CSAT (Paper II): previous-year questions

Net profits are only 2·2% of their total assets for central public sector undertakings, lower than for the private corporate sector. While the public sector or the State-led entrepreneurship played an important role in triggering India’s industrialization, our evolving development needs, comparatively less-than-satisfactory performance of the public sector enterprises, the maturing of our private sector, a much larger social base now available for expanding entrepreneurship and the growing institutional capabilities to enforce competition policies would suggest that the time has come to review the role of public sector.
What should the portfolio composition of the government be ? It should not remain static all times. The airline industry works well as a purely private affair. At the opposite end, rural roads, whose sparse traffic makes tolling unviable, have to be on the balance-sheet of the State. If the government did not own rural roads, they would not exist. Similarly, public health capital in our towns and cities will need to come from the public sector. Equally, preservation and improvement of forest cover will have to be a new priority for the public sector assets.
Take the example of steel. With near-zero tariffs, India is a globally competitive market for the metal. Indian firms export steel into the global market, which demonstrates there is no gap in technology. Indian companies are buying up global steel companies, which shows there is no gap in capital availability. Under these conditions, private ownership works best.
Private ownership is clearly desirable in regulated industries, ranging from finance to infrastructure, where a government agency performs the function of regulation and multiple competing firms are located in the private sector. Here, the simple and clean solution — government as the umpire and the private sector as the players is what works best. In many of these industries, we have a legacy of government ownership, where productivity tends to be lower, fear of bankruptcy is absent, and the risk of asking for money from the tax payer is ever present. There is also the conflict of interest between government as an owner and as the regulator. The formulation and implementation of competition policy will be more vigorous and fair if government companies are out of action.

In recent times, India has grown fast not only compared to its own past but also in comparison with other nations. But there cannot be any room for complacency because it is possible for the Indian economy to develop even faster and also to spread the benefits of this growth more widely than has been done thus far. Before going into details of the kinds of micro-structural changes that we need to conceptualize and then proceed to implement, it is worthwhile elaborating on the idea of inclusive growth that constitutes the defining concept behind this Government’s various economic policies and decisions. A nation interested in inclusive growth views the same growth differently depending on whether the gains of the growth are heaped primarily on a small segment or shared widely by the population. The latter is cause for celebration but not the former. In other words, growth must not be treated as an end in itself but as an instrument for spreading prosperity to all. India’s own past experience and the experience of other nations suggests that growth is necessary for eradicating poverty but it is not a sufficient condition. In other words, policies for promoting growth need to be complemented with policies to ensure that more and more people join in the growth process and, further, that there are mechanisms in place to redistribute some of the gains to those who are unable to partake in the market process and, hence, get left behind.
A simple way of giving this idea of inclusive growth a sharper form is to measure a nation’s progress in terms of the progress of its poorest segment, for instance the bottom 20 per cent of the population. One could measure the per capita income of the bottom quintile of the population and also calculate the growth rate of income; and evaluate our economic success in terms of these measures that pertain to the poorest segment. This approach is attractive because it does not ignore growth like some of the older heterodox criteria did. It simply looks at the growth of income of the poorest sections of the population. It also ensures that those who are outside of the bottom quintile do not get ignored. If that were done, then those people would in all likelihood drop down into the bottom quintile and so would automatically become a direct target of our policies. Hence the criterion being suggested here is a statistical summing up of the idea of inclusive growth, which, in turn, leads to two corollaries : to wish that India must strive to achieve high growth and that we must work to ensure that the weakest segments benefit from the growth.

Climate change poses potentially devastating effects on India’s agriculture. While the overall parameters of climate change are increasingly accepted — a 1°C average temperature increase over the next 30 years, sea level rise of less than 10 cm in the same period, and regional monsoon variations and corresponding droughts — the impacts in India are likely to be quite site and crop specific. Some crops may respond favourably to the changing conditions, others may not. This emphasizes the need to promote agricultural research and create maximum flexibility in the system to permit adaptations.
The key ingredient for “drought proofing” is the managed recharge of aquifers. To ensure continued yields of important staple crops (e.g. wheat), it may also be necessary to shift the locations where these crops are grown, in response to temperature changes as well as to water availability. The latter will be a key factor in making long term investment decisions.
For example, water runoff from the Himalayas is predicted to increase over the next 30 years as glaciers melt, but then decline substantially thereafter. It will be critical to provide incentives to plan for these large-scale shifts in agro-ecological conditions.
India needs to make long term investment in research and development in agriculture. India is likely to experience changed weather patterns in future.

Net profits are only 2·2% of their total assets for central public sector undertakings, lower than for the private corporate sector. While the public sector or the State-led entrepreneurship played an important role in triggering India’s industrialization, our evolving development needs, comparatively less-than-satisfactory performance of the public sector enterprises, the maturing of our private sector, a much larger social base now available for expanding entrepreneurship and the growing institutional capabilities to enforce competition policies would suggest that the time has come to review the role of public sector.
What should the portfolio composition of the government be ? It should not remain static all times. The airline industry works well as a purely private affair. At the opposite end, rural roads, whose sparse traffic makes tolling unviable, have to be on the balance-sheet of the State. If the government did not own rural roads, they would not exist. Similarly, public health capital in our towns and cities will need to come from the public sector. Equally, preservation and improvement of forest cover will have to be a new priority for the public sector assets.
Take the example of steel. With near-zero tariffs, India is a globally competitive market for the metal. Indian firms export steel into the global market, which demonstrates there is no gap in technology. Indian companies are buying up global steel companies, which shows there is no gap in capital availability. Under these conditions, private ownership works best.
Private ownership is clearly desirable in regulated industries, ranging from finance to infrastructure, where a government agency performs the function of regulation and multiple competing firms are located in the private sector. Here, the simple and clean solution — government as the umpire and the private sector as the players is what works best. In many of these industries, we have a legacy of government ownership, where productivity tends to be lower, fear of bankruptcy is absent, and the risk of asking for money from the tax payer is ever present. There is also the conflict of interest between government as an owner and as the regulator. The formulation and implementation of competition policy will be more vigorous and fair if government companies are out of action.

It is easy for the government to control State-owned companies through nods and winks. So what really needs to be done as a first step is to put petrol pricing on a transparent formula — if the price of crude is x and the exchange rate y, then every month or fortnight, the government announces a maximum price of petrol, which anybody can work out from the x and the y. The rule has to be worked out to make sure that the oil-marketing companies can, in general, cover their costs. This will mean that if one company can innovate and cut costs, it will make greater profits. Hence, firms will be more prone to innovate and be efficient under this system. Once the rule is announced, there should be no interference by the government. If this is done for a while, private companies will re-enter this market. And once a sufficient number of them are in the fray, we can remove the rule-based pricing and leave it truly to the market (subject to, of course, the usual regulations of anti-trust and other competition laws).

It is essential that we mitigate the emissions of greenhouse gases and thus avoid some of the worst impacts of climate change that would take place in coming years and decades. Mitigation would require a major shift in the way we produce and consume energy. A shift away from overwhelming dependence on fossil fuels is now long overdue, but unfortunately, technological development has been slow and inadequate largely because government policies have not promoted investments in research and development, myopically as a result of relatively low prices of oil. It is now, therefore, imperative for a country like India treating the opportunity of harnessing renewable energy on a large scale as a national imperative. This country is extremely well endowed with solar, wind and biomass sources of energy. Where we have lagged, unfortunately, is in our ability to develop and to create technological solutions for harnessing these resources.
One particular trajectory for carrying out stringent mitigation of greenhouse gas emissions assessed by the Intergovernmental Panel on Climate Change (IPCC) clearly shows the need for ensuring that global emissions of greenhouse gases peak no later than 2015 and reduce rapidly thereafter. The cost associated with such a trajectory is truly modest and would amount, in the estimation of IPCC, to not more than 3 percent of the global GDP in 2030. In other words, the level of prosperity that the world would have reached without mitigation would at worst be postponed by a few months or a year at the most. This is clearly not a very high price to pay for protecting hundreds of millions of people from the worst risks associated with climate change. Any such effort, however, would require lifestyles to change appropriately also. Mitigation of greenhouse gas emissions is not a mere technological fix, and clearly requires changes in lifestyles and transformation of a country’s economic structure, whereby effective reduction in emissions is brought about, such as through the consumption of much lower quantities of animal protein. The Food and Agriculture Organization (FAO) has determined that the emissions from the livestock sector amount to 18 percent of the total. The reduction of emissions from this source is entirely in the hands of human beings, who have never questioned the impacts that their dietary habits of consuming more and more animal protein are bringing about. Mitigation overall has huge co-benefits, such as lower air pollution and health benefits, higher energy security and greater employment.

The Himalayan ecosystem is highly vulnerable to damage, both due to geological reasons and on account of the stress caused by increased pressure of population, exploitation of natural resources and other related challenges. These aspects may be exacerbated due to the impact of climate change. It is possible that climate change may adversely impact the Himalayan ecosystem through increased temperature, altered precipitation patterns, episodes of drought and biotic influences. This would not only impact the very sustenance of the indigenous communities in uplands but also the life of downstream dwellers across the country and beyond. Therefore, there is an urgent need for giving special attention to sustain the Himalayan ecosystem. This would require conscious efforts for conserving all the representative systems.
Further, it needs to be emphasized that the endemics with restricted distribution, and most often with specialized habitat requirements, are among the most vulnerable elements. In this respect the Himalayan biodiversity hotspot, with rich endemic diversity, is vulnerable to climate change. The threats include possible loss of genetic resources and species, habitats and concomitantly a decrease in ecosystem services. Therefore, conservation of endemic elements in representative ecosystems/habitats assumes a great significance while drawing conservation plans for the region.
Towards achieving the above, we will have to shift toward contemporary conservation approaches, which include a paradigm of landscape level interconnectivity between protected area systems. The concept advocates a shift from the species-habitat focus to an inclusive focus on expanding the biogeographic range so that natural adjustments to climate change can proceed without being restrictive.

Net profits are only 2·2% of their total assets for central public sector undertakings, lower than for the private corporate sector. While the public sector or the State-led entrepreneurship played an important role in triggering India’s industrialization, our evolving development needs, comparatively less-than-satisfactory performance of the public sector enterprises, the maturing of our private sector, a much larger social base now available for expanding entrepreneurship and the growing institutional capabilities to enforce competition policies would suggest that the time has come to review the role of public sector.
What should the portfolio composition of the government be ? It should not remain static all times. The airline industry works well as a purely private affair. At the opposite end, rural roads, whose sparse traffic makes tolling unviable, have to be on the balance-sheet of the State. If the government did not own rural roads, they would not exist. Similarly, public health capital in our towns and cities will need to come from the public sector. Equally, preservation and improvement of forest cover will have to be a new priority for the public sector assets.
Take the example of steel. With near-zero tariffs, India is a globally competitive market for the metal. Indian firms export steel into the global market, which demonstrates there is no gap in technology. Indian companies are buying up global steel companies, which shows there is no gap in capital availability. Under these conditions, private ownership works best.
Private ownership is clearly desirable in regulated industries, ranging from finance to infrastructure, where a government agency performs the function of regulation and multiple competing firms are located in the private sector. Here, the simple and clean solution — government as the umpire and the private sector as the players is what works best. In many of these industries, we have a legacy of government ownership, where productivity tends to be lower, fear of bankruptcy is absent, and the risk of asking for money from the tax payer is ever present. There is also the conflict of interest between government as an owner and as the regulator. The formulation and implementation of competition policy will be more vigorous and fair if government companies are out of action.

It is easy for the government to control State-owned companies through nods and winks. So what really needs to be done as a first step is to put petrol pricing on a transparent formula — if the price of crude is x and the exchange rate y, then every month or fortnight, the government announces a maximum price of petrol, which anybody can work out from the x and the y. The rule has to be worked out to make sure that the oil-marketing companies can, in general, cover their costs. This will mean that if one company can innovate and cut costs, it will make greater profits. Hence, firms will be more prone to innovate and be efficient under this system. Once the rule is announced, there should be no interference by the government. If this is done for a while, private companies will re-enter this market. And once a sufficient number of them are in the fray, we can remove the rule-based pricing and leave it truly to the market (subject to, of course, the usual regulations of anti-trust and other competition laws).