Insurance Laws (Amendment) Bill, 2015

• increased the permitted limit for foreign holdings in Insurance company from 26% to 49%.
• allows entry of foreign re-insurers (companies that insure insurance companies).
• provides for permanent registration of insurance companies.
• permits the holder of a life insurance policy to name the beneficiary.
• allows for nationalised general insurance companies to raise funds from the capital markets.
• Minimum capital = 100 Cr. for Life/ General Insurance Companies/ Co-operatives. Minimum Capital = 50 Cr. for Health Insurance. 
• Life insurance policy can not be challenged by insurer after a period of 5 year for any reason. 
• Fine = 25 Cr. for Insurers who fail to meet obligations in third party motor insurance, or policies for rural, social or vulnerable section of society. 
• provides for appeal against decisions of Insurance Regulatory and Development Authority (IRDA) to liw with the Securities Appellate  Tribunal set up under the SEBI Act, 1992.

Issues

• Lloyd's of London to be included in the definition of foreign company. Unclear whether it will be able to operate in India. 
• IRDA Act of 1999, required Indian promoters in insurance company to reduce their holding to 26% over a period of ten years. This requirement is not required now. 
• Law commission had suggested the merger of key provisions of the IRDA act with the Insurance Act. This is not implemented.  

The Second Front

• Destruction of Fascist army in North Africa. 
• Many section in Italy turned against Mussolini.
• Mussolini arrested. Later escaped with the help of Germans. 
• British and American troops entered Italy to throw out Germans from Italy.
• Soviet Union attaining significant victories against Germany.
• June 1944, 100,000 British and American troops landed on the coast of Normady, France. By September 200,000 troops. 
• Opening of this front played a very crucial role in defeat of Germany.

Battle of Stalingrad

• Nov-Dec 1941, German advance on Moscow met with stubborn resistance and the invasion was repulsed. 
• Then Germany launched an offensive in Southern Russia. 
• German troops reached outskirts of Stalingrad in August 1942, battle for 5 months. 
• February 1943, 90,000 German officers and soldiers surrendered. Germany lost 300,000 men in this battle. Turned the tide of war. 

Blitzkrieg

During WWII, War conducted by Germany with great speed and force is known as blitzkrieg - lightning war.

• Invasion of Poland, 1939, in 3 weeks.
• April 1940, Norway and Denmark, in 3 weeks.
• May 1940, Belgium, in 4 weeks. 
• June 1940, France in 1 week.

Phoney War

• 1st September 1939, Germany invaded Poland.
• 3rd September 1939, Britain and France declared war on Germany. Start of WWII.
• Later Germany invaded Norway and Denmark too.
• Little actual fighting for many months even after declaration of war. 
• Therefore called phoney war. September 1939 - April 1940.

Beginning of Fascist Aggression 1919 - 1939

• Italy, Germany and Japan started  series of aggressions in Europe, Asia and Africa. 
• Claimed to fighting against communism - united under Anti-Comintern Pact, 1937

Germany

• ambitions of conquering the vast resources and territory of the Soviet Union. 
• Western countries followed policy of appeasement. 
• Policy of appeasement = policy of conciliating an aggressive power at the expense of some other country. 
• Western countries hoped that Germany will get rid of Communism danger. 
• Re-militarization of German forces. 
• Germany remilitarized Rhineland in violation of Treaty of Versailles. 
• Built an army of 800,000 against the limit of 100,000 according to Treaty of Versailles. 

Japan

• Japan invaded China in 1931.
• China appealed in League of Nations against Japan to stop aggression. 
• Britain, France and US indifferent to the appeal. 
• Appeasement of Japan continued as the Western countries thought that the Japnese could be used to weaken China as well as Soviet Union. 
• Britain did not wanted to alienate Japan and thus endanger her possessions in Asia. 

Italy

• Italy invaded Ethopia in 1935.
• League of Nations condemned, but no action taken.

Spanish Civil War

• 1931, Spain become a republic. 
• 1935, Popular Front - Socialist, Communist and other democratic and anti-fascist parties came to power. 
• Section of army under General Franco revolted. 
• supported by Germany and Italy. 
• Italy and Germany openly supported and provided military help. 
• succeeded in destroying the Republic in 1939. 

Munich Pact

• Germany occupied Austria in 1938.
• Germany wanted Czechoslovakia because of her industry.
• strategic importance for expansion of Germany toward Soviet Union. 
• British and France PM met Hitler and Mussolini and agreed to Germany terms without consent of Czechoslovakia.
• Last major act of appeasement by the Western powers. 

Soviet Union and Germany Non-Aggression Pact, 1939

• Western policies of appeasement convinced Soviet Union that their main interest was to divert German expansion toward Soviet Union. 
• Munich Pact was additional proof. 
• Soviet Union signed a Non-Aggression Pact with Germany in 1939. 
• Shocked anti-fascists world over. 
• Britain and France promised to come to aid of Poland, Greece, Romania and Turkey in case their independence was endangered. 

New Deal

• Franklin D. Roosevelt started this programme to counter Economic crisis of 1929-33/ Great Depression.
• Programme for economic reconstruction and social welfare. 
• Steps to improve workers condition and create employment.
• focused on what historians call the "3 Rs": Relief, Recovery, and Reform. 
• US recovered from crisis and industrial production picked up again. 

New Deal

• Fiscal Reform
•  balance the "regular" (non-emergency) federal budget by cutting the salaries of government employees and cutting pensions to veterans by fifteen percent..
• Banking Reform
•  Emergency Banking Act, . It provided for a system of reopening sound banks under Treasury supervision, with federal loans available if needed. Three-quarters of the banks in the Federal Reserve System reopened within the next three days. Billions of dollars in hoarded currency and gold flowed back into them within a month, thus stabilizing the banking system.
• The Glass–Steagall Act limited commercial bank securities activities and affiliations between commercial banks and securities firms to regulate speculations.
• Monetary Reform
• suspended the gold standard. 
• stopped the outflow of gold by forbidding the export of gold except under license from the Treasury.
• The dollar was allowed to float freely on foreign exchange markets with no guaranteed price in gold.
• Gold Reserve Act, 1934. These measures enabled the Fed to increase the amount of money in circulation to the level the economy needed.
• Securities Regulation
•  Securities Act of 1933 was enacted. It required the disclosure of the balance sheet, profit and loss statement, the names and compensations of corporate officers, about firms whose securities were traded. 
•  In 1934 the U.S. Securities and Exchange Commission was established to regulate the stock market and prevent corporate abuses relating to the sale of securities and corporate reporting.
• Government funded public works project e.g. Schools, Dams, Bridges etc. provided employment to large number of people. 

Economic Crisis of 1929-33

• Orginated in USA.
• Economy collapsed, stock market in New York crashed.
• 9000 American banks closed, people lost their savings. 
• No money yo invest - little money to buy. Goods remained unsold.

• Depression = large scale unemployment + loss of production + poverty and starvation

Cause of Depression 1929-33

• Over production. 
• To maximize profit producing more and more. 
• purchasing power of workers low. 
• goods can not be sold unless their prices are reduced, cannot be reduced as it affects profit.
• goods remained unsold, factories stopped production and workers became unemployed. o

Other points

• Nazi's in Germany exploited the discontent of the people to promote their anti-democratic programme. 
• Soviet union remained unaffected during 1929-33 Economic crisis.

Nazism in Germany

• German version of fascism - more sinister than original Italian version. 
• Nazism derived from the name of party Hitler founded in 1921 - National Socialist German Workers' Party.
• Hitler like Mussolini planned to capture power through a march on Berlin. 
• Arrested and jailed. 
• Later released before over of term. 
• Nazism
• glorified the use of force and brutality.
• glorified rule of great leader. 
• ridiculed internationalism, peace and democracy.
• Preached extreme hatred against the German Jews. 
• blamed for German defeat in WWI and all the ills of Germany.
• Nazis capitalised on the humiliation met to Germany through unjust provisions of the Treaty of Versailles.
• exploited misery of people which has worsened due to the reparations which Germany was made to pay to the Allied powers. 
• 1929 Economic Crisis. All capitalist countries affected. 8 million workers unemployed. 
• Elections in Germany
• Nazi Party: 196/650 < Socialist + Communist.
• Hitler appointed as Chancellor of Germany by the President of Germany on 30 January 1933.
• Hitler's coming to power was the result of political intrigues.
• Hitler after coming to power
• ordered fresh elections. 
• Reign of terror. Assassination of anti Nazi leaders. 
• In 1933, Reichstag (Parliament) set on fire. Blame on Communist Party of Germeny and suppressed. 
• 1934, assumed dictatorial powers, became President.
• socialist, communist and anti Nazi leaders extreminated.
• Violence against Jews.  

Fascism in Italy

Fascism

• hostility to democracy and socialism.
• aim of establishing dictatorships.
• Fascism succeeded in many countries of Europe. e.g. Hungary, Italy, Poland, Portugal, Germany, Spain. 

Fascism in Italy

• started in Italy under Benito Mussolini.
• organised under armed gangs against socialist and communists in 1919.
• Italy joined WWI with the intention of gaining colonies but peace treaties failed to satisfy her ambitions. 
• Italian government dominated by capitalists and landlords. Supported anti-democratic movements which promised to save them from the dangers of socialism and satisfy their colonial aspirations. 
• Armed gangs of Mussolini, used by capitalists and landlords to organize violence against socialist and communists.
• 1921, Elections in Italy
• fractured mandate. No stable government could be formed. 
• Mussolini party won only 35 seats. 
• Socialist + Communists won 138 seats. 
• Mussolini openly talked of seizing power, inspite of poor showing in elections. 
• 28 October 1922, Marched on Rome. 
• No resistance by Italian government against Mussolini volunteers. 
• 29 October, King of Italy invited Mussolini to join the government. 
• Without firing a shot fascists under the leadership of Mussolini came to power in Italy. 
• Reign of terror followed. 
• socialist movement suppressed. 
• socialist and communist leaders either killed or jailed. 
• all parties banned except Mussolini's party. 

Fascism Aims/ Ideals

• hostility to democracy and socialism.
• establishing dictatorship.
• glorified war - openly advocated policy of expansion. - "nations which do not expand cannot survive for long."

Russian Revolution

Condition in Russia Pre-Revolution

• Most European countries by this time were either Republics or Constitutional monarchies. But Russia was still under autocratic rule of Czars. 
• Serfdom abolished in 1861 but condition of peasants not improved. 
• Small land holding with no capital to develop them. 
• Bad working condition for workers. 
• Late industrialisation of Russia. After 1850's developed very fast
• investment from foreign countries, unconcerned about Russian people. 
• Russian capitalists had insufficient capital so exploited workers = low wages.
• No political right to worker. 
• Widespread hostility towards Czars. 
• Inflexible, inefficient bureaucracy. 
• Cultural suppression of Non-Russian nationalities. 

Growth of Revolutionary Movements in Russia

• "going to the people" - intellectuals started preaching their ideas to the peasants. 
• George Plekhanov, follower of Marx, formed Russian Social Democratic Party in 1883. Other socialist group joined this and reformed as Russian Social Democratic Labour Party in 1898. 
• Two groups in this party
• Mensheviks : favoured party if the type which existed in France and Germany. Participate in election to Parliament.
• Bolsheviks : favoured a party of those who would abide by the discipline of the party and work for revolution. Leader = Lenin. 
• 1904 war between Russia and Japan
• Russian army suffered reverses in war, strengthned the revolutionay movement in Russia. 
• Bloody Sunday, 1905
• peaceful workers going to Winter Palace to present their petition to Czar. 
• Thousands of them killed, provoked unprecedent disturbance in Russia. 
• sections of the army and the navy revolted too. 
• Czar yielded and announced
• granting freedom of speech, press and association.
• conferred power to make laws through an elected body, "Duma".
• principles for making Russia a constitutional monarchy. 
• Czar later relapsed into his old ways. No hope for gradual reform.
• 1905 revolution failed but proved to be dress rehearsal for 1917 revolution. Aroused the people and prepared them for revolution. 
• Russia involvement in WWI
• to satisfy its imperialist ambition.
• Czarist state incapable of modern warfare. 
• unmindful of condition of soilders at front. 

Lenin's "The fundamental law for successful revolution."

1. People should fully understand that revolution is necessary and be ready to sacrifice their lives for it.
2. The existing government should be in a state of crisis to make it possible for it to be overthrown rapidly. 

1917 Revolution

• demonstration by working class women trying to purchase bread.
• followed by general strike of workers, later joined by soldiers. 
• In March 1917, St. Petersburg fell into the hands of revolutionaries, soon took over Moscow too.
• Czar gave up throne and provisional government formed. This is known as February Revolution. 
• Provisional government under Kerensky lost people support due to non-compliance of revolution demands. 
• Winter Palace occupied by group of Sailors in October, led to fall of Kerensky government. This is known as October Revolution.

Objectives of Russian Revolution

1. Peace.
2. Land to the tiller.
3. Control of industry by workers.
4. Equal status for non-Russian nationalities. 

Civil War

• After October Revolution, officers of the army of the fallen Czar organised an armed rebellion against the Soviet State.
• England, France, Japan, US and others provided help to rebels. 
• War ended in 1920. Even though Red Army was ill-equipped and composed mainly of peasants and workers defeated the better equipped and better trained forces. 

Effects of Russian Revolution

• Russia withdrew from WWI.
• Territories ceded to Germany as a price for peace. 
• Estates of landlords, the Church and the Czar confiscated  and transferred to peasants' societies to be allotted to peasants families to be cultivated without hired labour. 
• Control of industries transferred to shop committees of workers. 
• Banks and Insurance companies, large industries, mines, water transport and railways nationalised. 
• Foreign debts repudiated and foreign investment confiscated. 
• Overthrow of autocracy and destruction of aristocracy and the powers of church.
• Czarist empire transformed into a new state called Union if Soviet Socialist Republic (USSR).
• Private profit eliminated from the system of production.
• Economic planning adopted by State to build a technologically advanced economy at a fast rate and to eliminate glaring inequalities in society. 
• Right to work became a constitutional right. 
• Education was given high priority. 
• Equality of all the nationalities in USSR was recognised. 

Effect of Russian Revolution on World

• Russian revolution was the first successful revolution in history which proclaimed the building of a socialist society as its objective.
• Communist International/ Third International/ Comintern formed for promoting revolutions in an international scale.
• Left wing sections in many socialist parties now formed themselves into communist parties and they affiliated themselves to Comintern. 
• Comintern decided on policies to be followed by all communist parties.
• Russia openly supported the cause of independence of all nations from foreign rule.  

The First World War

Features of WWI

• Unprecedent damage.
• Earlier civilian population not involved. Casualties confined to warring armies. But in WWI huge civilian casualties as civilian infrastructure were targeted. 
• Total war - all the resources of warring states mobilized. 
• Affected the economy of whole world. 
• Battles of war were fought in Europe, Asia, Africa and the Pacific - unprecedent extent of its spread. 

Reasons for WWI

1. Imperialist Rivalries
• Most of Asia and Africa already divided between Imperialist countries. Further conquest only through dispossession of imperialist country from its colony. 
• Germany late in scramble for colonies. Ambition was to control economy of the declining Ottoman Empire. German interests in conflict with Britain, France and Russia. 
• Imperialist countries interest in conflict with other imperialist countries. 
• Expansion of other major powers' influence was considered a threat to American interests. 
2. Conflicts within Europe
• Conflict of interest over the Balkan region under Ottoman rule, among Britain, Germany, Austria-Hungary, Russia, France and Italy.
• Russian Czars promoted Pan-Slav movement. All Slavs of Eastern Europe are one people.
• To control Balkan region
• Many Slavs in Austria-Hungary
• Serbian nationalism promoted by Russia. 
• Pan-German movement aimed at expansion of Germany all over central Europe and in the Balkans.
3. Formation of Alliances
• Due to conflict over colonies, tension in Europe. European countries formed opposing groups.
• Militarilzation of countries started on large scale. 
• Triple Alliance:  Germany + Austria-Hungary + Italy
• Triple Entente: France + Russia + Britain
• Opposing groups of countries not only increased danger of war but also made inevitable. 
4. Incidents Preceding the War
• Austria annexed Ottoman provinces of Bosnia and Herzegovina. 
• These provinces coveted by Serbia too which had the backing of Russia. 
• Russia threatened to start  a war over Austria annexation but due to Germany's support to Austria, Russia retreated. 
• Serbia, Bulgaria, Montenegro and Greece fought war against Turks. Turkey lost all its territories. War among themselves over distribution of Turkish territory. 
• These incidents brought Europe on the verge of war.
5. Assassination of Archduke Francis Ferdinand
• Archduke Francis Ferdinand, heir to the throne of Austria-Hungary assassinated at Sarajevo, capital of Bosnia.
• Austria accused Serbia for this. Declared war on Serbia. 
• Russia backed Serbia. 
• Germany declared war on Russia

New Weapons in WWI

1. Machine gun
2. Liquid Fire
3. Aircrafts
4. Tanks
5. Submarines, Uboats
6. Poison gas. 

Reason for US joining the WWI

1. German U-boats had sunk British ship Lusitania. Among the 1153 passengers killed were 128 Americans. 
2. Americans sympathetic to Britain, and this incident aroused anti-German feelings. 
3. US has given huge amount of loans to Entete countries. If these loans were to be recovered then Entete countries were required to win the war. 
4. If Germnay won the war then it will become serious rival to US economically. 
• German Imperator ship - largest in the world. 
• Leading manufacturer of Iron and Steel. 
5. US joining the WWI changed the tide of war. 

Treaty of Versailles,1919

• Republican government of Germany compelled to sign this treaty under threat of invasion. 
• Treaty declared Germany and her allies guilty of aggression. 
• Alsace-Lorraine returned to France. 
• Coal mines in German area, Saar ceded to France for 15 years, area to be governed by League of Nations. 
• Germany ceded parts of her pre war territory to Denmark, Belgium, Poland and Czechoslovakia.
• Rhine valley to be demilitarized. 
• German army limited to 100,000. No airforce and submarines. 
• Dispossessed of all her colonies. 
• Required to pay for loss and damages - 6.6 billion Pound.

Peace Treaty with Austria-Hungary

• Austria-Hungary brokenup. 
• Austria recognized independence of Hungary, Czechoslovakia, Yugoslavia and Poland. 
• Cede territories to new independent states and Italy. 

Peace Treaty with Turkey

• Complete dismemberment of Ottomon Empire.
• Palestine and Mesopotamia (Iraq) "mandate" of Britain, Syria "mandate" of France. Britain and France were the mandatory powers. Mandatory powers to look after intrests of the people of the "mandates" but governed as colonies. 
• Most Turkish territories to be given to Greece and Italy. Turkey to be reduced to very small state. 

Revolution in Turkey 

• Revolution in Turkey under Mustapha Kemal in 1922. 
• Sultan disposed, Turkey proclaimed republic in 1922.
• Turkey regained control of Asia Minor and the city of Constantinople. 
• Allies forced to abandon earlier treaty. 

Consequence of the War and the Peace Treaties.

• Huge loss of human lives.
• 53-70 million fought.
• 9 million died. 
• Economy of many countries shattered. 
• Reorganization of political map of World, particularly of Europe. 
• Three Ruling dynasties destroyed. 
• Romanov in Russia
• Hohenzollern in Germany
• Habsburg in Austria-Hungary
• Ottomon Empire came to an end.
• Austria and Hungary became separate independent states. 
• Czechoslovakia and Yugoslavia became independent states. 
• Poland reformed as independent state which was divided among Russia, Austria and Prussia in 18th century.
• Beginning of the end of European supremacy in world. Europe surpassed by US, emerged as world power. 
• Strengthening of the freedom movements in Asia and Africa.
• Rise of Soviet Union and its support to freedom movements. 
• Role played by soldiers recruited from colonies shattered the myth of European supremacy over Asian and African people. 
• Growth of nationalist feelings in colonies. 
• Treaties with defeated countries contained extremely harsh provisions, sowed seeds for further conflicts. 

Imperialism in China

Domination of China started with Opium Wars.

Opium Wars

• Before opium wars only two ports opened to foreign traders. 
• No market for British goods in China. 
• British merchants started smuggling Opium into China on large scale. Very profitable trade.
• Did immense physical and moral damage to Chinese. 
• In 1839, China seized opium cargo and destroyed it. 
• Britain declared war and defeated China. 
• China forced to pay heavy damages and open 5 port cities to British traders. 
• Chinese government agreed that future British subjects in these port cities would be tried for any crimes in English rather than Chinese courts. - Known as extraterritorial rights.
• Chinese government not free to impose tariff on foreign goods. 
• Hong Kong given to China. 

China-Japan War

• Japan tried to increase her influence over Korea.
• Korea under Chinese overlordship. China resented; two countries went to war in 1894.
• China got defeated. China gave Korea her independence, ceded Formosa and other islands to Japan.
• Forced to pay heavy war damages of 150 million USD. 
• France, Russia, Britain and Germany gave loans to China to meet this payment. 
• In lieu divided China into spheres of influence. Each country has certain regions of China reserved exclusively for its purpose. 
• Germany: Kiachow Bay + Shantung + Hwang Ho valley.
• Russia: Liatong Penisula + right to build railroads in Manchuria. 
• France: Kwangchow Bay + 3 southern provinces to China. 
• Britain: Wei-hi-Wei + Yangtze Valley.
• US feared that its trade with China would be shutoff suggested "Open door"/ "Me too" policy.
• Open door - all countries will have equal rights to trade anywhere in China. 
• Britain supported US to discourage annexation of China by Japan and Russia. 
• Scramble for privileges stopped in China after an uprising against the foreign power known as Boxer rebellion (1898-1900).
• Foreign powers were victorious and levied heavy damages on China as punishment. 
• China was not conquered and occupied by any imperialist country, but the effects of these developments were same as in areas which had been colonized. 
• Division of China into spheres of influence - "cutting of the Chinese melon"

Imperialism

Imperialism is the practice of extending the power, control or rule by a country over the political and economic life of areas outside its own borders.

Conditions that helped the growth of Imperialism

1. Demands created by Industrial Revolution
• Production of goods was far excess of demand at home. 
• Low wages of worker = low purchasing power of worker = restricted demand at home,
• Possibility of trade between industrialized nations little due to protectionist policy.
• So capitalist countries have to find market for the goods they were producing.
• Markets for surplus goods in Asia and Africa. No Industrial Revolution here yet.
• Selling made easier due to political domination. 
• Raw materials available from the colonies. 
• For protection of their investments. Weak government means frequent uprisings. = Loss of profits. 
2. Improvement in Transportation and Communication
• Faster transport of goods between European countries and acquired territories. 
• Built waterways in conquered territories by cheap labour, raw materials from interior of  continents could be transported. 
• Every area of world was brought within easy reach.
3. Extreme Nationalism: Pride and Power
• For superiority, each nation felt that it must have colonies to add to its prestige and power. 
• Many intellectuals openly advocated imperialism, Took pride in calling their territories empires. 
• Acquiring colony - chain reaction - need another to protect it and so on. 
• Colonies provided manpower to imperialist countries.
4. The "Civilizing Mission": Men and Ideas
• Many Europeans thought imperialist expansion to be noble. 
• Bringing civilization to backward people of the world. 
• "The whiteman's burden" -Rudyard Kipling;
• "Superior races have the duty of civilizing the inferior races." - Jules Ferry
• Christian missionaries dedicated to spreading Christianity - war for their protection - part in promoting imperialism. 
5. Conditions that favoured Imperialism in Asia and Africa
• No industrial revolution here. 
• Weak government in Asia and Africa in 19th century.
• Militarily weak against European nations. 
• Old ways of governance still followed. Outlived its usefulness.
• Strong nation states in the modern sense not developed. 
• Loyalities to local princes or to tribal Chieftians as in feudal times 

Changes In Indian Foreign Policy

The new government elected in 2014 in India has led to strategic shift in India's foreign policy. These changes can be enumerated as:

1. "India First" approach
• Probably for the first time Indian PM has explained India's economic and technological objectives abroad i.e India First.
• Specific role identified for each country for achieving these objectives. Basic sanitation, defence and space technology.
2. Greater orientation of domestic and foreign policies toward those objectives
• decisions based on a cost benefit analysis on a defined set of parameters, not on ideological consideration.
3. Emphasis on overall national power
• clearer appreciation of external threat.
• Deterrence is only effective if the adversary is convinced that new government will respond to asymmetric warfare with appropriate action spread across a much broader spectrum of conventional and unconventional options.
• heightened conventional response to border firing/ ceasefire violations by Pakistan. 
• Mc Mohan highway along LAC in Arunachal Pradesh to counter unconventional psychological warfare and "creeping annexation" by China. 
• Focus on self sufficiency in defence production. 
4. Greater emphasis on Soft Power
• Indian PM Madision Square speech in New York, US, MCG ground speech in Australia. 
• Promotion of Yoga - pitch for International Yoga Day.
5. Freeing up of self imposed, historical and mental constraints on developing the relation with any country to its full potential
• India's economic relation with potential adversary can be independent of its security relations. 
•  Economic agreements between India and China. 
• India joining New Development Bank (BRICKS Bank), Asian Infrastructure Investment Bank (AIIB).  These groupings generally seen as to counter developed nations. On the other hand India is collborating with US and many European countries. 
• Increased defence cooperation with Vietnam inspite of reservations shown by China. 
• Relation with one country will not be constrained by relation with other. 
• Cooperation with China will not affect relation with Japan. 

Overall all a much confident, credible and effective national security and foreign policy is expected to emerge. 

French Revolution

State of society before the revolution

• French society was divided into classes, or estates.
1. First Estate - Clergy
2. Second Estate - Nobility
• These two classes were the privileged class. They were exempted from almost all taxes. 
• Controlled most administrative posts, high ranking posts in army.
• Owned more than 40% of total land of France. 
3. Third Estate
• They were common unprivileged people. 
• Made 95% of the total population. 
1. Peasants
• 80% of the total population, largest dection of Third Estate.
• had miserable life. 
• most peasants free, not like serfs in Middle ages or serfs in other countries. 
• Many owned lands. Majority landless or small holdings.
• No longer allowed wood from forest.
• Not allowed to graze his flocks on uncultivable land. 
2. Middle Class - Bourgeoisie
• Writers, doctors, judges, lawyers, teachers, civil servants, merchants, bankers, manufacturers. 
• Economically most important.
3. Artisans and City Workers
• Worked in inhuman condition.
• looked upon as inferior creatures.  
• Without any rights. 
• Bad working condition. 
• Monarchy
1. Indifferent to the work of government. 
2. No contact with common people. 
3. Led extravagant lifestyle.
4. Brought state to bankruptcy.

Intellectual Movement

• 18th century France has many revolutionary thinkers. 
• asserted man was born to be happy.
• denied existence of God or ignored Him.
• asserted doctrine of nature. 
• urged faith in reason.
• attacked religious doctrines of clergy.
• taxes should be imposed only with the consent of those whom they were levied. 
• denial of the privileges and feudal rights that protected the upper class. 
• no political system can maintain itself without ``the consent of the governed."

Outbreak of the Revolution

• In 1789, Louis XVI's need for money compelled him to agree to a meeting of the States General - old feudal assembly.
• All three estates represented but each had separate meeting. 
• Third Estate claiming to be represent 96% of national population declared themselves National Assembly. 
• On June 20, 1789 found meeting hall occupied by Royal Guards, moved to nearby tennis court to work out constitution. 
• Louis called troops to breakup the assembly.
• Enraged people - surrounded Bastille - state prison joined by guards.
• Revolt spread to other towns. 
• National Assembly adopted the Declaration of the Rights of Man and Citizen

War and End of Monarchy

• People of France involved in war to defend revolution and the nation.
• Nobles and clerics fled country.
• Nobles and clerics encouraged foreign government to intervene in France against the revolution.
• National Assembly replaced by Legislative Assembly.
• France in war with Austria, Prussia and Savoy in Italy for protection of revolution. Later declared war against Britain, Holland, Spain and Hungary. (War: 1792-1815).
• Army became powerful.
• Led to rise of Napolean, who later declared himself Emperor of the French Republic. 

Consequence of French Revolution

• Destruction of feudalism in France.
• Napolean seized power, Napoleonic code introduced.
• Introduction of captalism in Europe.
• French Revolution gave the term "nation" its modern meaning. 
• Nation is not the territory that people belonging to it inhabit but the people themselves. 
• From this followed idea of sovereignty. Nation recognizes no law or authority above its own.
• People constituting the nation are the source of all power and authority.
• abolished slavery in French colonies. 
• Inspired revolutionary movement in  other countries. 
• Destroyed serfdom in areas which came under French occupation. 
• Spain was occupied by France and Portugal was in conflict with France. Spain and Portugal has no contact with its colonies. Therefore most Portuguese and Spanish colonies  in Central and South America. became Independent.

Recent Initiatives to Boost Industrial Growth

1. Ease of Doing Business
• reforms are being undertaken in areas such as starting a business, dealing with construction permits, registration of property, power supply, paying taxes, enforcing contracts, and resolving insolvency.
• liberalization of licensing and deregulation of a large number of defence products.
• adoption of a checklist with specific time-lines for processing all applications filed by foreign investors in cases relating to retail/non-resident Indian (NRI)/export-oriented unit (EoU) foreign investments.
• automation of processes for registration with the Employees Provident Fund  Organization and Employees State Insurance Corporation.
• processing of environment and forest clearances online. 
• reducing the number of documents for exports.
2. Make In India
• aimed to facilitate investment, foster innovation, enhance skill development, protect intellectual property, and build best-in-class manufacturing infrastructure.
• Information on twenty-five sectors has been provided on a web portal along with details of FDI policy, National Manufacturing Policy, intellectual property rights.
• Delhi-Mumbai Industrial Corridor and other National Industrial Corridors.
• An Investor Facilitation Cell has been created in 'Invest India' to guide, assist, and handhold investors.
3. E-Biz Project
• one-stop shop for delivery of services to the investors and address the needs of the business and industry from inception through the entire life cycle of the business.
• process of applying for industrial licence (IL) and industrial entrepreneur memorandum (IEM) has been made online and this service is now available to entrepreneur on 24x7 basis at the E-Biz website.
4. Skill Development
• Ministry of Skill Development and Entrepreneurship to promote skill and entrepreneurial activities.
• Thirty- one industry/employer-led Sector Skill Councils (SSCs) are now operational and these have been aligned with the twenty-five sectors of 'Make in India'.
• To create a common standard for skills training and certification in the country efforts are on to align the National Council for Vocational Training (NCVT), school boards, and the University Grants Commission (UGC).
5. Streamlining environment and forest clearances
• online submission of applications for environment, coastal regulation zone (CRZ), and forest clearances.
• decision- making process has been decentralized by strengthening federalism.
• To ensure industrial and education growth, the requirement of environment clearance has been done away with for projects for construction of industrial sheds which house plant and machinery, educational institutions and hostels.
6. Labour -sector reforms
• Shram Suvidha portal has been launched for online registration of units, filing of self-certified, simplified, single online return by units.
• introduction of a transparent labour inspection scheme via computerized system as per risk-based criteria, uploading of inspection reports within seventy-two hours and timely redressal of grievances.
• A Universal Account Number has been launched facilitating portable, hassle-free, and universally accessible Provident Fund accounts for employees.
• The Apprentices Act, 1961 has been amended so as to make it flexible and attractive to youth and industry.
• Apprentice Protsahan Yojana to support micro small and medium enterprises (MSME) in the manufacturing sector.
 

Goods And Services Tax (GST)

The introduction of the GST would be a significant step in the field of indirect tax reforms in India. By subsuming a large number of central and state taxes into a single tax, it would mitigate cascading or double taxation in a major way and pave the way for a common national market. From the consumer’s point of view, the biggest advantage would be in terms of a reduction in the overall tax burden on goods, which is currently estimated at 25 per cent- 30 per cent. Introduction of the GST is also expected to make Indian products competitive in domestic and international markets. Because of its transparent character, it is expected that the GST would be easier to administer.

• GST would be applicable on supply of goods or services as against the present concept of tax on the manufacture or on sale of goods or on provision of services.
•  destination-based tax as against the present concept of origin-based tax.
• dual GST with the centre and the states simultaneously levying it on a common base. Central GST and State GST.
•  An integrated GST (IGST) would be levied on inter-state supply (including stock transfers) of goods or services. This would be collected by the centre so that the credit chain is not disrupted.
• Import of goods or services would be treated as inter-state supplies and would be subject to IGST in addition to the applicable customs duties.
• A non-vatable additional tax, not exceeding 1 per cent on inter-state supply of goods would be levied by the centre and retained by the originating state at least for a period of two years.
• CGST, SGST, and IGST would be levied at rates to be recommended by the Goods and Services Tax Council
• (GSTC) which will be chaired by the Union Finance Minister and will have Finance Ministers of states as its members.
• GST would apply to all goods and services except alcohol for human consumption.
• GST on petroleum products would be applicable from a date to be recommended by the GST Council.
• Tobacco and tobacco products would be subject to the GST. In addition, the centre could continue to levy central excise duty.
• A common threshold exemption would apply to both CGST and SGST. 
• The list of exempted goods and services would be kept to a minimum and it would be harmonized for the centre and states as far as possible.
• Exports would be zero-rated.
• The two streams of input tax credit (ITC) cannot be cross utilized, except in specified circumstances of inter-state supplies, for payment of IGST.

Implementation of a comprehensive GST in India is expected, ceteris paribus, to lead to efficient allocation of factors of production thus bringing about gains in GDP and exports. This would translate into enhanced economic welfare and higher returns to the factors of production, viz. land, labour, and capital.

Economic Survey 2015 - The Fourteenth Finance Commission (FFC) - Implications for Fiscal Federalism in India

Major Recommendation of FFC

•  Enhanced the share of the states in the central divisible pool from the current 32 percent to 42 per cent.
• Proposed a new horizontal formula for the distribution of the states' share in divisible pool among the states. There are changes both in the variables included/excluded as well as the weights assigned to them.
• FFC has incorporated two new variables: 2011 population and forest cover.

• The FFC has not made any recommendation concerning sector specific-grants unlike the Thirteenth Finance Commission.

Implications Of FFC Recommendations For Fiscal Federalism: A Way Ahead

• More spending capacity of States.
• The FFC transfers have more favorable impact on the states (only among the GCS) which are relatively less developed which is an indication that the FFC transfers are progressive i.e. states with lower per capita NSDP receive on average much larger transfers per capita.\end{itemize}

Balancing Fiscal Autonomy And Fiscal Space

• The spirit behind the FFC recommendations is to increase the automatic transfers to the states to give them more fiscal autonomy and this is ensured by increasing share of states.
• to ensure that the Centre's fiscal space is secured, there will be commensurate reductions in the Central Assistance to States (CAS) known as "plan transfers."
• CAS transfers per capita are only mildly progressive. This is a consequence of plan transfers moving away from being Gadgil formula-based to being more discretionary.Greater central discretion evidently reduced progressivity. FFC recommendations would increase progressivity because progressive tax transfers would increase and discretionary and less progressive plan transfers would decline.
• The far-reaching recommendations of the FFC, along with the creation of the NITI Aayog, will further the Government's vision of cooperative and competitive federalism.

Economic Survey 2015 - From Carbon Subsidy to Carbon Tax: India's Green Actions

Introduction

• Recent decline in oil prices has provided the opportunity to rationalize energy prices by getting rid of distorting subsidies whilst shifting taxes toward carbon use. 
• decontrol of diesel prices while at the same time increase in excise duty on petrol and diesel periodically to match the declining global prices.
• the coal cess was doubled from Rs 50 per ton to Rs 100 per ton.

Excise Duty on Petrol And Diesel As An Implicit Carbon Tax

• Excise duties on petrol or diesel also act as an implicit carbon tax—by putting an effective price on emissions.
• role in raising substantial revenues for social redistribution.
• The striking feature is that India has moved from a  carbon subsidization regime to one of significant  carbon taxation regime—from a negative price to a positive price on carbon emissions.
• there will be net reduction of 11 million tons of CO2 emissions in less than a year.

Economic Survey 2015 - A National Market for Agricultural Commodities - Some Issues and Way Forward

Introduction

• Presently, markets in agricultural products are regulated under the Agricultural Produce Market Committee (APMC) Act enacted by State Governments.
• This Act notifies agricultural commodities produced in the region such as cereals, pulses, edible oilseed, fruits and vegetables and even chicken, goat, sheep, sugar, fish etc., and provides that first sale in these commodities can be conducted only under the aegis of the APMC through the commission agents licensed by the APMCs set up under the Act.
• The typical amenities available in or around the APMCs are: auction halls, weigh bridges, godowns, shops for retailers, canteens, roads, lights, drinking water, police station, post-office, bore-wells, warehouse, farmers amenity center, tanks, Water Treatment plant, soil-testing Laboratory, toilet blocks, etc.

APMCs Levy Multiple Fees, Of Substantial Magnitude, That Are Non-Transparent, And Hence A Source Of Political Power

• Multiple levies by APMCs.
• The levies and other market charges imposed by states vary widely. Statutory levies/mandi tax, VAT etc.are a major source of market distortion.
• Such high level of taxes at the first level of trading have significant cascading effects on the prices as the commodity passes through the supply chain.
• The rate of commission charged by the licensed commission agents is exorbitant, because, unlike direct taxes, which are levied on net income, the commission is charged on the entire value of the produce sold.

Essential Commodities Act, 1955 Vs APMC Act

•  The scope of the Essential Commodities Act (EC Act) is much broader than the APMC Act. It empowers the central and state governments concurrently to control production, supply and distribution of certain commodities, including pricing, stock-holding and the period for which the stocks can be kept and to impose duties.
• The APMC Act on the other hand, controls only the first sale of the agricultural produce.
• Apart from food-stuffs which are covered under the APMC Act, the commodities covered under the EC Act generally are: drugs, fertilisers, and textiles and coal.

Model APMC Act

• The Model APMC Act:-
• provides for direct sale of farm produce to contract farming sponsors.
• provides for setting up ``Special markets” for ``specified agricultural commodities”– mostly perishables. 
• permits private persons, farmers and consumers to establish new markets for agricultural produce in any area.
• requires a single levy of market fee on the sale of notified agricultural commodities in any market area.
• replaces licensing with registrations of market functionaries which would allow them to operate in one or more different market areas.
• provides for the establishment of consumers' and farmers' markets to facilitate direct sale of agricultural  produce to consumers.
• provides for the creation of marketing infrastructure from the revenue earned by the APMC.
• The model APMC Act also increases the competitiveness of the market of agricultural produce by allowing common registration of market intermediaries.

Inadequacies Of Model APMC Act

• The provisions of the Model APMC Act do not go far enough to create a national – or even state level common market for agricultural commodities.
• fees/commission falls on the farmers since buyers would discount their bids to the extent of the fees/commission charged by the APMC and the Commission agents.
• not adequate to create competition for APMCs even within the State, since the owner of the private market will have to collect the APMC fees/taxes, for and on behalf of the APMC, from the buyers/sellers in addition to the fee that he wants to charge for providing trading platform and other services.

Economic Survey 2015 - The Investment Climate: Stalled Projects, Debt Overhang and the Equity Puzzle

Introduction

• The stalling rate of projects has been increasing at an alarmingly high rate in the last five years, and the rate is much higher in the private sector.
• The good news is that the rate of stalling seems to have plateaued in the last three quarters.
• Manufacturing and infrastructure dominate in the private sector, and manufacturing dominates in total value of stalled projects even over infrastructure.The government’s stalled projects are predominantly in infrastructure.

Balance Sheet Syndrome With Indian Characteristics

• Corporate balance sheets in India continue to be over-extended.
• Debt to equity is a measure of financial leverage that indicates the proportion of debt and equity used by the company to finance its assets. Debt to equity for Indian non-financial corporates has been rising at a fairly alarming rate.
• This ability of a company to pay the interest on its outstanding debt is measured using the  Interest Coverage Ratio. ICR of Indian companies has deteriorated. 
• Many countries, including Japan in the aftermath of the real estate and equity boom of the late 1980s, have experienced over extended corporate balance sheets. But there is some difference in this Indian scenario
1. The debt overhang of the corporate sector is  accompanied by a relatively high growth of around 6 to 7 per cent.
2. It has been accompanied by high inflation (instead of the price deflation in  the Japanese example).
3. The public sector is exposed to corporate risk in the form of public private partnerships, and lending by the public sector banks.
4. Unlike many other countries with high debt to equity ratios currently, India's debt is almost exclusively financed by public sector banks.
•  A highly leveraged corporate sector- suggests that Indian firms face a classic debt overhang problem in the aftermath of a debt fuelled investment bubble, translating into a balance sheet syndrome with Indian characteristics.

Impact of Balance Sheet Syndrome On Firm Equity

•  There is a clear surge in equity values of Indian firms in the last three years. The puzzle though is that this surge coexists with rising stalling rates of big projects.
• The market is not penalising firms severely for the debt pile-up in the wake of investments turning sour.4 This may potentially be due to the pure political economy reason that the market is internalising the expectations of bailouts.

Policy Lessons

•  India needs to tread the path of investment-driven growth.
• Public investment may need to be augmented to recreate an environment to crowd-in private sector investment. Because corporate sector is highly leveraged and Banking sector is under severe stress. 
• Creative solutions are necessary for distributing pain equally amongst the stakeholders from past deals gone sour.
• An idea to fix the clean-up problem is setting up of a high powered Independent Renegotiation Committee.

Restructuring the Framework for the PPP

 Flaws in existing design

1. Existing contracts focus more on fiscal benefits than on efficient service provision.
2. Neglect principles allocating risk to the entity best able to manage it.
3. Default revenue stream is directly collected user charges. Where this is deemed insufficient, bidders can ask for a viability grant, typically disbursed during construction. This structure leaves the government with no leverage in the case of non-performance, with few contractual remedies short of termination.
4. There are no ex-ante structures for renegotiation. If a bureaucrat restructures a project, there are no rewards; instead it may lead to investigation for graft. Failed projects lead neither to penalties nor investigation. With such asymmetric incentives, bureaucrats naturally avoid renegotiation.
5. Contracts are over-dependent on market wisdom, e.g., bidders in ultra-mega power projects (UMPP) could index tariff bids to both fuel prices and exchange rates, but almost all chose very limited indexation. When fuel prices rose and the rupee fell, these bids became unviable. To enforce market discipline and penalise reckless bidding, these projects should have been allowed to fail.

 Needed Modifications

• It is better to continue combining construction and maintenance responsibilities to incentivise building quality. In many projects, especially highways, maintenance costs depend significantly on construction quality. If a single entity is responsible for both construction and maintenance, it takes lifecycle costs into account.
• Risk should only be transferred to those who can manage it. In a highway or a railway project, it is not sensible to transfer usage risk since it is outside the control of the operator.
• Financing structures should be able to attract pension and insurance funds, which are a natural funding source for long-term infrastructure projects.
• Rather than prescribe model concession agreements, states should be allowed to experiment.For example, in ports, terminals can be bid on the basis of an annual fee, with full tariff flexibility, subject to competition oversight.
• Least Present Value of Revenue (LPVR) contract.
•  bid is the lowest present value (discounted at a pre-announced rate) of total gross revenue received by the concessionaire.
• concession duration is variable and continues until the bid present value amount is received.
• it converts usage risk to risk of contract duration, which is more manageable for financial institutions.
• it discourages opportunistic bidding. Further, since the present value is protected, this structure is suitable for pension and insurance funds.

Economic Survey 2015 - "Wiping every tear from every eye": the JAM Number Trinity Solution

Introduction

• Sixty-eight years after Independence, poverty remains a pressing problem.
• The recent Annual Survey of Education Report, which documents that only a quarter of standard III students could do a two-digit subtraction and read a standard II text, makes for particularly sobering reading.
• Economic growth has historically been good for the poor, both directly because it raises incomes, and indirectly, because it gives the state resources to provide public services and social safety nets that the poor need (more than anyone else).
• The opportunities that growth creates also encourage individuals to invest in their own human capital.
• Effective antipoverty programs ought to be:
• based on data rather than popular perception,
• mindful of how policies shape – indeed frequently distort – the incentives that individuals and firms face, and
• acutely conscious of the state's own limited implementation capacity to target and deliver services to the poor.
• Price subsidies have formed an important part of the anti-poverty discourse in India and the government’s own policy toolkit.
• Prima facie, price subsidies do not appear to have had a transformative effect on the living standards of the poor, though they have helped poor households weather inflation and price volatility.

Subsidising Whom ?

• Price subsidies are regressive. It benefits rich household more than the poor household. 
• Price subsidies can distort markets in ways that ultimately hurt the poor.
• Subsidies can distort the incentives of consumers  and producers, and result in misallocation of resources across sectors and firms, which lowers aggregate productivity and often disproportionately hurts the poor and vulnerable.
• High MSP for wheat and rice has led to neglect of non MSP crops. Leading to demand-supply mismatch. Resulting in food inflation, which hurts the poor most.
• High MSP and water subsidies has promoted water intensive cultivation leading to dropping in water table. This ultimately hurts the farmer especially those without irrigation.  
• Leakages seriously undermine the effectiveness of product subsidies.  
• leakages not only have the direct costs of wastage, but also the opportunity cost of how the government could otherwise have deployed those fiscal resources.
• benefits of rationalizing subsidies.
• regressive nature of many price subsidies reduce their effectiveness as antipoverty strategies.
• reducing subsidy leakages gives the government the fiscal space required for higher-return social transfer programs without causing welfare losses
• the same amount of benefit that households gain through subsidies can be directly transferred to the poor through lump-sum income transfers, avoiding the distortions that subsidies induce.

The Possibilities offered by cash transfer

• Technology exists to allow government to improve economic lives of the poor at a much faster rate.
• unconditional cash transfers – if targeted well – can boost household consumption and asset ownership and reduce food security problems for the ultrapoor.
• augment the effectiveness of existing anti-poverty programs.
• income transfers can compensate consumers and producers for exactly the welfare benefits they derive from price subsidies without distorting the market. 

The JAM Number Trinity Solution

• The JAM Number Trinity – Jan Dhan Yojana, Aadhaar and Mobile numbers – allows the state to offer this support to poor households in a targeted and less distortive way.
• Mobile money offers a complementary mechanism of delivering direct benefits to a large proportion of the population.
• Mobile money offers a very viable alternative to meet the challenge of last mile connectivity.
• With several cell phone operators reportedly applying for a payment bank license in February 2015, mobile money platforms offer tremendous opportunities to direct Aadhaar based transfers.
• Similar to the mobile money framework, the  Post Office (either as payment transmitter or a regular Bank) can seamlessly fit into the Aadhaar linked benefits-transfer architecture.

Economic Survey 2015 - Fiscal Framework

Introduction

• In the medium term, India must meet its medium-term fiscal deficit target of 3 percent of GDP. This will provide the fiscal space to insure against future shocks and also to move closer to the fiscal performance of its emerging market peers.
• the way to achieve these targets will be expenditure control, and expenditure switching from consumption to investment.
• From 2016-17, as growth gathers steam and as the GST is implemented, the consequential tax buoyancy when combined with expenditure control will ensure that medium term targets can be comfortably met.
• In the upcoming year, the pressures for accelerated fiscal consolidation have been lessened because macro-economic pressures have significantly abated with the dramatic decline in inflation and turnaround in the current account deficit.

Background and History

• Inflation has been cut in half to about 5 percent today, underlying rural wage growth has declined from over 20 percent to below 5 percent, and the current account deficit has shrivelled from over 6.7 percent of GDP (in Q 3, 2012-13) to an estimated 1.0 percent in the coming fiscal year.
• At least three phases of policy can be distinguished since the early 2000s: 2002-2007; 2008-2011; and post-2012
•  In the first phase, all key measures of fiscal  performance improved dramatically, driven largely by rapid growth. 
• The fiscal deficit of the central government declined by nearly 3.2 percentage points, accounted for largely by an increase in the tax-GDP ratio  along with a decline in other non-debt receipts  and the rest by expenditure reductions.
• The second and difficult phase of Indian fiscal history began with the Lehman crisis in 2008-09 and lasted four years.
• nearly all the positive trends of the previous six years were reversed.
• In the initial years (2008-09 to 2011-12), current expenditures (public consumption) increased dramatically due to the  rising subsidy bill; the increase in pay and allowances because of implementation of the Sixth Pay Commission  recommendations; and schemes that built in permanent entitlements such as MGNREGA.
• In the third and most recent phase, from 2012-13 to 2014-15, which was characterized by a sharp growth slowdown, the fiscal position finally began to be repaired. 
• India experienced a near-crisis during July/August 2013, as the conjunction of the U.S. Federal Reserve's decision to taper its monetary stimulus and India's growing current account deficit, high inflation, and still-large fiscal deficits caused capital to flee the country.
• Gave a lesson that India needs to create additional fiscal space, in order to ensure macro stability and to create buffers for economic downturns in the future.

Medium Term Strategy

• The golden rule of fiscal policy is that governments are expected to borrow over the cycle only to finance investment and not to fund current expenditures.
• the government should target steady declines in the revenue deficit to move closer to the golden rule.
• the medium-term fiscal strategy should be based on two pillars. First, the fiscal deficit should be reduced over the medium-term to the established target of 3 percent of GDP.
• Second, and mindful of the experience of the past decade, efforts to achieve this objective should be based on firm control over expenditures, most notably by eliminating leakages in subsidies and social expenditures.

Short Term Issues

1. Cyclical Considerations
•  In the short-run, fiscal policy serves as a cushion, stabilizing demand and growth.
• accepted rule is that from a demand management  perspective governments should not run a procyclical fiscal policy unless there are compelling factors such as macro-conomic overheating.
• these factors weaken the case for pro-cyclical policy.
2. One-Off/ New factors
1. The Fourteenth Finance Commission recommendations. Centre would have to pay more. 
2. GST in 2016/17 was facilitated by the offer of the government to compensate the states for the backlog of CST compensation of up to 25,000 crores.
3. increase public investment to revive private investment and growth.

Conclusions

• Macro-economic circumstances have improved dramatically in India.
• Provided that fiscal discipline is maintained, India's debt dynamics will consequently remain exceptionally favourable going forward.
• At the same time, India's fiscal situation is close to that about ten years ago at a comparable stage of the cycle. In other words, the stimulus provided in the last few years has mostly been withdrawn.
• The loss in fiscal discipline led to the near-crisis in 2013 and on pure fiscal measures, India does not rank as favourably as its investment grade peers.
• India must meet its medium-term target of fiscal deficit of 3 percent of GDP. India must also reverse the trajectory of recent years and move toward the golden rule of eliminating revenue deficits and ensuring that, over the cycle, borrowing is only for capital formation.
• These trends need to be reversed, and the nation’s public finances need to be set back on the path toward fiscal deficit of 3 percent of GDP, as planned in FRBM (Amendment) Act 2012.

Economic Survey 2015 - Economic Outlook, Prospects, and Policy Challenges

• India has reached a sweet spot—rare in the history of nations—in which it could finally be launched on a double-digit medium-term growth trajectory.
• This will allow removing poverty, creating more jobs, high quality education and health services to people.
• Economic Survey focuses on the two broad themes - creating opportunity and reducing vulnerability
• India needs to follow what might be called "a persistent, encompassing, and creative incrementalism"
• but with bold steps in a few areas that signal a decisive departure from the past and that are aimed at addressing key problems such as ramping up investment, rationalizing subsidies, creating a competitive, predictable, and clean tax policy environment, and accelerating disinvestment.
• In the short run, growth will receive a boost from lower oil prices, from likely monetary policy easing facilitated by lower inflation and lower inflationary expectations, and forecasts of a normal monsoon.

 Reform Actions of New Government

• Deregulating diesel prices. 
• Raising gas prices from US $ 4.2 per million British thermal unit to US $ 5.6, and linking pricing, transparently and automatically, to international prices so as to provide incentives for greater gas supply and thereby relieving the power sector bottlenecks.
• Taxing energy products. To have positive environmental consequences. 
• Replacing cooking gas subsidy by Direct Benefit Transfer Scheme.
• Instituting the   Expenditure Management Commission, which has submitted its interim report for rationalizing expenditures
• Pradhan Mantri Jan Dhan Yojana
• Aadhaar linked bank accounts - financial inclusion.
• Inreasing FDI caps in defence. 
• Eliminating quantitative restriction on gold. 

American Revolution

English Colonies in America

• 13 English colonies in North America along Atlantic Coast.
• Bulk of population independent farmers.
• North: Fishing and Shipbuilding
• South: Plantations like feudal manor, tobacco, slave labour from Africa. 
• Each colony had a local assembly elected by qualified voters.
• Colonies under the rule of mother country.
• Colonists found English laws imposed on them objectionable.

Cause of War of American Independence

• English policies did not encouraged economy of America colonies. 
• Non-British ships forbidden for trade.
• Products like tobacco, cotton and sugar can only be exported to England. 
• Heavy import duties on goods imported from other places. 
• Forbidden to start certain industries e.g. iron works and textiles.
• Growth of industry and trade in colonies was impeded by England. 
• Angered colonists by issuing a proclamation to prevent them from moving west into new lands.
• 1765 Stamp Act - imposed stamp taxes on all business transactions in American colonies.
• Aroused violent resentment, led to boycott of English goods.
• Colonist claimed English Parliament has no representative from colonies, it had no right to levy taxes on them.
• Massachusetts Assembly, 1765
• Leaders of 13 colonies met in Massachusetts.
• declared English Parliament has no right to levy taxes on them. No taxation without representation. 
• Threatened to stop import of British goods. 
• English repealed Stamp act but insisted on right to levy taxes.Objected by colonies, in response decreased English import by 50%.
• English Parliament withdrew the plan. Tax on tea only, to assert their right to levy taxes.
• Boston Tea Party, 1773
• Several colonies refused to unload tea coming in English ships.
• Boston Governor ordered ship to be unloaded. Group of citizens boarded ship and dumped crates of tea into the water.
• English governor closed port of Boston to all trade and commerce.
• Led to uprising of the colonies. 
• The Philadelphia Congress, 1774
• Representatives of the 13 colonies met as a group at First Continental Congress, Philadelphia,1774.
• Appealed to English King. Remove restrictions on industries and trade. Not to impose any taxes without consent. 
• King declared this to be mutiny and ordered troops be sent to suppress it.
• 1775, First battle of revolution. 
• American colonies were helped by French government with troops, supplies and funds. 

Declaration of Independence

• All men are created equal. 
• Endowed by their creator with certain inalienable rights. 
• Among these rights are life, liberty and the pursuit of happiness.
• Declaration advanced the principle that people are the source of authority.
• Affirmed the people's right to setup their own government.  

Significance of American Revolution

• Inspired many revolutionaries in Europe later in the 19th century/.
• Encouraged Spanish and Portuguese colonies in Central and South America to rebel and gain their independence.
• Establishment of a republic. 

Glorious Revolution - The English Revolution

Origin of Parliament

• King Henry I created a council in 11th century of nobles and church dignitaries. 
• By 13th century this council came to be known as Parliament
• 1215, Magna Carta - tried to safeguard the interests of Barons from encroachments of royal authority and protect merchants from arbitrary taxation.

Conflict Between Parliament and Monarchy

• 1640, Charles I was involved in a war with Scotland. He was forced to call Parliament for money. 
• Parliament forced him to abolish a tax called "ship money" and to sign a bill agreeing not to dissolve Parliament without its own consent. 
• King, finding his position threatened decided to deal with Parliament severely.
• War between King's supporters (Cavaliers) and supporters of Parliament (Roundhead) in 1642.
• After 5 year of war Parliament was victorious. 
• Charles I was captured and publicly executed and Parliament established a republic.

Glorious Revolution of 1688

• Republic lasted for 11 years.
• After the death of Cromwell monarchy was restored. He had played important role in defeating King. He became the 'Lord Protector'. He was a military dictator and had absolute command over its army.
• Son of executed King, Charles II was made King. 
• Charles II and its successor James II tried to assert superiority and monarchy.
• In 1688, group of politicians invited William of Orange (Husband of James II's daughter, Mary) ruler of Holland to become King.
• Without firing the shot William reached London and James II fled to France. 
• Throne was granted to William and Mary jointly. 
• Glorious revolution completely destroyed doctrine of the "Divine Right" of Kings of England.
• Glorious revolution marked the triumph of Parliament over monarchy.
• No longer were the English Kings to have independent authority of their own.  

The Medival World

• Medieval period: 600 A.D - 1500 A.D
• Roman empire destroyed by Barbarian invasions by 500 A.D
• Eastern Roman empire founded before 500 A.D continued for 1000 years more. 

Feudalism

• economic life predominantly rural. 
• main division of society
• Peasants: who worked on land.
• Feudal lords: got share of the peasants produce or had peasants to work on lands without any payment.
• produce consumed locally.
• very little role of towns and trade in the life of people. 
• land was main source of authority and power. 

Feudal hierarchy

• King > dukes & earls > barons > knights > peasants
• King bestowed fiefs or estates on number of dukes who in turn bestowed their fiefs to lesser lords and so on. 
• Every feudal lord was expected to pay homage to his overlord and could then be invested with some formal rights.
• Knights were lowest category of feudal lords. They performed military services.
• Relation from top to bottom was of allegiance. 
• There was little political unity and lack of central authority in feudal countries. 
• Each feudal lord was all powerful within his fief. He has his own soldiers; levied taxes in his fief; acted as judge and tried. Sometime lords grew so powerful that they even ignored the king and refused to obey him. This resulted in very little political unity and a strong central power was not allowed to develop. 

Types of Peasants

1. Freeholders
• received land from lords, used and managed it as their own. 
• did not work for their lord.
• paid taxes to lord.
2. Villens
• gave a part of produce of their land to lord.
• had to work on lord's fief for fixed number of days otherwise free to lool after their fields received from their overlords. 
3. Serfs
• tied to land, could change their masters only when land changed hands.
• many serfs had lands which they cultivated for themselves. 
• also work on lands entirely for their lords. 
• perform any service that their lord wanted them to perform e.g. building or repairing a house, road etc. - forced labour. 

Pros of Feudalism

1. Brought a measure of orderliness, safety and security to medieval life. 
2. allowed social and economic activity to run its normal course. 

Cons of Feudalism

1. rigid political system.
2. lack of political unity.
3. oppression by overlords.
4. King has no contact with the common man, who was left entirely to the mercy of his lord.
5. economic stagnation. 

Holy Wars

• desire for new lands and riches encouraged the lords and leaders of the Church to fight "holy wars" or crusades. 
• in 7th century, Arabs conquered Palestine, holy places of Christianity in this area. War to regain Holy Land. 

Impact of Holy wars

• drain on noble's resources.
• contact with Arabs led to demand for luxury goods.
• trade and commerce with east was extended. 
• drain on the resources of Church. Popes took recourse to questionable practices to augment their resources. 

Emergence of New Class

A new class began to develop during later years of middle ages. 

1. Artisans
2. Craftsman
3. Merchants

Reasons for development of new class

1. Contacts with Arabs 
• contact with Arabs led to increase of demand of luxury goods. 
• increase in trade and commerce with the east.
2. Improvement in Agricultural methods
• because of improvement of Agricultural methods many peasants were in position to exchange a part of their agricultural produce for nonagricultural goods.
• encouraged growth of craftsman and trade, led to emergence of towns. 
3. Rise of Towns
• Towns were center for crafts and trade.
• some peasants engaged in crafts and also practising agriculture become full-time artisans and settled in places where it was easy to exchange their goods for agricultural goods
• Merchants who traded in goods settled in such places. These towns were free from all feudal controls. 
• People in towns were free to move; marry their children; aquire and dispose of their property as they liked.
• Many cities obtained their freedom from Kings and elected their own officials to adminiter their affairs.