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What do you understand by money laundering?

Critically discuss its effect on the


economy and security of a country, especially India.
Money laundering is the process of concealing the source of large amount of mone
y that have been gained through illegitimate means to project to appear as if it
came from a legitimate source. Money laundering involves 3 steps as placement o
f illegal money into system, layering through complex financial transaction, and
acquiring wealth generated.
Effects on economy-
1. Increased Crime and Corruption by more illegal, criminals become more powerful
and invest this money into drug trafficking, arms purchasing, smuggling and hum
an trafficking etc.
2. Damaged Reputations and International Consequences- the world market can be d
estabilized, leaving some countries vulnerable to persuasion and interference by
corrupt organization
3. Weakened Financial Institutions-it lead to the eviction of less equipped comp
etitors & giving rise to monopoly
4. Loss of government revenue by Tax evasion, thus affecting the schemes for poo
r.
5. Compromised Economy and Private Sector fraud not only results in cheating of
the people but may also adversely impact investors' confidence thereby affecting t
he growth of the economy.
6. Increased Corruption not only results in loss of citizens' rights but also has
the potential of ruining the moral fabric of the society.
Out of 140 countries, India has been ranked 93rd and 70th in 2012 and 2013 respe
ctively in the Anti Money Laundering (AML) Basel Index 2013. In India, ML is pop
ularly known as Hawala transactions. Hawala is an alternative or parallel remitt
ance system. It is estimated that a total of $343 billion has been laundered out
of India during the period 2002-2011.
GoI passed the PREVENTION OF MONEY-LAUNDERING ACT (PMLA), 2002, and subsequent a
mended in 2005 and 2012, making regulations for financial institutions and enlar
ging the definition of money laundering. A Financial Action Task Force (FATF) as
an intergovernmental organization works to combat money laundering and terror f
inancing at international level.
As Gandhiji said, Capital as such is not evil, it is its wrong use that is Evil,
Capital in some form or other will always be needed. India needs to curb Money la
undering as the practice is rampant across the country.
Money laundering is conversion of money which is illegally obtained, so as to ma
ke it appear to originate from a legitimate source. It is being employed by laun
derers to conceal criminal activity associated with it such as drug/arms traffic
king, terrorism etc.
Money laundering has adverse impact on country's economy and security especially f
or a country like India.
Security Concerns:
1. It provides fuel for drug dealers, traffickers, illegal arms etc. which are t
hreat for stability.
2. It gives boost to international terrorism.
3. It also creates friction between two nations as Money Laundering involves ill
egal transactions globally.
Economic Concerns:
1. ML leads to crowding out of private sectors as they cannot compete with lower
prices for goods that businesses with laundered funds can offer.
2. Leads to corruption and bribery in banking sector.
3. It may lead to volatility in exchange rates due to unanticipated transfer of
funds, which can make monetary policies and fiscal policy inaffective.
4. Evasion of money leading to loss in revenue in form of less tax collection et
c.
5. It promotes corruption and unholy nexus between corporates, political executi
ves and Bureaucrats.
Suggestions to curb ML
1. The financial system especially banks should strictly follow norms like KYC n
orms along with close co-operation with law enforcement agency.
2. Regulatory bodies like RBI, SEBI should be vigilant to check these transactio
ns.
3. Close coordination between other tax haven nations to get the informations ab
out these transactions like Hawala transactions.
4. Close co-ordination and information sharing between among financial intellige
nce unit (est. under PMLA act), RAW, IB, regulatory bodies like SEBI, IRDA, RBI
etc.
5. As per 2nd ARC, the list of offences under PMLA act should also be increased
to widen its scope.
It is said that even advanced countries can not continue to provide better livin
g standards to their future generations because of various challenges and issues
that are arising in the world today. Critically comment on those challenges and
examine how same set of challenges would affect developing countries.
Providing better living standards to the future generation have been one of the
important goals of economies around the world.But this target is dimmed by vario
us challenges like environmental,political,financial to name a few.
Environmental challenges include pollution(air,water),climate change which will
not only effect health of the masses like spreading of diseases but also affect
food security.Repercussions will be seen in both developed and developing countr
ies.
Adverse demographic divident with ageing population in developed countries pose
extra burden on the state with additional expenditure being done on health and p
ension.In comparison most developing countries have a favorable demographic divi
dent.Challenges here includes providing them with education,training and employm
ent.
In the era of globalisation political instability severely effect the economy of
a nation.For instance political tussles in Ukraine and subsequent sanctions imp
osed on Russia by the west will effect the supply of gas to european countries.A
dded to it depleting reserves of resources around the world have posed out serio
us concerns for both developed and developing countries.Other challenges include
financial crisis,high unemployment,rising inequality on the map of the world.
Countries around the world need to evaluate their resources and their effecient
use in addition with maintaining good ties with other countries to ensure free f
low of resources,trade,manpower etc.Also use of advance technology followed by i
mposing carbon tax and conducting EIA will help reduce the carbon footprints wil
l help in help in improving the economy.Lastly tricking down the benefits to the
lower strata also will play a crucial role in determining the standards of the
country.
Madhav Gadgil report on Western Ghats was far more comprehensive and scientific i
n nature and should have been implemented. Do you agree? In the context of recent
notifications by the union government based on other report by K Kasturirangan,
comment on the statement.
Madhav Gadgil committee has been constituted to suggest measures for protection
and conservation of world's 2nd richest biodiversity hot-spot namely the western g
hats. After this committee, kasturirangan committee has been appointed to review
the former and suggest measures for implementation of former.
Gadgil committee places whole of W.Ghats under protection regime. Kasturirangan
committee removes humanly modified areas as protecting these would lead to local
conflict. Ultimately, the latter committee protects < 50% of the area protected
under the former. Despite both being scientific ,the latter would be more feasi
ble to implement as removing all the man-dependent areas in W.Ghats would not be
practially feasible.
The former bans all man related activities while the latter restricts to humaly
interventionist and environmentally damaging activities which includes only mini
ng, red category industry(thermal power) and certain degree of control on hydroe
lectric plants maintaining flow control etc. Thus for balanced growth Vs env-pro
tection, kasturirangan gains upper hand.
Finally, for EIA and clearance, the former uses 3-tier set up- national, state a
nd district level which incorporates local PRIs thus ensuring local participatio
n. While the latter engages the current monitoring mechanism by MoEF which might
lead to centralised EIA and clearance. So, due to decentralisation, the former
gains upper hand.
From the above reasonong, for protection area and man related activities, kastur
irangan could be prefered while for EIA, Gadgil's local participation model could
be prefered i.e., blend of 2 committees would be more relevant for man-animal ha
rmony.
What are the effects of non tariff measures on the economy imposing such measure
s? How is India responding to such measures imposed by some developed countries?
Explain.
Non tariff measures are trade barriers such as prohibition, some specific market
requirements, trade related procedures, regulations, standards, licensing syste
ms and even trade defense measures such as anti-dumping duties etc which have th
e effect of restricting trade between nations. Non tariff measures (NTMs) in rec
ent times have also turned into protectionist tools.
Effects on economy-
1) NTMs can raise trade costs
2) Divert managerial attention,
3) Penalize small exporters and those located in low income countries where acce
ss to legal and regulatory information is difficult.
4) Countries imposing NTMs may end up hurting their own competitiveness by makin
g it difficult for domestic producers and exporters to access critical inputs in
a timely fashion.
Measures taken by India to respond NTMs by developed countries-
1) India signed Free trade agreement (FTA) with many countries like Sri Lanka, M
aldives, Bhutan, Bangladesh, Korea, Singapore etc. and regional groups like ASEA
N, SAARC, SAFTA etc.
2) To acquire a good level in technical expertise, the Bureau of Indian Standard
s and the Food Safety Authority of India are tasked with developing new standard
s, as also ensuring they are in conformity with global standards.
3) India sat up special economic zone (SEZ) to provide more flexibility in rules
and regulations for trade between the nations. This will compel other countries
also to act in the similar manner to remove NTMs for India.
4) India gave MFN status to Belgium and Pakistan to increase trade with these co
untries.
5) In against the NTMs imposed by developed nations, India raised the voice at i
nternational forums like WTO etc.
The proliferation of NTBs is growing menace to India. For instance, around 44 pe
r cent of India's exports to US face several hard-core NTBs. in spite of developin
g countries' campaign at various rounds of trade negotiations, on eliminating /red
ucing NTBs, not much has been accomplished. India should frame the Policies to g
rapple with the present environment, through a multi-pronged approach; multilate
ral trade negotiations regional/bilateral trading arrangements, and at the same
time setting own house in order.
Examine the causes behind India's slipping rank in fish production.
Fishes form part of daily diet in coastal India. They have the potential to addr
ess protein deficiency. Still India is facing a sluggish growth in fishing due t
o myriad reasons.
Deep crawlers have emptied the shallow areas of coasts & now they have to dig fa
r. It has increased cost & retarded fisheries growth. Conflicts with neighbors l
ike Sri Lanka have reduced fish production, as there is no clear maritime bounda
ry. Increase in natural calamities like Leher cyclone has affected settlement of
fishermen.
Research & promotion of modern technologies are inadequate in Indian fishing ind
ustry. It creates hindrances in healthy fish production. There is lack of suppor
t from government. Fishermen suffer from hard life, lack of basic amenities & lo
wer status in society. It is not considered an attractive business.
Use of small holes nets has caused catching of small fishes which affect prospec
tive growth of fishes. Increase in crimes across coasts like smuggling, traffick
ing & infiltration have also given a blow to unhindered fish catching.
Need is to have comprehensive policy for fishing & opening up of information cen
ters in coastal areas. Then only fishing can contribute in food security & help
India achieve Millennium Development Goals in long run.
What are the geopolitical implications of China's rise on India, especially Northe
astern India? Discuss.
The phenomenal rise of China has huge bearing on Indian economy , security and o
verall geopolitics of Indian Ocean Region.
Repeated Chinese incursion into Indian territory , claims over Indian sovereign
land has led to a strategic shift in our defence policy . These aim to improve c
onnectivity to these regions , rapid infrastructure build up in the region along
with defense modernisation and expansion. India has also employed new strategie
s like Iron Curtain to curtail the threat of Chinese String of Pearls .
The North Eastern Region(NER) has gained renewed focus of the Government followi
ng statements issued by Chinese during our Prime Minister and President's visit to
the region and their subsequent stapled visa issues. The NER has been grappling
with ethnic violenece , secessionist movements and has become transit corridor
for illegal drugs and arms from the Golden Triangle. Chinese are alleged to have
aided this through supply of both arms and money to the various groups .Their w
ater diplomacy which may both deprive us or flood us with waters of the Brhamapu
tra and their support to Maoist rebels is all to well known.
The suggestion for greater integration of region through BCIM corridor may prove
to be a double edged sword. Undoubtedly it will usher development in the region
but may also allow easier access to nefarious elements in the region. India sho
uld move cautiously and engage more with Bangladesh and ASEAN to allow transit o
f goods through and enable development of NER .
Do you think G-7 was right in suspending Russia from its membership? Comment.
On the sidelines of the Hague declaration,Russia suspension from the G-8 groupin
g has been announced.G-8 group was formed in 1975 with the objective of strength
ening of east-west relations.Russsia became a member of G-8 in 1998.Russia suspe
nsion from G-8 in the wake of merging of Crimea in Russia can be analyzed on the
following ground.
1.G-8 does not have any formal membership.Thus there is no formal mechanism to s
uspend any member.
2.Russia has been suspended from G-8 on the ground that it has illegally annexed
crimea which is a territory of Ukarine but Russia argued that this is in accord
ance with the 2010 ruling of U.N International court of Justice ,which said that
unilateral declaration of independence by a part of country did not violate int
ernational law.
3.The expansion of NATO to the western border of Russia with a fabricated view o
f security threat has compelled Russia to take steps to secure its military and
strategic interests.
Ukraine crisis escalated to such an unprecedented level due to excessive involve
ment of outside powers in Ukaraine internal affairs to secure their own economic
and stategic interests. In the current scenario there is need for utilizing the
international grouping such as G-8 for providing a channel for dialogue and com
munication instead of using it as a means for retaliatory measures.
Can Russia effectively use its supply of natural gas to Europe as leverage to th
wart attempts by EU to impose more sanctions on it? Examine.
The EU and US have imposed travel bans and asset freeze on several key-officials
from Russia over the Crimean referendum which was heavily bent towards merger w
ith Russia and suspended it from the G8 group of nations.Europe has been marred
by the possibilities of a gas-supply cut from the Russian side which supplies 30
percent of its natural gas.This can be a possibility considering the tit-for-ta
t exchange of sanctions in place between the two entities.But the real picture i
s certainly different from the one being portrayed.Europe will suffer less damag
e than imagined. The reasons being:
a. Natural gas comprises only 22 percent of Europe's total energy consumption. Out
of this, 30 percent gas is imported from Russia which brings out its share in E
urope's energy consumption to less than 7 percent which is hardly sufficient to br
ing a setback to the European economy.
b. When faced with a gas cut-off, power companies could switch from a plant that
is fired with gas to one with coal. This would save the scarce gas supplies for
the households and factories which consume 70 percent of the gas reserves.
c. Europe has sufficient gas stored as a buffer against possible gas scarcity. T
he gas which is being supplied from Russia has already been pumped into undergro
und tanks. Some of these can be released to ease shortages. Pipelines have also
been reengineered to permit the reversal of flows to send gas to where it is nee
ded most.The winters in 2013 were not that severe which has supported large buff
er stocks of natural gas for consumption.
d. Russia will resist taking such a move because the foreign exchange earned in
return will be the most badly hit which can be a major setback for its economy w
hich is already burdened with economic sanctions.It will also not want to lose i
ts customer base as Europe will start looking for alternatives for its gas impor
ts.
Though many European countries like the Baltic states will be badly affected sin
ce they heavily depend on Russian gas, it is unlikely that Russian supply of nat
ural gas can be used as leverage to thwart attempt to impose more sanctions by t
he EU.
What do you understand by virtual reality? What are its applications?
Virtual reality or virtual environment as scientists and engineers call it is a
simulation created with the help of electronic gadgets and computers. This is we
arable technology wherein sensors are attached to your hands, feet and eyes to d
etect motion.
The concept of virtual reality has been depicted in books and sci-fi movies. But
its applications are limited owing to impracticability of its use until recentl
y.
Virtual reality can be used in gaming and theatres for a virtually simulated exp
erience of the environment. However, virtual reality can be more productively us
ed in various fields as:
1. Architecture and interior designing afchitects can show their designs to clie
nts with the help of virtual environment instead of tiny models. It gives a bett
er view and the clients can experience it as in reality and also suggest changes
.
2. Design cars and other technology virtual models can help save money and time
as designs of cars, automobiles and other gadgets can be edited or rebuilt witho
ut scraping the physical models.
3. Military training It can also be used in military training. It has been prove
d that officers trained in virtual environment are equally capable of tackling s
ituations as those trained in natural environment.
5. Medical training VR can be used in medical training for diagnose and treatmen
t. First remote operation was held in 1998 with the help of a robot.
4. Psychological treatment psychiatrists use it as exposure therapy to simulate
a particular environment. Patients also readily accept it as therapy because the
y know that it is not real.