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Question and Answer

SRIRAM'S IAS

 Q. 85. Why is Ran ki vav in news recently? What is its importance?
Ans.
Rani ki vav is an intricately constructed stepwell situated in the town of Patan in Gujarat, India. It is located on the banks of Saraswati River. Rani ki vav was built as a memorial to an 11th century AD king. It was added to the list of UNESCO's World Heritage Sites in 2014.Stepwells are a distinctive form of subterranean water resource and storage systems on the Indian subcontinent, and have been constructed since the third millennium BC. Rani ki vav was built in the complex Maru-Gurjara architectural style with an inverted temple and seven levels of stairs and holds more than 500 principle sculptures.

Rani ki Vav bagged the title of “Cleanest Iconic Place” in India at the Indian Sanitation Conference (INDOSAN) 2016 in New Delhi in October 2016.

It was "an exceptional example of technological development” in utilising ground water resources and an unique water management system which illustrates "the exceptional capacity to break large spaces into smaller volumes following ideal aesthetic proportions”. The property had been buried under layers of silt for almost seven centuries after the disappearance of the Saraswati river. Its excavation demonstrated an exceptional state of conservation with seven floors of ornamental panels representing the height of the Maru-Gurjara style.
 Q. 84. Write on the legendary female singer “MS” whose birth anniversary falls this year.
Ans. Madurai Shanmukhavadivu Subbulakshmi also known as M.S., was a Carnatic vocalist. She was the first musician ever to be awarded the Bharat Ratna, India's highest civilian honour. She is the first Indian musician to receive the Ramon Magsaysay award, often considered Asia's Nobel Prize. To honour the legacy of India’s Carnatic music legend M.S. Subbulakshmi, the United Nations issued a stamp to mark her birth centenary in 2016.
 Q. 83. What is Paschim Leher and why is it necessary?
Ans.
With the operational situation along the western front remaining volatile amid heavy exchanges of cross-border firing with Pakistani forces, the Indian security establishment is taking no chances in being ready for any contingency. Even as the Army and IAF airbases maintain top-levels of operational readiness, the Navy too is coming into action with a major exercise “Paschim Leher (western wave)” in the Arabian Sea from next week. Over 40 warships and submarines, backed by maritime fighter jets, patrol aircraft and drones, have already begun to amass on the western seaboard for the intensive combat manoeuvres, which include “cross-deployment” even from the eastern seaboard.
 Q. 82. Is there a need for the creation of National Disaster Mitigation Fund (NDMF) ? How is disaster mitigation financed in India?
Ans.
The objective of creation of National Disaster Mitigation Fund (NDMF) is for the projects exclusively for the purpose of mitigation. The purpose is being served by the existing Centrally Sponsored Schemes / Central Sector (CS) Schemes such as Pradhan Mantri Krishi Sinchai Yojana, Krishonnati Yojana, National Mission on Sustainable Agriculture, MGNREGA, Major Irrigation projects, Namami Gange-National Ganga plan, River Basin Management, National River Conservation Plan and Water Resource Management. Additionally, the Ministry of Finance (MoF) has made a provision of 10% of total outlay for all CSS schemes (except for schemes which emanate from a legislation (eg. MGNREGA), as flexi fund.
 
Keeping in view the above, the Government feels that at present there are sufficient schemes to take care of mitigation measures in different projects and the need for creation of separate NDMF has not been felt.
 
Financial management of disasters is undertaken as per the mechanisms available in DM Act, 2005 and there is no fund namely Disaster Management Fund.
 Q. 81. Why was the Demchok area is in news?
Ans.
In Ladakh's Demchok area -a region bordering Tibet and site of previous Chinese incursions, Indian and Chinese troops have been in a stand-off over construction of an irrigation canal. Demchok is at an altitude of around 11,500 feet and marks the entry of Indus into India from Tibet. China's People's Liberation Army (PLA) troops are said  to have entered the  area near the Line of Actual Control (LAC) and stopped the construction work. Government is constructing an irrigation canal under the rural employment guarantee scheme to link a village with a `hot spring' in Demchok, 250km east of Leh.
 
The fresh tensions in Demchok also come in the wake of the Indian government's decision to allow the Dalai Lama to travel to Tawang in Arunachal Pradesh despite China's strong reservations about the Buddhist leader. Tawang is also the site of a monastery that is of special significance to Tibetan Buddhists while China claims all of Arunachal as “South Tibet”.
 
The area had witnessed a similar incident in 2014 over a small irrigation canal at Nilung Nalla under the MNREGS that had been a sore point with the Chinese. There was a prolonged incursion by a Chinese platoon in April, 2013 as well that led to India and China agreeing on a protocol to improve communications between border troops.
 Q. 80. Critically examine the fire safety norms prevalent in the country presently.
Ans.
The fire code is aimed primarily at preventing fires, ensuring that necessary training and equipment will be on hand, and that the original design basis of the building, including the basic plan set out by the architect, is not compromised. The fire code also addresses inspection and maintenance requirements of various fire protection equipment in order to maintain fire protection measures.
 
Recent tragedies in India show how casually fire safety is taken in India despite major fires in residential complexes, temples and other public places. Official records show that there are just 2,900 fire stations in all of the country when at least 8,500 are required at the very minimum. Fire is a state subject but most states simply do not provide enough resources for fire safety. The fire departments are ill-equipped and do not have enough staff. Urban fire services are deficient by 72.75% in fire stations, 78.79% in manpower and 22.43% in fire fighting and rescue vehicles.
 
One way to minimise the outbreak of fires is for the authorities to rigorously enforce the law that any building under construction will not be given an operational clearance unless its promoters comply with fire safety norms. A safety audit of all buildings must be carried out at regular intervals, something which is hardly ever done. Now we see a case of building permits being handed out liberally with no check on whether safety measures have been incorporated into the plans. If restaurants or commercial buildings which are fire hazards do not comply with the rules, they should be shut down after proper warning.
 
Restaurants operating from the first floor flats of the Capital’s posh Khan Market with no proper measures for escape in the event of fire were in news recently. Most of them have been turned into commercial establishments though constructed for residential purposes. Most of them have narrow staircases, which pose a threat to customers in the event of a fire. These open onto narrow service lanes in which the fire brigade cannot enter.
 
The Delhi High court directed Delhi Fire Service to re-visit its policy which exempts restaurants with a seating capacity of less than 50 persons from obtaining clearance under the Delhi Fire Service Act. If this is the case with Khan Market, one can imagine the situation in other crowded markets in Delhi, many of which have serious fire hazards like exposed and hanging wiring and few exit routes.
 Q. 79. Write a short note on the evolution from Look East to Act east of India's policy.
Ans.
Under the leadership of Prime Minister Narendra Modi the new government of India has made its relations with East Asian neighbours a foreign policy priority at a time when the United States has engaged in a "pivot to Asia". It is called  Act East policy, following on from the Look East policy which was introduced during the government of Prime Minister P.V. Narasimha Rao 25 years ago From the very beginning the Modi government made it clear that India would focus more and more on improving relation with ASEAN and other East Asian countries as per India's Look East Policy which was formulated during Narasimha Rao's government in 1992 for better economic engagement with its eastern neighbours. Modi government successfully turned it into a tool for forging strategic partnership and security cooperation with countries in that region in general and Vietnam and Japan in particular.  Thus, from economic relation essentially to security relation. Act east policy aims at stabilising the Asia pacific by actively cooperating with the regional powers (ASEAN and others). Its unspoken but underlying aim is to check China so that India's interests in the region are not threatened.
 Q. 78. Comment on the India and China counter-terror dialogue
Ans.
India and China late in  September 2016 discussed ways to enhance security and cooperation to combat terror as officials from the two sides exchanged information on policies and legislation to deal with terrorism at the first high-level dialogue where they reached "important consensus".The two sides exchanged views on the international and regional security situation at the first meeting of the India- China High Level Dialogue on Counter-terrorism and Security held here.
 
The two countries  exchanged information on respective policies, systems and legislation to deal with terrorism, and further enhance their understanding on issues of major concerns to both sides, according to a press release issued by the Indian embassy here.
 
The two sides had in-depth discussions on enhancing cooperation in counter-terrorism and security and on measures to jointly deal with security threats The discussions were held on the “international and regional security situation”. The two sides also exchanged information on respective policies, systems and laws to deal with terrorism.
 Q. 77. What are HFCs? Do you think these chemicals are environment-friendly? State India’s stand on phasing out HFCs.
Ans.
HFCs were introduced as ozone-friendly gases but they are greenhouse gases with high global warming potential. They are factory-made gases used in air conditioning and refrigeration. While HFCs are less abundant in the atmosphere than carbon dioxide, they have 10,000 times the planet-warming potency. But carbon dioxide lingers in the atmosphere for centuries, while HFCs disintegrate after about 15 years.

Some countries like the US and several other developed countries have long been seeking to replace HFCs with alternative technologies, such as HFOs (hydrofluoroolefins) and want the matter to be discussed under the Montreal Protocol.

The international debate about Hydrofluorocarbons (HFCs)—the climate-damaging refrigerant gases— is: should they be treated as short lived climate pollutants (SLCPs) under Kyoto Protocol or be phased out Montreal Protocol. Since HFCs are not ozone-depleting, they have been kept out of the Montreal Protocol that currently deals with phasing out ozone depleting substances like hydro-chlorofluorocarbon (HCFC) and chlorofluorocarbons (CFC). HFCs, on the other hand, contribute to global warming and come under Kyoto Protocol.
 
India initially wanted them under climate talks as in these talks India enjoyed common but differentiated treatment and did not have to take emission targets. But there is international pressure on India to take targets though on a lesser scale than the developed countries. Thus, climate talks do not offer any special advantage for HFCs. PM Narendra Modi in an op-ed in the Washington Post, co-authored with US President Barack Obama back in September, had recognised the Montreal Protocol (MP) as the right forum for HFCs—but with reporting and accounting under the UNFCCC. This was depicted as an encouraging step towards changing stance of India on the issue.Previously, this had been a point of disagreement between India and the US since India opposed any action on HFCs under Montreal Protocol.
 
The United Nations Environment Programme (UNEP) expressed its view that the HFCs are a part of SLCPs but have higher global warming potential when compared to carbon dioxide. Even though HFCs only contribute to less than one per cent of global warming to date, their production, consumption and emissions are growing at a rate of 8 per cent every year.
 While these debates go on, the global climate agreement in Paris in December 2015 might lead to more clarity on the issue.
 Q. 76. What is the significance of Pratham- the cube satellite?
Ans.
Designed to fit within a 30-cm cube, the 10kg Pratham satellite will measure total electron count in the ionosphere that can improve the accuracy of the Global Positioning System in India, and also predict tsunamis. Conceptualised in 2008, Pratham has been worked on by students across IIT-B engineering departments and spread over seven batches. The project cost Rs 1.5 crore.
 
All the signals that are sent by satellites towards earth interact with a layer of electrons (negatively charged particles) in the atmosphere. This interaction changes the behaviour of these signals, and introduces certain errors in the GPS readings, Pratham Knowing the TEC will help predict changes in GPS readings due to such interactions and make necessary corrections to improve GPS readings. In the case of a tsunami, the earthquake responsible for the tsunami often emits high intensity gravity waves that change the electron count drastically. So when someone tries to measure TEC, the readings will be high which can act as a warning for coastal areas for an impending tsunami.
 Q. 75. Differentiate between production sharing agreements and revenue sharing agreements in oil exploration. Why is the government shifting to the latter model? Do you agree with the decision of the government?
Ans.
Production sharing agreements (PSA) are a common type of contract signed between a government and a resource extraction company (or group of companies) concerning how much of the resource (usually oil) extracted from the country each will receive. In production sharing agreements the country's government awards the execution of exploration and production activities to an oil company. The oil company bears the mineral and financial risk of the initiative and explores, develops and ultimately produces oil/gas from the field . When successful, the company is permitted to use the money from produced oil to recover capital and operational expenditures. The remaining money is shaped between the government and the company.

Production sharing agreements can be beneficial to governments of countries that lack the expertise and/or capital to develop their resources and wish to attract big domestic and foreign companies to do so. They can be very profitable agreements for the oil companies involved as well. A section of experts favour the production sharing model for deep sea exploration because guarantees for the recovery of all sunk costs are important to attract oil majors with proprietary technology. The Comptroller and Auditor General of India (CAG) had criticised PSA which prevails in India on grounds that it encourages companies to inflate (gold plate) capital expenditure and  reduce and delay the government’s share.

A panel headed by former Prime Minister’s Economic Advisory Council Chairman C Rangarajan had in 2013 suggested moving to a revenue-sharing regime that requires companies to state upfront the quantum of oil or gas they will share with the government from the first day of production.In the new regime, the companies will have to indicate the quantity of oil and gas they will share with the government at different stages of production as well as at different rates. That is, not wait till the end.
In March 2016, the policy of RSC was adopted across all hydrocarbons under Hydrocarbon Exploration and Licensing Policy (HELP).
 Q. 74. India launches eight satellites into two orbits recently. What do you know of them?
Ans.
India recently achieved another space milestone when it successfully launched multiple satellites from one rocket into two different orbits. In the longest mission for the polar satellite launch vehicle (PSLV C-35) that lifted off from Sriharikota carrying eight satellites -- three from India, including the weather satellite SCATSAT-1, three from Algeria, and one each from Canada and the US. The PSLV has launched 39 remote-sensing satellites for Isro, including the Mars mission of 2013-14.
 
The 371-kg SCATSAT-1, will study oceans and help in weather forecasting, including cyclone detection. Two of the Indian satellites are student-made. Pratham, a 10-kg satellite developed by students of Indian Institute of Technology in Bombay, will study the electron count in space which will help improve the accuracy of the Global Positioning System in India, and also predict tsunamis. The 5.25-kg PISAT made by students of Bengaluru’s PES University will take pictures of earth.
 Q. 73. Intra-SAARC group released operation plans 2025. State them
Ans.
In an indication that India will not allow Pakistan to stall regional development envisaged under SAARC, a smaller group of six south-Asian nations have released an operation plan running through to 2025. Member countries of the South Asia Sub-regional Economic Cooperation (SASEC) are Bangladesh, Bhutan, India, Maldives, Nepal, and Sri Lanka — SAARC less Pakistan and Afghanistan. The SASEC OP (operational plan) is the program's first comprehensive long-term plan to promote greater economic cooperation among members.
 
SASEC was established in 2001 to improve cross-border connectivity, boost trade among member countries, and strengthen regional economic cooperation. With Pakistan stalling progress under SAARC umbrella, SASEC could get a bigger push from New Delhi.
 
Over 200 potential transport, trade facilitation and energy projects worth $120 billion in investments for the next five years have been identified under the plan. Out of these 74 projects are in India with an estimated project cost of over $60 billion. Majority of these projects are located in North East or Eastern part of the country. The Asian Development Bank (ADB) is the secretariat and lead financier of the SASEC program and to date has approved 40 projects worth almost $7.7 billion in transport, energy, trade facilitation, and information and communications technology.
 Q. 72. What was the recent Niti Aayog focus on sports?
Ans.
India should identify and focus on priority sports as it aims to bag 50 medals at 2024 Olympics, NITI Aayog has proposed in the wake of the debacle at this year's competition, advocating a strategy followed by smaller nations such as Kenya and Jamaica.
 
In a 20-point action plan, the government's think tank has recommended that the country prioritise 10 sports and develop an outcome oriented action plan for each of them. "Each action plan should be reviewed after every four years and its outcomes assessed annually," the Aayog said in a report titled 'Let's Play'. The report has been put in public domain for stakeholder consultation and the Aayog hopes to finalise its recommendations in 45 days.
 
The efficacy of this strategy is evident from the fact that Kenya and Jamaica participated in only two sports but the two nations bagged as many as 100 and 78 medals respectively at the recent Olympics in Rio, Brazil. On the contrary India, the second most populous nation in the world, managed to win just two medals despite a large participation this year.
 
  i. In its comprehensive report, the Aayog recommended that the draft National Sports Development Bill, 2013 be implemented to promote ethical practices and improve transparency and accountability of sports bodies.
  ii. Outlining the need for extensive marketing of all priority sports, the Aayog said experiences of IPL in India have shown that investments in marketing and promotion of league tournaments have repeated benefits in terms of attracting sponsors, popularising the sport and increasing viewership.
  iii. It was recommended to allow private companies/PSUs to acquire naming rights i.e. buy rights to name a facility, event, sportsperson, beginning from the age of five, typically for a defined period of time in exchange of sponsoring related activities. Besides, it vouched for roping in private sector and greater funding made available by the government to create state-of-the art sports facilities. 

Outlining medium to long term action plans, the Aayog recommended that the government scout talent at the young age of five to 10 years through national level competitions for priority sports, citing the example of China and Germany.
 Q. 71. Indian cinema and Freedom Struggle.
Ans. Indian cinema played a crucial role in the freedom struggle. Many patriotic films, in Hindi and the regional languages, upheld it. A few film producers were even involved in the campaign. India’s staunch patriots as Bal Gangadhar Tilak, Lala Lajpat Rai, Vallabhai Patel, Jawaharlal Nehru, Sarojini Naidu, S. Satyamurti and Rabindranath Tagore, opining that the cinema was useful for emancipation and political awakening, strongly supported it.
 
Some pre-Independence champions in the cinema industry:
Dwarkadas Naraindas Sampat – maker of the first political (silent) film, Bhakt Vidur (1921);
J B.H. Wadia, most politically involved film maker of Hindi cinema, who had become an INC volunteer since 1930 – made such films, centred on democracy, as Diler Daku (1931), Toofan Mail (1932), Lal-e-Yemen and Dilruba Daku (1933), Kala Gulab (1934) and Ekta (1942) ; he filmed the historic celebrations of India’s freedom as officially organised on the midnight of 14-15 August 1947;
R. Jyotiprasad Aggarwal – the pioneer of Assamese films, who was a political activist and freedom fighter, is renowned for his Jyotimati (1934) ;
Debaki Kumar Bose, a revolutionary turned film producer, who played the lead role in his political films ; he made Inquilab (Revolution) in 1935 ;
V. Shantaram (1901-1993) – who, in Marathi and Hindi cinema for over 60 years, though never in active politics, made attractive films on socio-economic issues [like Amar Jyoti (1936) and Shejari/Padosi (1941)], and on communal harmony ; he was famous for pioneering in India a colour film, Sairandhri (1933) ;
K. Subramanyam (1904-1971), Tamil film pioneer, whose contribution to liberation had no match in Indian cinema, crusaded against orthodoxy, as in his Balayogini (1936) and Bhakta Cheta (1940), while his Sevadasan (1938), on the status of women, and Tyaga Bhoomi (1939), with an easily indentifiable political flavour, in which the actor Sivan portrayed Sambhu Sastri as Tamil Nadu’s Gandhi, were even more radical.
Between 1936 and 1942, K. Subrahmanyam made some of the most socially significant Tamil films. His celebrated film ‘Thyagaboomi’ (1939) was important in several ways. It was banned by the British Government for propagating nationalist sentiment and promoting the Indian National Congress.
Sohrab Modi’s ‘Sikandar’ on Alexander’s invasion of India evoked passionate nationalist sentiments. Prabhat’s devotional, biographical film on the saint, ‘Eknath’ propagated the Gandhian ideals of abolishing ‘untouchables’.
 Q. 70. What is autophagy? Why is it useful? Why is it in news now?
Ans.
The word autophagy originates from two Greek words meaning “self-eating”. It refers to the process in which cellular junk is captured and sealed in sack-like membranes, called autophagosomes. The sealed contents are transported to another structure called the lysosome. Autophagy allows the orderly degradation and recycling of cellular components. The process is crucial for preventing cancerous growths, warding off infection and, by maintaining a healthy metabolism, it helps protect against conditions like diabetes. The contents are degraded and recycled.  In the context of disease, autophagy has been seen as an adaptive response to stress. In the extreme case of starvation, the breakdown of cellular components promotes cellular survival by maintaining cellular energy levels. Contemporary autophagy research began  in 1990s with the identification of autophagy-related genes by yeast researchers. One of them, Japanese scientist Yoshinori Ohsumi, received the 2016 Nobel Prize in Physiology or Medicine for discoveries on how cells break down and recycle their own components. By studying the process in yeast cells, Ohsumi identified the main genes involved in autophagy and showed how the proteins they code for come together to build the autophagosome membrane. He later showed that a similar cellular recycling process occurs in human cells - and that our cells would not survive without it.
 Q. 69. Microgrids are the answer for the plan goal of round-the-clock power for all by 2022. Explain.
Ans.
Microgrid is a small standalone system connected to solar panels which can supply power to about 100 households. In this model, a customer registers with the microgrid owner with a monthly subscription, and the service provider provides him solar power for two lights, a fan and cell phone charging socket.
A customer would spend Rs 100. It is cheaper than kerosene and has been growing rapidly.

A microgrid costs under Rs 60,000 to set up and the project costs get recovered in three years -- including maintenance, upgrades and other overheads. Households save money each month which helps ensure payments. These micro-economics are sound, low-risk and sustainable and are attractive for investors.It has to prospects that every village in India will soon be electrified, thanks to the solar microgrid revolution.

With such clear economics, more companies are looking at the sector. "People in the industry clearly see the business opportunity here now as there are hundreds of villages with no electricity and it doesn't make economic sense for the government to put up a grid" Shaad said.

Firms say that while for the immediate term, lending from NABARD would help, to take this on a longer term, government support would be required in terms of giving service providers protection and status to function like a state electricity utility.

Micro grid holds the key to lighting and digitally connecting millions of lives. The Centre’s plan to supply electricity 24/7 to all parts of India in five years needs microgrids as a practical solution to provide electricity to off-grid and inaccessible areas.
 Q. 68. What is RAPID that Space Applications Centre (SAC), ISRO, Ahmedabad developed? How is it a technological advance in the context of India?
Ans.
Space Applications Centre (SAC), ISRO, Ahmedabad has developed a weather data explorer application - Real Time Analysis of Products and Information Dissemination (RAPID) which is hosted in India Meteorological Department (IMD) website. This software acts as a gateway to Indian Weather Satellite Data providing quick interactive visualisation and 4-Dimensional analysis capabilities to various users like application scientists, forecasters, and the common man.
 
The INSAT series of satellites carrying Very High Resolution Radiometer (VHRR) have been providing data for generating cloud motion vectors, cloud top temperature, water vapour content, etc., facilitating rainfall estimation, weather forecasting, genesis of cyclones and their track prediction. These satellites have also carried Data Relay Transponders (DRT) to facilitate reception and dissemination of meteorological data from in-situ instruments located across vast and inaccessible areas. Currently, there are three meteorological satellites Kalpana-1, INSAT-3A and INSAT-3D in the geosynchronous orbit. Quick visualisation and analysis of data and products enable accurate weather assessments.
 
This innovative application introduces the concept of next generation weather data access and advanced visualisation capabilities. It provides access to the previous 7-day satellite data including images and geophysical parameters from Indian Satellites in near real time. More than 150 Products from Indian Weather Satellites are being hosted using this application. The scientific products which affect our daily lives like Fog, Rainfall, Snow, Temperature, etc., retrieved from INSAT-3D and Kalpana-1 are made available for the common man. It also provides animation of images based on start/end time. This feature is very useful in visualising the movement of severe weather events like cyclones.
 
RAPID also provides support for overlaying the ground observation data from Automatic Weather Stations (AWS) of ISRO and Global Telecommunication System (GTS). These AWS measures the parameters like Temperature, Rainfall, Sunshine, Wind Direction/ Speed and Humidity. The latest addition to RAPID is 'Nowcast Data', which provides the forecast for next 3 hours prediction of the convective cells development and possible areas of thunderstorm.
 
RAPID hosts data from Indian Geostationary Meteorological Satellite Missions in Geo-graphical Information System (GIS) environment in the country. RAPID is also acting as a hub for satellite data and scientific products and used for scientific studies and help students, researchers and organisations to understand the atmospheric phenomenon.
 Q. 67. The Health Ministry recently gave the Japanese encephalitis the ‘notifiable disease’ tag. Why?
Ans.
It is a move towards better management of Japanese encephalitis (JE) cases across the country. JE is an important public health concern in the country accounting for substantial morbidity, mortality and disability. JE is caused by a mosquito-borne virus. Since the virus attacks the brain of the child, the chances of the child becoming mentally retarded are high.
 
By declaring JE as a notifiable disease healthcare providers will have to notify every JE case to the local authorities every week. In order to ensure early diagnosis and case management, reduce transmission, address the problems of emergency and spread of disease in newer geographical areas, it is essential to have complete information of all JE cases, and to that end notification of JE helps.
 
According to the notification, healthcare providers in every state shall notify every JE case to the local authorities ie. District health officer or Chief Medical Officer of the district concerned every week. The notification has been sent to the heads of state health departments of states and UTs. 
 Q. 66. Who were given the 2016 Nobel prize in Economics and why? How does their work acquire significance for inclusive economic growth?
Ans.
2016 Nobel prize in economics has been awarded to UK-born Oliver Hart and Bengt Holmström of Finland for their work on contract theory, which has covered a range of issues from public-private partnerships to executive pay.

As it announced the prize, the Royal Swedish Academy of Sciences described the pair’s work as key to the understanding of the real-life contracts and institutions that hold together modern economies.

Their research was praised for shedding light on how contracts help people deal with conflicting interests in areas such as insurance and employment. They were also recognised for helping with the design of better contracts, “thereby shaping better institutions in society”.

The award is for the  work that had helped lay a foundation for designing policies and institutions in areas from bankruptcy legislation to political constitutions.

Society’s many contractual relationships include those between shareholders and top executive management, an insurance company and car owners, or a public authority and its suppliers. As such relationships typically entail conflicts of interest, contracts must be properly designed to ensure that the parties take mutually beneficial decisions.

“This year’s laureates have developed contract theory, a comprehensive framework for analysing many diverse issues in contractual design, like performance-based pay for top executives, deductibles and co-pays in insurance, and the privatisation of public-sector activities.”

Hart’s research work has included a damning assessment of America’s private prisons. He showed that the pressure to cut costs was too great, leading to an unacceptable drop in quality. At the core is the issue of “incomplete contracts” – the fact that contracts are not detailed enough to cover every small point.

Holmström is known for pioneering research into executive pay. His work on employment contracts has considered a range of professions from teaching to management and whether they should be paid fixed salaries or work on the basis of performance-related pay.

Their analysis of the contractual relationship between individuals has enhanced our understanding of the inner functioning of modern firms, corporations and organisations.






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