socially optimal policy, but it has undermined the other methods than auction. This apart, there is too much caution in bureaucratic decision making, which actually favours status quo. For example, senior managers of banks fear in writing down the loans for the fear of being seen as favouring corporate interests; and becoming targets of 4Cs viz. courts, CVC, CBI and CAG. What happens due to this is “evergreening of loans” and postponing the solution of the problems. Extensive but Inefficient Redistribution. In India, the redistribution is not efficient with respect to targeting the poor. The welfare schemes suffer not only from shortfall of funds but also from misallocation. This results in exclusion errors {deserving poor are excluded}, inclusion errors {non-poor receiving benefits} and leakages. The government has tried to solve the leakage problem via subsidy reforms and use of technology.. Explaining the precocious, cleavaged democracy The survey tries to explain why India is a precocious, cleavaged democracy while comparing it with other democracies. It says that at the time of independence, India was a highly poor society and also a highly socially cleavaged society in terms of languages, castes, religions, regions, gender and classes. Further, the founders of India took the country on path of socialism whereby the wanted to build the nikaloprelims | [email protected] | www.gktoday.in/iaspoint/target2017 country by developing industry under state’s control. Obviously, embracing private sector in such circumstances was not possible.. Chapter -03: Demonetisation: To Deify or Demonize? In its third chapter, the survey tries to analyze {and to justify} the rationale behind governments move to demonetize, impacts of demonetisation, benefits of demonetisation and way forward. We note that there were two previous instances of demonetization, one was in 1946 and other was in 1978, but the demonetization of 1978 did not have any significant effect on cash the way the current demonetization drive has done. The Helicoptor Hoover The economic survey has used the phrase “helicoptor hoover” to the way demonetization was conducted. This term, derived from earlier concept of Helicopter money. This particular word is a metaphor {not implemented practically anywhere} and involves printing large sums of money and distributing it to the public to increase money supply and stimulate the economy in deflationary periods. The metaphoric imagination is that the printed currency should be dropped from helicopters {Helicoptor drop}. The survey has called demonetization as “Reverse Helicopter Drop” or “Helicoptor Hoover“. GJBYG © 2017 GKToday | All Rights Reserved | www.gktoday.in IAS General Studies - 2017. 14.

(19) Economic Survey 2016-17. Rationales of demonetisation The key rationales enumerated behind government’s move to demonetize the high currency notes are: To curb corruption To prevent Counterfeiting of notes, where high denomination notes are counterfeit to be used for terrorist activities To curb accumulation of “black money” which is generated by income that has not been declared to the tax authorities. The survey recounts the earlier efforts of the government to curb the illicit activities viz. Creation of the Special Investigative Team to probe Black money; Passage of legislation such as Black Money and Imposition of Tax Act 2015 and Benami Transactions Act 2016; Information exchange agreement with Switzerland; Changes in tax treaties with Tax haven countries such as Mauritius, Cyprus and Singapore to prevent money laundering and income disclosure scheme to give one time opportunity to hoarder of Black money to disclose his income which is not taxed.. Reason for targeting high denomination There are few reasons cited by the survey as to why Rs. 500 and Rs. 1000 notes were targeted. Firstly, nikaloprelims | [email protected] | www.gktoday.in/iaspoint/target2017. the soil rate of higher denomination is less. Soil rate is the rate at which notes are considered to be too damaged to use and have been returned to the central bank. Survey says that soil rate of currency notes of Rs. 500 and Rs. 1000 is 22% and 11% which is much lower than soil rate of lower denomination which is 33%. This suggested that notes of higher denomination are not used for transaction, instead used to stash black money. Secondly, the link between higher denomination and illicit activities is well established across the globe. The higher the amount of cash in circulation, the greater the amount of corruption, as measured by Transparency International and this made the 500 and 1000 denomination the soft target. Thirdly, high value notes are easier to store and carry in comparison to smaller denominations or other stores of value such as gold. The economic survey mostly tells us the things which we already know and does not tell us what we want to know. The above rationales are correct but still we are unable to understand the rationale of introducing Rs. 2000 currency. Is that a stop gate currency and yet another demonetisation is in cards? This is not hinted by Survey, which talks of rapid remonetisation rather.. Impact of demonetization The impacts of demonetisation are summarized in economic survey as follows: On Money/interest rates. In the short term, the cash declined sharply; Bank deposits increased sharply. In the long term, the cash will recover but settle at a lower level. Deposits will decline, but probably settle at a slightly © 2017 GKToday | All Rights Reserved | www.gktoday.in IAS General Studies - 2017. 15.

(20) Economic Survey 2016-17 higher level. RBI’s balance sheet will shrink, after the deadline for redeeming outstanding notes. Loan rates could fall further, if much of the deposit increase proves durable. On Financial System Savings. Increased in the short term and will increase in long term to the extent that the cash-deposit ratio falls permanently. On Corruption. In the short term, the stock of black money fell, as some holders came into the tax net. In the long term, the corruption and black money could decline if “incentives for compliance improve“. In the long term, the formalization would reduce the flow of unaccounted income. On Private Wealth. In the short term, the private sector wealth declined because some of the high denomination notes did not return to the system; and the prices of real estate fell. In long term, the private wealth could fall further if real estate prices continue to decline. On public sector wealth. In short term, there was no impact on public sector wealth. However, in long term, the RBI’s wealth will increase due to extinguished liability of RBI towards unreturned notes. On formalization / Digital transactions nikaloprelims | [email protected] | www.gktoday.in/iaspoint/target2017. The demonetisation has set off the digital revolution and many new users adopted digital payments for the first time. In long term, some of them would return to cash mode but digital revolution will continue. On real estate. In short term, the prices declined and wealth fell. In long term, the prices could further fall because people have invested unaccounted income in real estate. On broader economy. In the short term, there were job losses, decline in farm incomes, social disruption, particularly in cash intensive sectors. In long term, the economy should stabilize with remonetisation. On GDP. In short term, the GDP reduced demand, supply as well as working capital and increase uncertainty in cash intensive sectors. However, the impact will be lesser on recorded GDP. In the long term, as the economy becomes more formalized, the underestimation would decline and recorded GDP will give realistic picture. GDP will increase with more share of formal economy.. Benefits of demonetization The survey has enumerated various benefits of demonetization as follows: Taxing black money. It has resulted in a transfer of wealth from holders of illicit black money to the public sector, which could have been used in various productive ways such as recapitalization of the banks and retire the © 2017 GKToday | All Rights Reserved | www.gktoday.in IAS General Studies - 2017. 16.

(21) Economic Survey 2016-17 government debts. Tax Compliance. The move would lead to increased “tax compliance” because evaders may decide that it is better to pay regular tax than face a sudden penalty and social condemnation. Tax on informal savings. The informal savings will be channelized into formal financial system and the deposits would provide a base for banks to provide more loan at low interest rates. Digitalisation. One of the intermediate objectives of demonetization is to create a less-cash economy in India. This would ensure that the savings are done through formal financial system and tax compliance. The survey notes that India has very high predominance of cash consumer transactions relative to other countries. The Watal Committee recently estimated that cash accounts for about 78% of all the consumer payments. However, the survey also points out to impediments to digital transactions which include – lack of internet connectivity, lack of smart phones which are needed for mobile transactions, lack of enough POS (points of sales), lack of digital literacy and cybercrimes.. Steps taken by Government to promote digital transaction The following are steps taken by the government to| www.gktoday.in/iaspoint/target2017 promote digital transactions: nikaloprelims | [email protected] Launch of the BHIM (Bharat Interface for Money) app for smart phones. This is based on the new Unified Payments Interface (UPI) which has created inter operability of digital transactions. Launch of Aadhaar Merchant Pay, aimed at the 350 million who do not have phones. This enables anyone with just an Aadhaar number and a bank account to make a merchant payment using his biometric identification. Reductions in fees (Merchant Discount Rate) paid on digital transactions and transactions that use the UPI. Encouraging the adoption of POS devices beyond the current 1.5 million, through tariff reductions.. Way forward and Survey Recommendations The most important effort must be to replenish the cash shortage as quickly as possible. The faster remonetisation takes place, the shorter and less severe will be the impact of demonetization. The RBI should re-establish internal convertibility, guaranteeing to give the public the amount of currency that the latter wants by elimination of withdrawal limit Hence Demonetization is a powerful stick which now needs carrots as complements. A multipronged strategy could be adopted to complement demonetization needs to be adopted. Firstly, GST © 2017 GKToday | All Rights Reserved | www.gktoday.in IAS General Studies - 2017. 17.

(22) Economic Survey 2016-17 with broad coverage to include activities that are sources of black money should be implemented. Secondly, Individual income tax rates and real estate stamp duties could be reduced. Thirdly, Income tax net could be widened gradually and, consistent with constitutional arrangements. Finally, tax administration could be improved to reduce discretion and improve accountability.. Chapter-04: The Festering Twin Balance Sheet Problem In the fourth chapter, the survey has discussed the Twin Balance Sheet {TBS} problem and made a case for establishment of a Public Sector Asset Rehabilitation Agency (PARA). Understanding Twin Balance Sheet Problem The centre-piece of TBS problem are Non-performing assets (NPAs) which have resulted into two inter-twined economic issues viz. over-leveraged & distressed corporate and NPA encumbered banks. The menace of NPAs or stressed assets in looming large in the Indian Economy for past few years. In the mid-2000s, economies all over the world were booming, and India was no exception to that. The growth rate of the country was around 9-10 % and there were optimism that India would dash into Double digit growth that would persist for several decade. In this phase of optimism, funds worth lakhs of crores were readily infused particularly in infrastructure related areas such as power | www.gktoday.in/iaspoint/target2017 generation, steel and telecoms,nikaloprelims setting| [email protected] off the biggest investment boom in the country’s history. The implications of all this was that the Capital inflows in 2007-08 reached 9 percent of GDP; Investment-GDP ratio soared by 11 percentage points, reaching over 38 percent by 2007-08; and firms abandoned their conservative debt/equity ratios and leveraged themselves up to take advantage of the perceived opportunities. However, in 2008 the Global financial crisis set in. It derailed the growth bonanza and had serious consequence on the world economy like loss of market, inflationary tendency etc. Moreover there were significant bureaucratic friction and rules rigidity in granting land and environmental clearances, which led to increased project cost. Effect on corporate. Due to fall in revenue due to financial crisis, increased cost due to lack of clearance, and high financing cost due to RBI tightening of monetary policy,- cooperates cash flow got squeezed. By 2015, the share of company 40% of debts were owed to IC1 companies (Company who’s interest coverage ratio is less than 1 which means they don’t earn enough to even honour their interest obligation) Effect on banks. Their ROA (return on assets) became uncertain, and in many cases the principal amount got stuck in the loop, leading to eroding of bank’s capital base. © 2017 GKToday | All Rights Reserved | www.gktoday.in IAS General Studies - 2017. 18.

(23) Economic Survey 2016-17. What is unique about TBS in Indian context? World over whenever the problem of balance sheet has occurred at this scale it has been followed by the economic crisis Ex in Japan after 1990s, and USA and Europe after the Global financial crisis of 2008. However in India’s case, the non-occurrence of economic stagnation can be attributed to following reasons: The banking structure in the country is such that there are both public and private entities. And since bulk of the problem was with public banks which not only have their capital base but also backing of the government, NPA problem has so far being tackled. Thus guarding the investors’ confidence. In addition, as an emerging economy India economy requires huge investment and development of supply side infrastructure. So unlike US economy where once the Housing sector got saturated there wasn’t need for funds for other critical development infrastructure, in India the need for such infrastructure still holds relevance and thus gives plenty of scope for India to stay on growth trajectory. Moreover, in other economy creditors would have by now triggered bankruptcies. But in case of India, Stressed assets issues arose in early 2000’s too, where the bank followed “giving nikaloprelims | [email protected] | www.gktoday.in/iaspoint/target2017 time to time strategy” and these issues eventually got subsided. Similar optimism still holds the economy especially when there is still wide untapped market potential, to resolve the current issue. However owing to this strategy to a large extent there have been instances of ever greening of loan and huge NPAs.. Is the financing strategy sustainable? For financing strategy to work, where the funds would continue to be provided to the corporates, either of the scenario must occurPhoenix scenario: Under this the fund flow to the companies would be uninhibited till the point comes, where the growth in the economy would be able to resolve the existing problems with banks and companies via increased earning. Containment scenario: This involves containing the NPAs, so that over the period of time as the economy is growing at the nominal level of 10%, they became insignificant. Both these approaches assume growth to take place, however as has been observed the condition of the economy is not in a good shape: When looking into the stressed companies, their aggregate cash flow which even wasn’t enough to service their debts has roughly by 40%. Debts of the top 10 stressed corporate groups in particular, have tripled in the last six years.. © 2017 GKToday | All Rights Reserved | www.gktoday.in IAS General Studies - 2017. 19.

(24) Economic Survey 2016-17 Looking into industry we finds following: Power sector industries suffers from low plant load factor (actual electricity production as a share of capacity) which stands around 59.6% for April and December. Even the Telecom sector is also reeling under pressure from new entry competition. Also the MSMEs who have fared well due to their cautious approach in mid-2000, since recent years have been contributing significant proportion of the increases in NPAs. As per estimates four-fifths of the slippages during the second quarter of 2016, incurred by MSMEs due to poor sales and profitability. Also the public sector banks shares prices have fallen to just two- thirds of their book value. On the other hand, due to rising stressed assets banks are exercising control over credit creation. Also the banks have increased their lending rates (though got trimmed due to post demonetization). However this is resulting in Disintermediation of banks, as the firms are resorting to capital market. But for MSMEs who requires Handholding support from banks, capital market still stands elusive. All this above mentioned situations have drastically reduced investment in the economy, even though public investment has been unleashed by the| www.gktoday.in/iaspoint/target2017 government. nikaloprelims | [email protected]. What has been done and issues with it? Initially RBI did rescheduling of instalments to give firms more to pay. However in the backdrop of widening stressed assets, RBI took slew of the following measures: Establishment of private Asset Reconstruction Companies(ARCs) under SARFESI Act 2002, with the aim that bank would be able to focus on their core competency of loan -deposit operation and the body of specialist could relieve the banks from resolving stressed assets issues. However owing to difficulty with resolving the assets that ARC purchases, they are willing to purchase loans at low prices. This makes difficult for banks to accept Arc offer. In June 2014, RBI floated 5:25 scheme. Under this lenders were allowed to increase debt period up to 25 years with interest rates adjusted every five years. However owing to such long debt period, the companies find it difficult to endure high interest burden, forcing banks to infuse additional grants leading to ever greening of loan. In June 2015, the Strategic Debt Restructuring (SDR) scheme was introduced, under which creditors could take over firms that were unable to pay and sell them to new owners. However those firms who are not able to pay back despite restructured loan terms were to be selected. Banks can convert debt to 51% of equity and sell them, subject to authorization of the stakeholders.. © 2017 GKToday | All Rights Reserved | www.gktoday.in IAS General Studies - 2017. 20.

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