12 August 2022

12 August 2022 – Daily Mains Answer Writing & Model Answer

Q1. In India, the COVID-19 pandemic has exacerbated class disparities and poverty. Discuss. (250 words)

Paper & Topic: GS I – Role of women and women’s organization, population and associated issues, poverty and developmental issues, urbanization, their problems, and their remedies.

Model Answer:

Introduction:

• According to the UNDP, India was able to raise 271 million people out of poverty between 2006 and 2016.
• However, India’s Ministry of Statistics and Programme Implementation, which conducts the National Sample Survey, reported in the same year that, for the first time since this type of measurement was available, the percentage of Indians living in poverty had begun to rise again, owing to rural poverty (where about two-thirds of the population still lives).
• This trend has been greatly accelerated by the Covid-19 problem.

Body:

• In terms of possible economic and societal consequences, the coronavirus (COVID-19) is unlike any other disaster the world has encountered in recent decades.
• According to the World Bank, the epidemic could push 49 million people into extreme poverty by 2020.
• It also states that worldwide poverty rates are expected to climb for the first time since 1998.
• According to UN projections, by the end of the year, 8% of the world’s population, or half a billion people, will have been forced into poverty, owing mostly to the pandemic.

India’s current state of inequity and widespread poverty:

• Oxfam has highlighted a concerning post-pandemic trend in its recent study, showing the rising gap between the rich and the poor in the global community, particularly in India.
• “Indian billionaires’ wealth climbed by 35% during the shutdown and by 90% since 2009 to $422.9 billion, ranking India sixth in the world after the United States, China, Germany, Russia, and France,” according to the report titled “The Inequality Virus.”
• Multiple projections by multilateral agencies reveal that the COVID-19 epidemic will impact India the worst, putting 40 million people in “severe poverty,” worsening hunger and income disparity, and yet the government appears unconcerned, offering no data, estimations, or policy responses.
• According to the United Nations Development Programme (UNDP), 260 million people will be back in poverty by 2020, nearly as many as the 271 million who escaped poverty between 2006 and 2016.
• Covid-19 is expected to force over 400 million employees in India’s informal sector deeper into poverty, according to the UN’s International Labour Organization (ILO) in the second week of April 2020.

Previous efforts to combat poverty around the world include:

• In 1990, 1.9 billion people, or 36 percent of the world’s population, lived on less than $1.90 a day. Because of improvements in South Asia and China, that figure had reduced to 734 million people, or 10% of the world’s population, by 2016.
• According to the United Nations, India saw the most progress, with 210 million people pulled out of poverty between 2006 and 2016.
• Since 2000, Bangladesh has lifted 33 million people out of poverty, accounting for 20% of the country’s population, by sponsoring initiatives that have boosted literacy, raised life expectancy, and offered education to girls.
• Famines are no longer common in South Asia, and the population is less prone to sickness and starvation.

Impacts all across the world:

• Experts believe that if governments struggle with sluggish growth rates or economic contractions as the world enters a recession, this progress may be reversed, and financing for anti-poverty programmes may be curtailed.
• While everyone will be affected, the developing countries will be the most severely affected.
• According to the World Bank, Sub-Saharan Africa will experience its first recession in 25 years, with roughly half of all employment on the region being lost. South Asia’s economy would most certainly have its worst year in 40 years.
• People working in the informal economy, which employs 2 billion people without access to benefits such as unemployment insurance or health care, are the most vulnerable.
• Because of the lockdown, 1 million garment workers in Bangladesh lost their employment, accounting for 7% of the country’s workforce, many of whom were unofficially employed.
• Countries like India and Bangladesh, which have spent a lot of money on education and health care programmes, may no longer be able to afford them.
• There will be groups of people who have risen up the economic ladder but are now trapped in a vicious cycle of poverty.
• After the Indian government declared a lockdown, millions of migrant workers were rendered jobless and homeless overnight. Millions of people may go hungry in areas of Africa as a result of employment losses and food aid distribution networks being snarled by lockdowns.
• Remittances that families rely on have dried up in Mexico and the Philippines as primary breadwinners lose their jobs and are unable to send money home.
• A United Nations resolution committing the organisation to eradicating poverty and hunger and giving universal access to education by 2030 may now be a pipe dream.

Measures that must be taken:

• Policies to combat poverty and its distributional effects will have to be tailored to the environment and conditions of each country.

Having said that, the figures above indicate that throughout the countries affected:

Developing countries must be supported by multilateral global institutions:

• Oxfam is urging world leaders to agree on a 2.5 trillion USD Emergency Rescue Package, which would be funded by cancelling or deferring 1 trillion in debt repayments, increasing 1 trillion in IMF Special Drawing Rights (international financial reserves), and providing an additional 500 billion in aid.
• A successful solution to the needs of poor and vulnerable households will necessitate substantial additional financial resources.
• Providing a cash distribution of $1 per day (about half the value of the worldwide extreme poverty limit) to all existing and new extreme poor for a month would cost $20 billion, or $665 million per day over 30 days.
• Given that many non-poor households are expected to be affected, and that many households may require assistance for much longer than a month, the amount required for effective protection could be significantly greater.
• Any assistance package must promptly reach both existing and new poor people.
• While existing safety net programmes can be used to swiftly deliver funds into the hands of some of the existing poor, this is not the case for the new poor.
• Indeed, the new poor are likely to differ from the present poor in terms of location (primarily urban) and employment (mostly informal services, construction, and manufacturing).
• Decision-makers require timely and policy-relevant information on the effects of policies and their effectiveness.
• This can be done by monitoring the crisis’s economic and social effects, such as prices, service delivery, and economic activity, as well as social attitude and behaviour, using current, publicly available data.
• Governments can also employ mobile technology to collect data from a representative sample of houses or persons in a secure manner.
• Health and employment status, food security, coping techniques, access to basic services and safety nets, and other outcomes closely associated to the risk of falling (further) into poverty can all be collected using phone surveys.

Conclusion:

• This pandemic is a social and economic disaster as well as a humanitarian disaster.
• Given the uncertain path ahead, assisting the country’s poor to become self-sufficient and better prepared may prove to be the most effective weapon against the deadly illness, and a DBT like this can help.

Q2. It is imperative that the best of what digital currencies have to offer be integrated into the existing financial paradigm. Explain. (250 words)

Paper & Topic: GS III – Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment. Science and Technology- developments and their applications and effects in everyday life.

Model Answer:

Introduction:

• Cryptocurrencies are digital currencies that operate independently of a central bank and employ encryption techniques to govern the production of units of money and verify the transfer of funds.
• It is built on the blockchain platform.
• Anurag Thakur, the Union minister, stated that the government is willing to analyse and investigate emerging technologies, such as cryptocurrencies, in order to improve governance.

Body:

• In India, cryptocurrencies are gaining popularity.
• In 2018, the Reserve Bank of India (RBI) outlawed banks and companies regulated by it from providing virtual currency (VC) services.
• The Indian cryptocurrency sector has been decimated since the prohibition took effect in April 2018.
• This provision was declared illegal by the Supreme Court.
• The central government is expected to consider a new bill titled Cryptocurrency and Regulation of Official Digital Currency Bill, 2021, which has not yet been approved.
• The Bill also aims to outlaw all private cryptocurrencies in India, with few exceptions to encourage cryptocurrency’s underlying technology, such as blockchain, and its applications.

Concerns about digital currency include the following:

• Cryptocurrencies are feared not only for their speculative potential, but also for their potential to destabilise sovereign currencies (the latter is an exaggerated apprehension).
• This might cause market instability, and if banks start trading crypto currencies, the problem of fraud could become more prevalent.
• • Virtual currency is traded anonymously via the Internet and is utilised for a variety of anti-national and illegal activities, including terror financing, illicit arms and drug trafficking, and so on.
• This is a serious concern to India, as there have been reports of drug trafficking utilising bitcoins on the dark web in Punjab.
• The online use of this currency was without any geographical or border limits, putting the nation’s integrity and sovereignty in jeopardy.
• It has the potential to drastically alter global monetary policymaking. People will trade their national currencies for the new digital coin, which will be used to buy and sell the various things that will be valued in it. This will have a negative impact on bank profits and put stress on their balance sheets.
• The ability of governments and policymakers to manage inflation will be harmed. When inflation rises, central banks usually take actions to limit it by adjusting monetary rates. Because cryptocurrency will be independent of the central bank, liquidity will be a problem.

Regulation of digital currencies is urgently required:

• A prohibition on something based on distributed ledger technology cannot be applied for all practical purposes, hence smart regulation is preferable.
• Even in China, where cryptocurrencies are banned and the Internet is censored, cryptocurrency trade is minimal but not non-existent, according to a report by an India inter-ministerial committee. Japan, for example, has regulated the usage of bitcoin.
• The SC Garg committee advocated for the creation of an official digital currency as well as the promotion of the blockchain technology that underpins it. Other cryptocurrencies, on the other hand, were not banned.
• Regulation must take place at the point of exchange, where it is most easily observed.
• The Supreme Court ruled that the government’s outright prohibition on virtual currency would be unfair when there are several less intrusive options.
• It’s important to note that virtual currency transactions aren’t completely unregulated.
• Several current laws, including the Consumer Protection Act, the Information Technology Act, the Foreign Exchange Management Act, and the PMLA, as well as tax, deposit-related, and criminal regulations, apply to virtual currencies in the same way that they do to any other economic activity.
• In fact, errant persons and businesses operating in the virtual currency sphere have already been prosecuted in India under many of these laws.
• The government should reject the notion of a ban and instead advocate for reasonable regulation.

Conclusion:

Instead of imposing bans, it would be more practical to launch public awareness campaigns to alert investors to specific risks and to monitor trades for fraud and scams. The fintech industry and the RBI must collaborate to develop a positive policy framework for cryptocurrencies in India.