GS Paper III: Indian Economy
Q1. Why was the monetary policy committee formed? What will be its functions? How is it different from the previous arrangement?
Discuss the rationale behind constituting the Monetary Policy Committee (MPC). Discuss its functions and what is the difference between MPC and earlier arrangement?
MPC is another major economic reform in Indian economic history. It has been constituted by amending RBI Act 1935, which would be the apex body to decide policy rates. It will have 6 members from both the government and the RBI.
Need for an MPC are:
  • Governor will not have a veto power, thus a consensus based approach would be possible.
  • Resolving the conflicts with the fiscal objectives and growth plans.
  • To announce bank rates and reserve rates like CRR and SLR
  • Reassuring signals to the business community susceptible to vagaries of uncertainties and guessing-games.
  • To implement Urjit Patel committee recommendation to target inflation in a new pattern
  • The policy decisions will be made public along with the relevant documents and decision making rationale to the public.
  • To bring much needed transparency and accountability in monetary policy framework.
  • To present report to the government and explain the reason in case of failure of target achievement
MPC are present in USA, Australia, Singapore, etc. This is certainly an improvement over the previous arrangement -
  • Separates regulatory and policy-making domain within the RBI.
  • Logical policy rates based on Inflation-targeting, which were up till now fixed based on a broad-based assessment.
  • It would aim at a range of inflation (2-6%) in place of a certain percentage earlier
  • Enforceable accountability of the RBI and periodical targets and review mechanism.
  • RBI governor would have only casting vote in case of tie in place of veto earlier
MPC has certainly snatched some of the powers of the central bank of India which goes against global norms of giving it a free hand in inflation containment but it is expected to be an alignment of governmental developmental plan with RBI's inflation management which is required for an efficient management.
GS Paper II: International Relations
Q2. Do you think that reforms are required in the United Nations Security Council?  
Why reforms are needed in the United Nations Security Council (UNSC)?  
The world has changed enormously since the creation of the United Nations. There are four times as many state actors, a correspondingly greater number and proportion of non-state actors and a matching proliferation in the number, nature and types of threats to national security and world peace compared to 1945.                       
In this context, the following reforms can be undertaken in UNSC:
  • The UN Security Council is unrepresentative in both permanent and elected membership, unanswerable to the people of the world, unaccountable to the General Assembly and not subject to judicial oversight.
  • UNSC was expanded only once in 1963 to add 4 non-permanent members to the Council. Although the overall membership of the UN has increased from 113 to 193, there has been no change in the composition of the UNSC.
  • The Security Council is not representative of the geopolitical realities of the modern world. Both Africa and Latin America do not have a permanent seat on the Council, while Europe is overrepresented and Asia is underrepresented.
  • Right now, only permanent members have veto power and they are reluctant to give up this right.
  • There is a lack of transparency in the Council's working methods. This means how the Council goes about making decisions and the lack of information that they are required to provide to other parts of the UN.
  • The "G4" countries have been putting themselves as the most serious candidates for permanent membership in the Council. Brazil, Germany, India and Japan have positioned themselves as leaders within the UN, but have failed to garner enough support to ascend as permanent members.
  • Issues such as deepening economic interdependence, worsening environmental degradation, transnational threats also call for effective multilateral negotiations among the countries based on consensus. Yet, all critical decisions of the UNSC are still being taken by the permanent members of the Security Council.
Stand of India
  • India needs to obtain support at the UN for its initiatives by actively campaigning for core issues such as – climate change, counter-terrorism, global finance, etc.
  • India has proposed a UN convention to combat terrorism; also plays an important role in climate change negotiations and is actively working to reform the Bretton Woods institutions (World Bank and IMF).
Way forward
  • In the current circumstances, it has become crucial for the UNSC to reform itself and uphold its legitimacy and representatives in the world. However, for that to happen, political will, especially of the P-5 nations and strong consensus among all the nations is the need of the hour.
GS Paper III: Indian Economy
Q3. Do you think that the labour codes bill will only better India's 'ease of doing business' ranking instead of improving conditions of employment?
Labour codes bill claim for universal social security and minimum wage. In light of this statement, do these bills improve conditions of employment?
The Parliament passed labour code bills, as part of a measure to consolidate the multitude of labour laws in the country and it seek to generate employment and secure the basic rights of the workers. Four labour codes seek to universalize the right to minimum wage of workers and social security entitlements.
Universal Social Security
  • The code mandates benefits of Employees State Insurance (ESI) and Provident Fund (PF) only for workers belonging to establishments employing 10 workers or more.
  • This leaves out nearly 80% of all Indian workers-the informal sector- from the ambit of these benefits.
  • These workers have to be satisfied with a promise of some special schemes.  
  • They may also be allowed access to underutilized employees’ state insurance corporation hospitals and even that only on payment of a usage charge.
  • In the interest of 'ease of doing business', the employer plus employee contribution to the ESI was reduced from 6.5% to 4% from July 2019. The decision to reduce the contribution rate at a time when the need for the ESI was to increase expenditure on medical care surely appears counter-intuitive.
  • The government also did away with a number of existing cess-based welfare schemes in exchange for an undefined promise of universal social security.  
Promise of minimum wage
  • There is no clarity on the formula for fixing the minimum wage and also on the particular authority designated for setting the minimum wages.
  • The fixing of minimum wages on the basis on geography, skill and difficulty levels of the work, etc. might bring in a lot of discretionary power to the hands of the administrators, since many of these factors are not easy to measure. This might lead to adverse effects like lobbying.
  • The clause for the deduction of wages seems arbitrary and it might prevent workers from unionising in fear of a deduction in wages.
  • These codes, which also include various measures restricting the unions' right to strike and relax norms for factory closure, serve to improve the 'ease of doing business' ranking instead of improving the conditions of employment.
GS Paper III: Indian Economy
Q4. Discuss the transition that India must peddle to move towards future energy transitions.
How should a large, import-dependent, fossil-fuel-based Indian economy with a rising demand for energy and an unhealthy strong linkage between his demand and environmental pollution navigate the reordered cartography of geopolitics and energy?
With the advancement of technology, economy is growing at a faster rate, and in this, energy is a crucial factor of India. At global level, there have been many changing developments in energy transition and many are going to happen in future, accordingly India has to formulate its policies.
  • Energy systems has globally become less affordable and less environmentally sustainable then they were in past.
  • Biggest challenge is lack of readiness among the world's largest emitters to standby the commitments to tackle pollution levels. Example USA has stepped back from Paris climate commitments.
  • US shale revolution has transformed US from major importer of oil and gas to a significant exporter.
  • China has asserted its rights over South China seas to increase its energy imports and the Belt and Road initiative.
  • Oil prices have fallen with COVID-19 and also due to strong sectarian strife (sunni/shia) in the Middle East.
  • Paris climate summit and its impact on public sentiments, investment decisions, corporate governance and regulatory norms. Consequential impact of the manifold and impressive advancement of clean energy technologies.
How India should go forward?
  • Focus on strategic oil reserves, if there is slump in crude oil prices example approval has been given for
  • Renewable sources of energy: India has been leader in International Solar Alliance. Further indigenous manufacturing should be given emphasis with policies like ‘Atamnarbhar Bharat’, and ‘Make in India’ to reduce dependency on countries like China.
  • Advancement in Technology in developing own world scale, competitive, manufacturing systems for photovoltaics (PVs) and battery storage
  • Focus on research and development in clean energy technology with funding and having proper ecosystem for the same.
  • Embracing the renewable energy will help make economically and strategically, it will also help to achieve its targets in fight against climate change.
  • Technology is the answer to the energy transition. That is what will bring the system to the tipping point of radical change.

Quiz of the Day for IAS Prepation
Test Your UPSC Preparation With Vajirao's Daily Current Affairs Quiz

Select the correct answer and click on the “Finish” button Check your score and explanations at the end of the quiz

Start Quiz