Week IV June 2016 UPSC Notes | EduRev

UPSC : Week IV June 2016 UPSC Notes | EduRev

 Page 1


 
 
Abhimanu 
Weekly current affairs Series 
 
 
 
 
 
Week: IV, June 2016 
 
 
 
 
 
Abhimanu’s IAS Study Group 
Chandigarh 
 
Page 2


 
 
Abhimanu 
Weekly current affairs Series 
 
 
 
 
 
Week: IV, June 2016 
 
 
 
 
 
Abhimanu’s IAS Study Group 
Chandigarh 
 
 
 
 
NATIONAL ECONOMIC AFFAIRS 
Monetary policy committee (MPC) 
?   Moving a step closer to setting up the Monetary Policy Committee (MPC), the Finance Ministry  notified the 
provisions of the amended Reserve Bank of India Act, 1934. 
?   Monetary Policy Committee (MPC), is expected to be in place before the next monetary policy review by the 
RBI in August. 
About MPC: 
?   It is a six member panel  and all members will have one vote, but the governor will have a deciding vote in 
case of a tie. However, the governor will not have any veto power. 
?  Members of the MPC will be appointed for a period of four years and shall not be eligible for reappointment. 
?  The MPC will meet four times a year. 
?  Three members, including the governor, will be from the RBI; the others will be a deputy governor and an 
executive director from the central bank. 
?  The other three members will be nominated by the government after recommendations of a search-cum-
selection committee, headed by the Cabinet Secretary. The search panel will also comprise the economic 
affairs secretary and the RBI governor. 
?  The MPC will decide the benchmark interest rates, which have so far been decided by the RBI governor. 
?  Besides, the RBI will publish a monetary policy report every six months, with forecasts of inflation for 
between 6 and 18 months. If the RBI fails to meet the inflation target, it will provide reasons, remedial 
actions, and the estimated time within which the target will be achieved. 
?  An earlier agreement between the government and the RBI has mandated that CPI inflation would be 
targeted in the range of 4% +/- 2% and if there is any diversion from this, RBI will have to explain the reasons 
to the government. 
?  As per rules, no member of MPC should have any financial or other interest that prejudicially affects his 
functions as a member. Also, it will be considered that the panel failed in achieving the inflation target if the 
lower or the upper range of the target is breached for three consecutive quarters. 
?  The government has given  statutory backing to the monetary policy committee (MPC). 
Analysis: 
? MPC would minimise the chances of a bad/wrong decision due to the wrong judgment of any one person (the 
Governor), however well-intentioned he/she may be. This is widely accepted globally and is the reason why 
most central banks take monetary policy decisions through committees rather than vesting them in the hands 
of one person. 
?  Equal number of both government and central bank members could creates a potential situation where the 
government could dictate monetary policy 
?  With the introduction of the monetary policy committee, the RBI will follow a system similar to the one 
followed by most global central banks. 
?  Heightened public interest and scrutiny of MP decisions and outcomes has propelled a worldwide movement 
towards a committee based approach to decision making with a view to bringing in greater transparency and 
accountability in India. 
Page 3


 
 
Abhimanu 
Weekly current affairs Series 
 
 
 
 
 
Week: IV, June 2016 
 
 
 
 
 
Abhimanu’s IAS Study Group 
Chandigarh 
 
 
 
 
NATIONAL ECONOMIC AFFAIRS 
Monetary policy committee (MPC) 
?   Moving a step closer to setting up the Monetary Policy Committee (MPC), the Finance Ministry  notified the 
provisions of the amended Reserve Bank of India Act, 1934. 
?   Monetary Policy Committee (MPC), is expected to be in place before the next monetary policy review by the 
RBI in August. 
About MPC: 
?   It is a six member panel  and all members will have one vote, but the governor will have a deciding vote in 
case of a tie. However, the governor will not have any veto power. 
?  Members of the MPC will be appointed for a period of four years and shall not be eligible for reappointment. 
?  The MPC will meet four times a year. 
?  Three members, including the governor, will be from the RBI; the others will be a deputy governor and an 
executive director from the central bank. 
?  The other three members will be nominated by the government after recommendations of a search-cum-
selection committee, headed by the Cabinet Secretary. The search panel will also comprise the economic 
affairs secretary and the RBI governor. 
?  The MPC will decide the benchmark interest rates, which have so far been decided by the RBI governor. 
?  Besides, the RBI will publish a monetary policy report every six months, with forecasts of inflation for 
between 6 and 18 months. If the RBI fails to meet the inflation target, it will provide reasons, remedial 
actions, and the estimated time within which the target will be achieved. 
?  An earlier agreement between the government and the RBI has mandated that CPI inflation would be 
targeted in the range of 4% +/- 2% and if there is any diversion from this, RBI will have to explain the reasons 
to the government. 
?  As per rules, no member of MPC should have any financial or other interest that prejudicially affects his 
functions as a member. Also, it will be considered that the panel failed in achieving the inflation target if the 
lower or the upper range of the target is breached for three consecutive quarters. 
?  The government has given  statutory backing to the monetary policy committee (MPC). 
Analysis: 
? MPC would minimise the chances of a bad/wrong decision due to the wrong judgment of any one person (the 
Governor), however well-intentioned he/she may be. This is widely accepted globally and is the reason why 
most central banks take monetary policy decisions through committees rather than vesting them in the hands 
of one person. 
?  Equal number of both government and central bank members could creates a potential situation where the 
government could dictate monetary policy 
?  With the introduction of the monetary policy committee, the RBI will follow a system similar to the one 
followed by most global central banks. 
?  Heightened public interest and scrutiny of MP decisions and outcomes has propelled a worldwide movement 
towards a committee based approach to decision making with a view to bringing in greater transparency and 
accountability in India. 
 
 
?  There is very little to disagree about the desirability of transitioning from the current decision process to that 
of an MPC, imparting as it does a greater diversity of views, specialised experience and independence of 
opinion. 
? The idea of setting up an MPC was mooted by an RBI-appointed committee led by deputy governor Urjit Patel 
in February 2014 though that committee had recommended a five-member committee where three 
members would be from RBI and two external members would be appointed by the RBI governor and the 
deputy governor in-charge 
Cabinet clears seventh Pay Commisssion 
?   The Cabinet approved the recommendations of Seventh Pay Commission on pay and pensions in a decision 
that will boost consumption by putting extra disposable income in the hands of the central government’s 4.7 
million employees and 5.3 million pensioners. 
?   On an average, the hike in basic pay and pension will be 2.5 times the existing structure. However, the 
existing dearness allowance will merge with the basic pay. 
?   The total financial impact of  Seventh Pay Commission’s recommendations will be Rs.1.02 trillion. Of this, the 
increase in pay would account for Rs.39,100 crore, increase in allowances for Rs.29,300 crore and increase in 
pension for Rs.33,700 crore. Of this, Rs. 60,608 crore will be borne by General Budget and Rs. 24,325 crore 
from Railway Budget. 
About 7th Pay Commission(Chairman: A K Mathur): 
?  The commission has recommended a 16 per cent hike in basic salary plus increase in DA and allowances like 
HRA. 
?  The total increase will be 23.55 percent of the gross salary (basic plus DA plus allowances). 
? The minimum pay in government is recommended to be set at Rs 18,000 per month. 
?  Maximum pay is recommended as Rs 2,25,000 per month for Apex scale and Rs 2,50,000 per month for 
Cabinet Secretary and others at the same level. 
?  The rate of annual increment retained at 3 per cent. 
?  One Rank One Pension proposed for civilian government employees on line of OROP for armed forces. 
?  Ceiling of gratuity enhanced from Rs 10 lakh to Rs 20 lakh; ceiling on gratuity to be raised by 25 per cent 
whenever DA rises by 50 per cent. 
?  Military Service Pay (MSP), which is a compensation for the various aspects of military service, will be 
admissible to the defence forces personnel only. 
?  MSP for service officers more than doubled to Rs 15,500 per month from Rs 6,000 currently; for nursing 
officers to Rs 10,800 from Rs 4,200; for JCO/ORs to Rs 5,200 from Rs 2,000 and for non-combatants to Rs 
3,600 from Rs 1,000. 
?  Short service commissioned officers will be allowed to exit the armed forces at any point in time between 7 to 
10 years of service. 
?  Commission recommends abolishing 52 allowances; another 36 allowances subsumed in existing allowances 
or in newly proposed allowances. 
?  The commission has proposed a status quo on the retirement age of Central government employees. 
Retirement age for staff of Central government is 60 years. 
?  Total impact of are expected to entail an increase of 0.65% points in the ratio of expenditure on to GDP. 
?   Financial impact of implementing recommendations will be Rs 1.02 lakh crore - Rs 73,650 crore to be borne 
by Central Budget and Rs 28,450 crore by Railway Budget. 
?   Recommendations will impact 47 lakh serving govt employees, 52 lakh pensioners, including defence 
personnel. 
?   The 16 per cent hike in basic salary is much lower  than the 35 per cent hike employees got in the Sixth Pay 
Commission. 
?   The pay panel revisions are in force retrospectively from January 1, 2016. 
Page 4


 
 
Abhimanu 
Weekly current affairs Series 
 
 
 
 
 
Week: IV, June 2016 
 
 
 
 
 
Abhimanu’s IAS Study Group 
Chandigarh 
 
 
 
 
NATIONAL ECONOMIC AFFAIRS 
Monetary policy committee (MPC) 
?   Moving a step closer to setting up the Monetary Policy Committee (MPC), the Finance Ministry  notified the 
provisions of the amended Reserve Bank of India Act, 1934. 
?   Monetary Policy Committee (MPC), is expected to be in place before the next monetary policy review by the 
RBI in August. 
About MPC: 
?   It is a six member panel  and all members will have one vote, but the governor will have a deciding vote in 
case of a tie. However, the governor will not have any veto power. 
?  Members of the MPC will be appointed for a period of four years and shall not be eligible for reappointment. 
?  The MPC will meet four times a year. 
?  Three members, including the governor, will be from the RBI; the others will be a deputy governor and an 
executive director from the central bank. 
?  The other three members will be nominated by the government after recommendations of a search-cum-
selection committee, headed by the Cabinet Secretary. The search panel will also comprise the economic 
affairs secretary and the RBI governor. 
?  The MPC will decide the benchmark interest rates, which have so far been decided by the RBI governor. 
?  Besides, the RBI will publish a monetary policy report every six months, with forecasts of inflation for 
between 6 and 18 months. If the RBI fails to meet the inflation target, it will provide reasons, remedial 
actions, and the estimated time within which the target will be achieved. 
?  An earlier agreement between the government and the RBI has mandated that CPI inflation would be 
targeted in the range of 4% +/- 2% and if there is any diversion from this, RBI will have to explain the reasons 
to the government. 
?  As per rules, no member of MPC should have any financial or other interest that prejudicially affects his 
functions as a member. Also, it will be considered that the panel failed in achieving the inflation target if the 
lower or the upper range of the target is breached for three consecutive quarters. 
?  The government has given  statutory backing to the monetary policy committee (MPC). 
Analysis: 
? MPC would minimise the chances of a bad/wrong decision due to the wrong judgment of any one person (the 
Governor), however well-intentioned he/she may be. This is widely accepted globally and is the reason why 
most central banks take monetary policy decisions through committees rather than vesting them in the hands 
of one person. 
?  Equal number of both government and central bank members could creates a potential situation where the 
government could dictate monetary policy 
?  With the introduction of the monetary policy committee, the RBI will follow a system similar to the one 
followed by most global central banks. 
?  Heightened public interest and scrutiny of MP decisions and outcomes has propelled a worldwide movement 
towards a committee based approach to decision making with a view to bringing in greater transparency and 
accountability in India. 
 
 
?  There is very little to disagree about the desirability of transitioning from the current decision process to that 
of an MPC, imparting as it does a greater diversity of views, specialised experience and independence of 
opinion. 
? The idea of setting up an MPC was mooted by an RBI-appointed committee led by deputy governor Urjit Patel 
in February 2014 though that committee had recommended a five-member committee where three 
members would be from RBI and two external members would be appointed by the RBI governor and the 
deputy governor in-charge 
Cabinet clears seventh Pay Commisssion 
?   The Cabinet approved the recommendations of Seventh Pay Commission on pay and pensions in a decision 
that will boost consumption by putting extra disposable income in the hands of the central government’s 4.7 
million employees and 5.3 million pensioners. 
?   On an average, the hike in basic pay and pension will be 2.5 times the existing structure. However, the 
existing dearness allowance will merge with the basic pay. 
?   The total financial impact of  Seventh Pay Commission’s recommendations will be Rs.1.02 trillion. Of this, the 
increase in pay would account for Rs.39,100 crore, increase in allowances for Rs.29,300 crore and increase in 
pension for Rs.33,700 crore. Of this, Rs. 60,608 crore will be borne by General Budget and Rs. 24,325 crore 
from Railway Budget. 
About 7th Pay Commission(Chairman: A K Mathur): 
?  The commission has recommended a 16 per cent hike in basic salary plus increase in DA and allowances like 
HRA. 
?  The total increase will be 23.55 percent of the gross salary (basic plus DA plus allowances). 
? The minimum pay in government is recommended to be set at Rs 18,000 per month. 
?  Maximum pay is recommended as Rs 2,25,000 per month for Apex scale and Rs 2,50,000 per month for 
Cabinet Secretary and others at the same level. 
?  The rate of annual increment retained at 3 per cent. 
?  One Rank One Pension proposed for civilian government employees on line of OROP for armed forces. 
?  Ceiling of gratuity enhanced from Rs 10 lakh to Rs 20 lakh; ceiling on gratuity to be raised by 25 per cent 
whenever DA rises by 50 per cent. 
?  Military Service Pay (MSP), which is a compensation for the various aspects of military service, will be 
admissible to the defence forces personnel only. 
?  MSP for service officers more than doubled to Rs 15,500 per month from Rs 6,000 currently; for nursing 
officers to Rs 10,800 from Rs 4,200; for JCO/ORs to Rs 5,200 from Rs 2,000 and for non-combatants to Rs 
3,600 from Rs 1,000. 
?  Short service commissioned officers will be allowed to exit the armed forces at any point in time between 7 to 
10 years of service. 
?  Commission recommends abolishing 52 allowances; another 36 allowances subsumed in existing allowances 
or in newly proposed allowances. 
?  The commission has proposed a status quo on the retirement age of Central government employees. 
Retirement age for staff of Central government is 60 years. 
?  Total impact of are expected to entail an increase of 0.65% points in the ratio of expenditure on to GDP. 
?   Financial impact of implementing recommendations will be Rs 1.02 lakh crore - Rs 73,650 crore to be borne 
by Central Budget and Rs 28,450 crore by Railway Budget. 
?   Recommendations will impact 47 lakh serving govt employees, 52 lakh pensioners, including defence 
personnel. 
?   The 16 per cent hike in basic salary is much lower  than the 35 per cent hike employees got in the Sixth Pay 
Commission. 
?   The pay panel revisions are in force retrospectively from January 1, 2016. 
 
 
 
Analysis 
? The pay hike combined with continued public push to the capital expenditure will help steer the economy to 
higher growth levels, which is much needed amidst the current global headwinds 
?   However, there are other issues. It is going to increase the general expenditure of the government. When 
these recommendations were made, inflation was moderate. But the actual implementation of these 
recommendations is coming at a time when inflation is rearing its head again. So, there are chances that a 
spike in demand supported by higher pay to the government staff may just push the inflation further up. 
?   It also has to be remembered that crude oil prices that were benign a while back are not so now. The prices 
for crude are seen around $50 dollar a barrel now and a further increase cannot be ruled out. However, the 
only thing that may come to the rescue is a Brexit-induced global demand slowdown that will keep the 
commodity prices, including that of crude, under check. 
?   The Reserve Bank of India, in its last policy statement, had raised these concerns while saying the surprise 
rise in April inflation has rendered uncertainty its future trajectory. 
?   The fifth and sixth pay commissions had narrowed the gap between salaries paid in the private and 
government sector and now the seventh has also  moved further in the same direction. Yet, the hike — at 
around 14 per cent — is the lowest in 70 years. 
?  The only way for the government to hold on to its promise of meeting fiscal deficit targets is to compromise 
on the capital expenditure. 
?  The government faces a tough choice: It cannot afford to increase salaries and pensions, which are part of the 
revenue expenditure, without either reducing the capital expenditure, which is important to promote growth, 
or taking a hit on the fiscal deficit. 
? Concerns about the affordability of such pay hikes, especially during a period of economic stress, should not 
be divorced from the long-ignored need for a more efficient and accountable workforce. 
Regional connectivity Scheme 
?  Directorate General of Civil Aviation decision to set up rules which will be  less rigorous will be beneficial to 
Regional connectivity scheme.  
?  There will be less stringent norms  to both 80 seater and 19 seaters smaller aircraft.  
?  This decision will support regional connectivity scheme because there will be less number of passengers in 
smaller routes and a big aircraft might not be profitable to operate on such routes. For this, smaller aircrafts 
are feasible but the rules as of now are too stringent for them to enter the aviation industry. 
?  As of now India has only fifty one 80-seater planes and four 42-seater planes run by various operators. A 
definite increase in number of such planes is required for the success of RCS. 
? These aircrafts are expected to be imminent for the growth of the aviation industry in the near future. 
About Regional Connectivity Scheme 
?  This scheme will come into effect in the second quarter of  2016-17 
?  Airfare of about Rs 2500 per passenger for a one-hour flight 
?  This will be implemented by way of: a) Revival of airstrips/airports as No-Frills Airports at an indicative cost of 
Rs. 50 crore  to Rs 100 crore; b) Demand driven selection of Airports/airstrips for revival in consultation with 
State Govts and airlines 
?  Viability Gap Funding (VGF) to airline operators:  RCS only in those states which reduce VAT on ATF to 1% or  
less, provide other  support services and 20% of VGF 
?  Concessions by Stakeholders: a) There will be no airport charges; b) Reduced Service tax on tickets (on 10% of 
the taxable value) for 1 year initially ; c) Reduced Excise duty at 2%  on ATF picked at RCS airports 
?  State government will provide police and fire services free of cost.  Power, water and   other utilities at  
concessional rates 
Page 5


 
 
Abhimanu 
Weekly current affairs Series 
 
 
 
 
 
Week: IV, June 2016 
 
 
 
 
 
Abhimanu’s IAS Study Group 
Chandigarh 
 
 
 
 
NATIONAL ECONOMIC AFFAIRS 
Monetary policy committee (MPC) 
?   Moving a step closer to setting up the Monetary Policy Committee (MPC), the Finance Ministry  notified the 
provisions of the amended Reserve Bank of India Act, 1934. 
?   Monetary Policy Committee (MPC), is expected to be in place before the next monetary policy review by the 
RBI in August. 
About MPC: 
?   It is a six member panel  and all members will have one vote, but the governor will have a deciding vote in 
case of a tie. However, the governor will not have any veto power. 
?  Members of the MPC will be appointed for a period of four years and shall not be eligible for reappointment. 
?  The MPC will meet four times a year. 
?  Three members, including the governor, will be from the RBI; the others will be a deputy governor and an 
executive director from the central bank. 
?  The other three members will be nominated by the government after recommendations of a search-cum-
selection committee, headed by the Cabinet Secretary. The search panel will also comprise the economic 
affairs secretary and the RBI governor. 
?  The MPC will decide the benchmark interest rates, which have so far been decided by the RBI governor. 
?  Besides, the RBI will publish a monetary policy report every six months, with forecasts of inflation for 
between 6 and 18 months. If the RBI fails to meet the inflation target, it will provide reasons, remedial 
actions, and the estimated time within which the target will be achieved. 
?  An earlier agreement between the government and the RBI has mandated that CPI inflation would be 
targeted in the range of 4% +/- 2% and if there is any diversion from this, RBI will have to explain the reasons 
to the government. 
?  As per rules, no member of MPC should have any financial or other interest that prejudicially affects his 
functions as a member. Also, it will be considered that the panel failed in achieving the inflation target if the 
lower or the upper range of the target is breached for three consecutive quarters. 
?  The government has given  statutory backing to the monetary policy committee (MPC). 
Analysis: 
? MPC would minimise the chances of a bad/wrong decision due to the wrong judgment of any one person (the 
Governor), however well-intentioned he/she may be. This is widely accepted globally and is the reason why 
most central banks take monetary policy decisions through committees rather than vesting them in the hands 
of one person. 
?  Equal number of both government and central bank members could creates a potential situation where the 
government could dictate monetary policy 
?  With the introduction of the monetary policy committee, the RBI will follow a system similar to the one 
followed by most global central banks. 
?  Heightened public interest and scrutiny of MP decisions and outcomes has propelled a worldwide movement 
towards a committee based approach to decision making with a view to bringing in greater transparency and 
accountability in India. 
 
 
?  There is very little to disagree about the desirability of transitioning from the current decision process to that 
of an MPC, imparting as it does a greater diversity of views, specialised experience and independence of 
opinion. 
? The idea of setting up an MPC was mooted by an RBI-appointed committee led by deputy governor Urjit Patel 
in February 2014 though that committee had recommended a five-member committee where three 
members would be from RBI and two external members would be appointed by the RBI governor and the 
deputy governor in-charge 
Cabinet clears seventh Pay Commisssion 
?   The Cabinet approved the recommendations of Seventh Pay Commission on pay and pensions in a decision 
that will boost consumption by putting extra disposable income in the hands of the central government’s 4.7 
million employees and 5.3 million pensioners. 
?   On an average, the hike in basic pay and pension will be 2.5 times the existing structure. However, the 
existing dearness allowance will merge with the basic pay. 
?   The total financial impact of  Seventh Pay Commission’s recommendations will be Rs.1.02 trillion. Of this, the 
increase in pay would account for Rs.39,100 crore, increase in allowances for Rs.29,300 crore and increase in 
pension for Rs.33,700 crore. Of this, Rs. 60,608 crore will be borne by General Budget and Rs. 24,325 crore 
from Railway Budget. 
About 7th Pay Commission(Chairman: A K Mathur): 
?  The commission has recommended a 16 per cent hike in basic salary plus increase in DA and allowances like 
HRA. 
?  The total increase will be 23.55 percent of the gross salary (basic plus DA plus allowances). 
? The minimum pay in government is recommended to be set at Rs 18,000 per month. 
?  Maximum pay is recommended as Rs 2,25,000 per month for Apex scale and Rs 2,50,000 per month for 
Cabinet Secretary and others at the same level. 
?  The rate of annual increment retained at 3 per cent. 
?  One Rank One Pension proposed for civilian government employees on line of OROP for armed forces. 
?  Ceiling of gratuity enhanced from Rs 10 lakh to Rs 20 lakh; ceiling on gratuity to be raised by 25 per cent 
whenever DA rises by 50 per cent. 
?  Military Service Pay (MSP), which is a compensation for the various aspects of military service, will be 
admissible to the defence forces personnel only. 
?  MSP for service officers more than doubled to Rs 15,500 per month from Rs 6,000 currently; for nursing 
officers to Rs 10,800 from Rs 4,200; for JCO/ORs to Rs 5,200 from Rs 2,000 and for non-combatants to Rs 
3,600 from Rs 1,000. 
?  Short service commissioned officers will be allowed to exit the armed forces at any point in time between 7 to 
10 years of service. 
?  Commission recommends abolishing 52 allowances; another 36 allowances subsumed in existing allowances 
or in newly proposed allowances. 
?  The commission has proposed a status quo on the retirement age of Central government employees. 
Retirement age for staff of Central government is 60 years. 
?  Total impact of are expected to entail an increase of 0.65% points in the ratio of expenditure on to GDP. 
?   Financial impact of implementing recommendations will be Rs 1.02 lakh crore - Rs 73,650 crore to be borne 
by Central Budget and Rs 28,450 crore by Railway Budget. 
?   Recommendations will impact 47 lakh serving govt employees, 52 lakh pensioners, including defence 
personnel. 
?   The 16 per cent hike in basic salary is much lower  than the 35 per cent hike employees got in the Sixth Pay 
Commission. 
?   The pay panel revisions are in force retrospectively from January 1, 2016. 
 
 
 
Analysis 
? The pay hike combined with continued public push to the capital expenditure will help steer the economy to 
higher growth levels, which is much needed amidst the current global headwinds 
?   However, there are other issues. It is going to increase the general expenditure of the government. When 
these recommendations were made, inflation was moderate. But the actual implementation of these 
recommendations is coming at a time when inflation is rearing its head again. So, there are chances that a 
spike in demand supported by higher pay to the government staff may just push the inflation further up. 
?   It also has to be remembered that crude oil prices that were benign a while back are not so now. The prices 
for crude are seen around $50 dollar a barrel now and a further increase cannot be ruled out. However, the 
only thing that may come to the rescue is a Brexit-induced global demand slowdown that will keep the 
commodity prices, including that of crude, under check. 
?   The Reserve Bank of India, in its last policy statement, had raised these concerns while saying the surprise 
rise in April inflation has rendered uncertainty its future trajectory. 
?   The fifth and sixth pay commissions had narrowed the gap between salaries paid in the private and 
government sector and now the seventh has also  moved further in the same direction. Yet, the hike — at 
around 14 per cent — is the lowest in 70 years. 
?  The only way for the government to hold on to its promise of meeting fiscal deficit targets is to compromise 
on the capital expenditure. 
?  The government faces a tough choice: It cannot afford to increase salaries and pensions, which are part of the 
revenue expenditure, without either reducing the capital expenditure, which is important to promote growth, 
or taking a hit on the fiscal deficit. 
? Concerns about the affordability of such pay hikes, especially during a period of economic stress, should not 
be divorced from the long-ignored need for a more efficient and accountable workforce. 
Regional connectivity Scheme 
?  Directorate General of Civil Aviation decision to set up rules which will be  less rigorous will be beneficial to 
Regional connectivity scheme.  
?  There will be less stringent norms  to both 80 seater and 19 seaters smaller aircraft.  
?  This decision will support regional connectivity scheme because there will be less number of passengers in 
smaller routes and a big aircraft might not be profitable to operate on such routes. For this, smaller aircrafts 
are feasible but the rules as of now are too stringent for them to enter the aviation industry. 
?  As of now India has only fifty one 80-seater planes and four 42-seater planes run by various operators. A 
definite increase in number of such planes is required for the success of RCS. 
? These aircrafts are expected to be imminent for the growth of the aviation industry in the near future. 
About Regional Connectivity Scheme 
?  This scheme will come into effect in the second quarter of  2016-17 
?  Airfare of about Rs 2500 per passenger for a one-hour flight 
?  This will be implemented by way of: a) Revival of airstrips/airports as No-Frills Airports at an indicative cost of 
Rs. 50 crore  to Rs 100 crore; b) Demand driven selection of Airports/airstrips for revival in consultation with 
State Govts and airlines 
?  Viability Gap Funding (VGF) to airline operators:  RCS only in those states which reduce VAT on ATF to 1% or  
less, provide other  support services and 20% of VGF 
?  Concessions by Stakeholders: a) There will be no airport charges; b) Reduced Service tax on tickets (on 10% of 
the taxable value) for 1 year initially ; c) Reduced Excise duty at 2%  on ATF picked at RCS airports 
?  State government will provide police and fire services free of cost.  Power, water and   other utilities at  
concessional rates 
 
 
?  Creation of Regional Connectivity fund for VGF through a small levy per departure on all domestic flights 
other than Cat II/ Cat IIA routes, RCS routes and small aircraft below 80 seats at a rate as decided bythe 
Ministry from time to time 
?  VGF to be shared between MoCA and State Governments in the ratio of 80:20.  For the North Eastern States, 
the ratio is 90:10 
Analysis(On booming Indian aviation industry in last decade) 
? The aviation industry in India has evolved significantly over the last couple of decades. Indian aviation sector is 
presently ranked among the top ten aviation markets in the world And there is possibility that Indian aviation 
industry is on a high growth trajectory and could be at the top position in the foreseeable future. 
?  Placed perfectly between the western and the eastern hemisphere, India has the opportunity to take 
advantage of its geographical location to become the hub of the global aviation industry. Other factors such 
as large scale collaborations between international and domestic airlines, emergence of world class airports 
and liberal Foreign Direct Investment (FDI) norms are also playing a vital role in pitching India as an upcoming 
leader in the global aviation sector. 
?  However, despite the presence of such driving forces the Indian aviation industry has not tasted its due share 
of success yet. A majority of the  players in the passenger transport industry are understood to be incurring 
significant losses.  Other commercial operations in the aviation space such as cargo transport, ‘maintenance, 
repair and overhaul’ (MRO) and the aircraft manufacturing industry are still at a nascent stage. For instance, 
the draft National Civil Aviation Policy 2015 indicates that the present spend by domestic carriers on the MRO 
of their fleet is approximately Rs 5,000 crore with a majority of such spending being done in countries like Sri 
Lanka, Malaysia and UAE due to lack of adequate infrastructure in India. 
?  It would not be an overstatement to say that the cascading and multi-tiered system of applicable indirect 
taxes in India copiously contributes to derailing the aviation industry off its high-growth path. Despite the 
efforts made by the central government, various factors under indirect taxes continue to obstruct the growth 
of the aviation sector and are yet to be rectified. 
?  One such factor is high tax costs on the procurement of Aviation Turbine Fuel (ATF). The fuel accounts for 
nearly 40 percent of the operating costs of a domestic carrier.  With an apparent fear of loss of revenue, ATF 
was excluded from the purview of Goods and Services Tax (GST) in the initial years of implementation under 
the draft 100th Constitutional Amendment Bill, 2015. Levy of service tax on airport levies such as Passenger 
Service Fee and other similar levies, service tax on MRO activities undertaken for foreign airlines etc., swell 
the costs for airline operations. 
?  To add to the pain, passenger airlines in India have been perennially facing tax controversies on several 
accounts including eligibility to claim abatements on various charges collected as part of air ticket fare, 
classification of the nature of other services rendered and received by airlines. 
?  In order to tap the potential of the aviation sector, the government has now made an effort to eliminate 
some of the impediments obstructing the growth of this sector.   One such step is the draft National Civil 
Aviation Policy 2015 which has been released by the Ministry of Civil Aviation for comments from the 
industry.  On perusal of the draft policy, it appears the government has been able to identify and isolate the 
significant aspects, which are relevant for turnaround of the present situation of the aviation sector. 
?  For instance, the government proposes to implement the Regional Connectivity Scheme (RCS) effective April 
1, 2016 in order to achieve the target of nationwide airline connectivity.  The tax incentives under RCS 
include, substantial reduction of tax on sale of ATF, exemption from the levy of service tax on sale of air 
tickets for airlines flying on designated routes. 
?  Also, in order to boost the maintenance, repair and overhaul (MRO) industry in India, the government 
proposes to offer various tax and non-tax incentives to the industry, such as zero-rating the services by such 
MRO unit, relaxation in availing customs exemption on import of tools and aircraft parts and extension of tax-
free storage of imported equipment for up to three years. 
?  The success of the said draft policy is largely dependent on the ability of the central government to reconcile 
its differences with the state governments and implement all the indirect tax incentives envisaged both under 
the central and state laws.  With the introduction of the GST regime, the government is hopeful to resolve 
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