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Year: 2016

  • down to earth has a very good series on indian budget

    came across my Facebook feed….

    have a look at this – http://www.downtoearth.org.in/news/did-backward-castes-and-adivasis-really-benefit-from-the-budget–52981

  • Discussing Budget 2016-17 | Rural Sector

    In this section, we will deal with the sector which is very important for a country like India, where more than two-third of the population resides in villages – Rural Sector.

    Take a look at basic statistics, which will give you a larger picture about govt.’s approach towards rural sector, where emphasis is on rural employment and infrastructure:

    • Total allocation for rural sector is 87,700 cr
    • Rs. 2.87 lakh cr grant-in-aid to Gram Panchayats and Municipalities
    • Rs. 38,500 crore has been allocated for MGNREGS in 2016-17
    • 100% village electrification by May 2018
    • 300 Rurban Clusters will be developed under the Shyama Prasad Mukherjee Rurban Mission
    • Digital Literacy mission to cover additonal 6 cr households

    rural_budget

    Focus Areas

    #1. Decentralization

    As per 14th Finance Commission recommendations, the budget has allocated a sum of Rs. 2.87 lakh cr grant-in-aid to Gram Panchayats and Municipalities, which is higher by 228% as compared to the previous 5-year period.

    Each Gram Panchayat will receive an average assistance of Rs 80 lakh, where as each Urban Local Body will get Rs. 21 cr.

    #2. Mitigating Rural Distress

    • Every block in the distress areas will be set up as an intensive Block under the Deen Dayal Antyodaya Mission
    • Formation of Self Help Groups will be speeded up to promote multiple livelihoods
    • Cluster Facilitation Teams will be set up under MGNREGS to ensure water conservation and natural resource management
    • Priority to these districts under Pradhan Mantri Krishi Sinchaii Yojna

    #3. Infrastructure Creation

    Govt will develop 300 Rurban clusters under the Shyama Prasad Mukherjee Rurban Mission.

    These Clusters will incubate growth centres in rural areas by providing infrastructure amenities and market access for the farmers. They will also expand employment opportunities for the youth.

    #4. Electrification

    Govt is targeting to achieve 100% village electrification by 1st May, 2018. The budget has allocated Rs. 8,500 crore for Deendayal Upadhayaya Gram Jyoti Yojna and Integrated Power Development Schemes.

    #5. Modernization of Land Records

    Govt. has revamped National Land Record Modernisation Programme, to build an integrated land information management system, which is critical for dispute free titles.

    #6. Sanitation

    Govt. will reward villages that have become free from open defecation, under Swachh Bharat Mission

    New Initiatives

    Promotion to Digital Literacy

    About 12 crore households out of the total 16.8 crore rural households, do not have computers and are unlikely to have digitally literate persons. In this regard, there are already 2 schemes, which are approved to promote digital literacy:

    • National Digital Literacy Mission
    • Digital Saksharta Abhiyan

    Govt. will launch a new Digital Literacy Mission Scheme for rural India to cover around 6 crore additional households within the next 3 years. This will help India to derive greater benefit from our demographic advantage.

    Improving Governance of PRI’s

    Govt. will make efforts to develop governance capabilities of Panchayat Raj Institutions so that they can deliver on the Sustainable Development Goals. In this regard, govt. has proposed to launch a new restructured scheme, called Rashtriya Gram Swaraj Abhiyan.

    PS: Please click on the green hyperlinked text to read more about the concepts. Revise and revise & feel free to ask pertinent questions.

     

    Published with inputs from Pushpendra | Image: Finmin

  • International Org. | Part 4 | BRICS and India

    Brazil, Russia, India, China and South Africa (BRICS) are leading emerging economies and political powers at the regional and international level.

    When? 2008. They had their first official meeting in 2009

    Origin:

    • The acronym, BRIC, was coined by Jim O’Neill of Goldman Sachs way back in 2001
    • He predicted that by year 2050, Brazil, Russia, India and China would become bigger than the 6 most industrialized nations in dollar terms and would completely change the power dynamics of the last 300 years
    • It was pointed out that high growth rates, economic potential and demographic development were going to put BRICS further in a lead position

    Why is BRICS suddenly so important?

    The idea of development bank (NDB) and Contingency Reserve Arrangement (CRA) has strengthen BRICS as a grouping

    Both of these concepts were formalised over in 2015 (@BRICS summit at Fortaleza and Brasilia) and this was seen as a strong signal to the challenge of western dominated discourses in some forums (IMF, WB)

    We will get to these details in a short while but since these developments happened in 2015, the IAS aspirants from 2016 onwards are required to sweat blood in order to be on top of this theme (kidding!)

    What prompted the need for emergence of BRICS? 

    Most multilateral institutions were designed in the era when the West dominated the world. The US and Europe are over-represented in the IMF and the World Bank. Together with Japan, they control most regional development banks as well! That’s a big bad bully in making, right?

    The main reason for co-operation to start among the BRICs nation was the financial crises of 2008

    The crises raised scepticism on the dollar dominated monetary system and the need for participation by non-G7 countries became evident. If you don’t know about G7, click this wiki page to know the countries involved

    What reform did BRICS want out of the multilateral institutions?

    Since their inception in 1944, the Bretton Woods institutions (IMF and World Bank) had not reformed their governance structure, to give more voting and voice to emerging economies. Both dominated by USA and developed countries. Both were out of sync with the new dynamics of world economy

    The BRICs called for the “the reform of multilateral institutions in order that they reflect the structural changes in the world economy and the increasingly central role that emerging markets now play

    BRICS managed to push for institutional reform which led to International Monetary Fund (IMF) quota reform in 2010 (although, it met with limited success as United States Congress did not ratify)!

    Three new terms? Bretton Woods, Quota reforms, 2008 financial crisis. We will get to them later.

    So, essentially, BRICS opened up a possibility for countries of the global South to challenge the global North. When the quota reforms were quashed in 2010, BRICS moved towards enlarging their spheres of cooperation. We will talk about the BRICS bank at a later stage.

    Advantage India?

    Now that NAM (Non-alignment) is almost defunct and very little wealth is left in the Commonwealth, BRICS provide a great alternate for India to build its global profile.

    But don’t we have a G 20 group to further India’s interest in the global arena? Yes, that’s another big one (besides UN).

    G 20 is a bloc of developing nations established on 20 August 2003. The G-20 accounts for – 60% of the world’s population, 70% of its farmers and 26% of world’s agricultural exports.

    India has tried to use BRICS as a forum to engage China as the latter has become the largest market for the fast-industrializing countries of East Asia. India wants to resolve the age-old mis trust and complicated relationship between the two countries since the 1962 war between them.

    What are the factors that will bolster co-operation among BRICS members?

    Firstly, the common need among developing countries to construct economic order that reflects current situation will drive the BRICS’ efforts. In this matter, the idea of NDB and CRA are defining and will have a huge geo-economic and geopolitical impact

    Secondly, the BRICS alternative idea in the landscape of global governance will attract support from other countries. There have been suggestions by political analysts that BRICS may expand its member quota

    Thirdly, the expansion of BRICS interaction to other sector will make it more strong partnership

    Lastly, Chinese support to BRICS will make sure that group remains a force to reckon with in the future

    Chinese support – interesting point. Some would say that a lot depends on how China carries its might behind BRICS for the time to come.

    Some concerns regarding the future of BRICS

    1. Competition within themselves – The BRICS countries aspire to be regional powers and hence at some point will compete with each other
    2. Different forms of governance – They have different political systems with Brazil, India and South Africa being democracies while Russia and China having authoritarian characteristics. It would be interesting to see how policy consensus is brought about!
    3. Trade conflicts, maybe? Brazil and Russia are commodity exporting countries and thus benefit from high commodity prices while India and China are commodity importers that benefit from low commodity prices
    4. Territorial Issues – China and India have outstanding territorial issues to resolve and India looks askance to any institution that has Chinese domination. Russia looks suspiciously at China’s interest in its sparsely populated far eastern of Siberia
    5. The big daddy China – China spearheads three other major initiatives in this region – One Belt One Road (OBOR), Asian Infrastructure Investment Bank (AIIB) and SCO. You should know that the 7th BRICS summit was held as a joint summit with SCO. BRICS has to find a reckoning space among them to keep china’s interests alive!

    Parting words on BRICS (more mirch masala)

    All that UPSC want from an IAS aspirant is: Analysis, analysis, analysis. These are some of the fodder points that you can use in any answer involving BRICS and world arena.

    Engaging China has been one of the important components of India’s foreign policy in recent years, considering that co-operation and negotiations with China is imperative to clearing the mistrust between the two countries.

    Geostrategically, BRICS are now represented on all continents of the global south. In bilateral and regional agreements, the BRICS emphasize south-south solidarity and horizontal cooperation in contrast to western dominance.

    Yet, in global fora such as G20, UN Security Council or World Climate Conferences, BRICS claim to speak on behalf of the developing world (whether they actually do represent these countries is disputable) and gradually challenge western supremacy in international politics.

     

    Phew. This was a long one! Did we cover everything? Nope. We will cover later

    1. Latest BRICS summit
    2. All about the BRICS Bank (NDB) & Contingency Reserve Arrangement (CRA)
    3. Comparison of BRICS Bank with AIIB (another master stroke by China)

    Want to read more?

     

    UPSC ke sawaal

    #1. With reference to a grouping of countries known as BRICS, consider the following statements: (IAS Prelims 2014)

    1. The First Summit of BRICS was held in Rio de Janeiro in 2009.
    2. South Africa was the last to join the BRICS grouping.

    Which of the statements given above is / are correct?

    (a) 1 only
    (b) 2 only
    (c) Both 1 and 2
    (d) Neither 1 nor 2
    #2. The ‘Fortaleza Declaration’, recently in the news, is related to the affairs of ((IAS Prelims 2015)
    (a) ASEAN
    (b) BRICS
    (c) OECD
    (d) WTO

    #3. With reference to BRIC countries, consider the following statements (IAS Prelims 2010)
    1. At present, China’s GDP is more than the combined GDP of all the three other countries.
    2. China’s population is more than the combined population of any two other countries.
    Which of the statements given above is/are correct?

    A. 1 only
    B. 2 only
    C. Both 1 and 2
    D. Neither 1 nor 2

     

  • Budget Humour

    There are so many wisecracks about budgets. World over, budgets have managed to create madness, hysteria, protests, and satire. It is basic to the human mind that no other mind is possibly capable of carefully handling and allocating that joyous commodity, money. Add this sense of insecurity to the Orwellian point of view that all politicians are equal (in their incapability) but some politicians are more equal than the others, and you quintessentially have, what our Parliamentarians fondly call ‘The Budget Session’.

    Budgets are largely an exercise in philosophy; you deliver the numbers only to realise that they are never deliverable and never have been, to begin with. “Deficits satyam, Budget mithya” could well be the Indian take on the issue. Americans, those descendants of immigrants and revolutionaries, have scant regard for things as deep as the Shankara philosophy. Their philosophy about budgets goes about as deep as, errr, a bean bag. It was the inimitable Will Rogers, who in his loud style commented, “The budget is a mythical bean bag. Congress votes mythical beans into it, and then tries to reach in and pull real beans out.”

    American budgets have inspired perhaps the biggest quips and laughs. George W Bush, never quite revered across the globe for his intelligence, much to the delight of his critics, is believed to have said, “Of course it’s a budget. It’s got a lot of numbers in it.” Can’t get more dubiously Dubya than that, eh?

    Greeks, the other race that pride themselves on their philosophical underpinnings, have a different way of looking at budgets and debt burdens. When in trouble, they have a strange Greek way of using wonderful quotes by their forefathers in a most inappropriate fashion. “Speaking the truth and repaying your debts is not a correct definition of justice,” once said Plato. And now says Tsipras, to the great horror of Merkel and Co. It was humour in its blackest form that the Greeks recently passed an ‘austerity’ budget.

    Even the late Sophocles, that great master of tragedy who is believed to create despair even in Heaven, started laughing uncontrollably when he heard about that one. Merkel showed her technical German wit when she primly commented, “Austerity makes it sound evil. I prefer to call it balancing the budget.” Even the British raised their eyebrows in appreciation.

    Because, perhaps the greatest kind of budget humour can only come from the stiff upper lip of Europe, Great Britain. Unwittingly and unknowingly, George Osborne, the finance minister of UK, created complete confusion in Britain when he dared to claim last year in the British parliament, “This will be a budget for working people.” The Brits paused for a minute over their seventy-third cup of tea to exclaim, “I say, what does he mean, working people? We thought they were called Germans!”

    Back home at North Block, the entire team is getting serious about how to get funny. The FM has been braving suggestions on taglines that could scroll on the bottom of the TV screen whilst he would read the budget provisos. Senior advisors have suggested sher-o-shayari, but Ghalib makes you feel depressed, and Iqbal, Congressed. The younger interns are all for filmi taglines.

    Imagine, the FM would declare the fiscal deficit target for FY17 to be 4.2 per cent, markets would tank, only to be assured by the tagline scroll, “Bade bade deshon mein aisi choti choti baatein hoti rehti hain.” Or whilst talking of subsidies, “Hum AAP ke hain kaun.” The FM is hoping for an ‘Airlift’

  • Discussing Budget 2016-17 | Agriculture and Farmer’s Welfare

    Amidst global and domestic headwinds, Finance Minister presented a growth and development-oriented Budget that seeks to transform india for the benefit of farmers and the vulnerable. We will take a look at the budget in terms of various sectors.

    In this section, we will deal with the sector which received a lot of attention in this budget – Agriculture and Farmer’s Welfare

    Take a look at basic statistics, which will not be useful for memorizing, but certainly will help you in analyzing the shifting focus of govt. towards agriculture.

    • Total allocation for Agriculture and Farmers’ welfare is 35,984 crore
    • 28.5 lakh heactares of land will be brought under irrigation
    • 5 lakh acres to be brought under organic farming over a 3-year period
    • Rs 6,000 crore for recharging of ground water recharging
    • Dedicated irrigation fund in NABARD of Rs.20.000 crore

    budget_farmers

     

    Focus Areas

    #1. Food Security to Income Security

    Govt. is targeting to double the farmers’ income in 5 years. Govt. will re-orient its efforts both in farm and non-farm sectors. The access to markets becomes critical in this respect, so govt. will implement a Unified Agriculture Marketing Scheme which envisages a common e-market platform that will be deployed in selected 585 regulated wholesale markets.

    #2. Irrigation

    Irrigation is a critical input for increasing agriculture production and productivity. Out of 141 million hectares of net cultivated area in the country, only 46% is covered with irrigation. A dedicated Long Term Irrigation Fund will be created in NABARD with an initial corpus of about `20,000 crore.

    The ‘Pradhan Mantri Krishi Sinchai Yojana‘ has been strengthened and will be implemented in mission mode. 28.5 lakh hectares will be brought under irrigation under this scheme. Govt. is taking efforts to fast track 89 irrigation projects languishing under AIBP, which will help to irrigate 80.6 lakh hectares.

    Under the sustainable management of ground water resources, at least 5 lakh farm ponds and dug wells in rain fed areas will be created and 10 lakh compost pits for production of organic manure will be taken up by making productive use of the allocations under MGNREGA.

    #3. Conserve Soil Health and Fertility

    There is a National Project on Soil Health and Fertility and govt. is implementing Soil Health Card Scheme. It enables farmers to get information about nutrient level of the soil and can make judicious use of fertilizers. The target is to cover all 14 crore farm holdings by March 2017.

    #4. Credit Availability

    Govt. is making special efforts to ensure adequate and timely flow of credit to farm sector. The target for agricultural credit in 2016-17 will be at an all-time high of Rs. 9 lakh crore, as against the target of Rs. 8.5 lakh crore in 2015-16.

    Govt. has made the provision of Rs. 15,000 crore towards interest subvention, in order to reduce the burden of loan repayment on farmers

    #5. Food Processing Industry

    100% FDI will be allowed through FIPB route in marketing of food products produced and manufactured in India. It will benefit farmers as fruits and vegetables will fetch right prices and also reduce their wastage. It will also give impetus to food processing industry and create vast employment opportunities.

    New Initiatives

    Finances

    A  Krishi Kalyan Cess will be imposed at 0.5% on all taxable services, proceeds of which would be exclusively used for financing initiatives relating to improvement of agriculture and welfare of farmers. To know more about basics of cess – Read more.

    Broadening MSP

    Govt. will make efforts to ensure that the benefit of MSP reaches farmers in all parts of the country. Govt. will encourage remaining states to take up decentralized procurement. An online procurement system will be undertaken through the Food Corporation of India. Govt has also made effective arrangements  for pulses procurement.

    Dairy Development

    Govt. will bring four new projects to make dairying more remunerative to the farmers:

    • Pashudhan Sanjivani – An animal wellness programme and provision of Animal Health Cards (‘Nakul Swasthya Patra’)
    • An advanced breeding technology
    • Creation of ‘E-Pashudhan Haat’ – An e-market portal for connecting breeders and farmers
    • A National Genomic Centre for indigenous breeds

    Agriculture Insurance

    In order to protect the farmer from the adverse consequences of nature, govt. has recently announced PM Fasal Bima Yojna, which will have nominal premium and highest ever compensation in case of crop loss.

    PS: Please click on the green hyperlinked text to read more about the concepts. Revise and revise & feel free to ask pertinent questions.

    Published with inputs from Pushpendra | Image: Finmin

  • Economic Survey For IAS | Chapter 01 | Economic Outlook, Prospects, and Policy Challenges

    economic survey

     

    Having discussed how to read Economic Survey earlier, we now start our series on economic survey chapter by chapter. We shall follow a standard pattern across all chapters. We shall begin by highlighting ‘quotable quotes’ or observations which might not otherwise come for discussion but nevertheless very important for general understanding, general studies papers and essay. We shall then present some very basic statistics from the chapter and move to discuss broad themes of the chapter. In the end, important reading from the chapter shall be recommended.

    I have hyperlinked text with articles previously covered. So go back in time and read the articles if any doubt. Take this opportunity to revise the economy section of syllabus.

    So let’s get started

    1. It’s futile to expect “Big Bang” reforms because of two reasons
    • dispersed nature of power in India, too many veto centers
    • the absence of that impelling driver—crisis

    Note that reform of 1991 was in response to major crisis, SEBI was given statutory backing in response to major scam in stock market and recent merger of Forward Market Commission (FMC) with SEBI was also a response to major scam.

    Therefore, “persistent, creative and encompassing incrementalism” will be the key.

    2. Being pro industry and pro market or pro competition is not one and the same

    • India has moved away from being reflexively anti-markets and uncritically pro-state to being pro-entrepreneurship and skeptical about the state
    • But being pro industry must evolve into being genuinely pro competition, and the legacy of the pervasive exemptions Raj and corporate subsidies highlights why favoring business (and not markets) can actually impede competition
    • Similarly, skepticism about the state must translate into making it leaner, without delegitimizing its essential roles and indeed by strengthening it in important areas

    3. Amid the world economy which is full of turbulence and volatility, India is a refuge of stability and an outpost of opportunity

    Fastest Growing Economy
    Fastest Growing Economy

     

    1. Survey projects GDP growth of 7-7.75% for the financial year (FY) 17
    2. For FY16, GDP growth is estimated to be 7.6%
    3. Forex reseves have risen to >350b$

    Let’s now discuss some broad issues

    India becoming more and more intertwined with global growth

    • the correlation between India’s growth rate and that of the world has risen sharply to .42 from .2 for the period 1991- 2002 i.e. 1 % decrease in the world growth rate # 0.42 % decrease in Indian growth rates
    • India’s exports of manufactured goods and services now constitute about 18 percent of GDP, up from about 11 percent a decade ago

    Realizing long term potential growth of 8-10% requires a push on at least three fronts-

    1. Creating genuinely pro competitive market by allowing inefficient firms to exit (Chakravyuha challenge) – Govt response- new bankruptcy code, rehabilitation of stalled projects, Kelkar Committee guidelines on PPP renegotiation
    2. major investments in people— health and education- to exploit India’s demographic dividend.
    3. Don’t neglect agriculture as 42% of Indian households derive the bulk of their income from farming. Smaller farmers and landless laborers especially are highly vulnerable to productivity, weather, and market shocks changes that affect their incomes. Govt response – PM Fasal Bima Yojana

    Evolution of relative role of centre and states in the delivery of services-

    1. With increased devolution of resources (courtesy 14th Finance commission), states need to expand their capacity and improve the efficiency of service delivery.
    2. shift the focus from outlays to outcomes, and to learn by monitoring, innovating, and even erring.
    3. the Centre should focus on improving policies, strengthening regulatory institutions, and facilitating cooperative and competitive federalism
    4. while the states mobilize around implementing programs and schemes to ensure better service delivery

    How does competitive federalism help?

    Ease of Doing Business in States
    Ease of Doing Business in States

     

    States that perform well are increasingly becoming “models and magnets.”

    • Successful experiments in one state are models for others states to emulate by showing what can be done and stripping away excuses for inaction and under-performance.
    • They are also magnets because they attract resources, talent and technology away from the lagging states, forcing change via channel of exit.

    Twin Balance Sheet Challenge

    What are twin balance sheets – Bank balance sheet and corporate balance sheet

    Basically both are interlinked, as asset on bank balance sheet is liability on corporate balance sheet and if corporate does not repay debt, asset turns bad (Non Performing Asset or NPA) and both balance sheets get stretched. It results in banks not lending and corporate not investing resulting in vicious circle.

    Solution-

    What has been done so far– Indradhanush scheme, Strategic Debt Restructuring (SDR) scheme, 5:25 scheme

    What needs to be done– 4Rs

    1. Recognition-  Banks must value their assets as far as possible close to true value i.e. recognize NPAs as NPAs
    2. Recapitalization–  capital position must be safeguarded via infusions of equity
    3. Resolution– the underlying stressed assets in the corporate sector must be sold or rehabilitated
    4. Reform–  future incentives for the private sector and corporates must be set right to avoid a repetition of the problem

    But where would resources for recapitalization would come from given that government is committed to the path of fiscal consolidation?

    1. Divest govt. equities in non financial companies and invest in PSBs
    2. Dilute RBI’s capital to capitalize banks
    3. govt can dilute its equity in banks to raise resources from the market

    What should be the stance of fiscal consolidation?

    Revised FRBM Target
    Revised FRBM Target

     

    Learn Various types of Budget Deficits here- Budget Deficits Explained

    Govt announced revised FRBM timeline last year with fiscal deficit target of 3.9% for FY16 and 3.5% for FY17. In this context question arises whether or not we remain committed to the same path of fiscal consolidation.

    Arguments for accelerated fiscal consolidation –

    1. debt ratio of the consolidated government (Centre plus states), 67 per cent of GDP is high compared to some countries in Emerging Asia
    2. would reinforce govt’s credibility
    3. also why such a commitment should be abandoned when the economy is growing at more than 7 per cent
    4. Higher deficits may increase short term interest rates and thus hurt corporate investment and increase govt spending on interest

    Arguments against-

    1. 7th Pay commission award will increase expenditure by about .5% of GDP, to maintain same fiscal deficit, govt might need to slash capital expenditure
    2. Public investment may need to be increased further to address a pressing backlog of infrastructure needs
    3. current global environment is fraught with risks and India should not take chances against growth

    In this context it is important that government utilizes resources available to it to increase capital expenditure in roads, railways, ports etc which increases overall productivity and competitiveness of economy.

    Update- Government chose prudence and stuck to fiscal deficit target of 3.5% of GDP in the budget announced today.

    India and WTO

    WTO

     

    Two issues in agriculture-

    1. Special safeguard mechanism (SSM) which came for discussion in Nairobi ministerial meeting . The question which arises is whether India even needs such protection
    • We are already allowed tariff  from 40 per cent to 100 per cent (India’s modal rate in agriculture) to 150 per cent.
    • In a preponderance of tariff lines, there is a considerable gap between applied tariffs and the level of tariff binding
    • India’s only real need for SSM arises in relation to a small fraction of its tariff lines—some milk and dairy products, some fruits, and raw hides—where its tariff bindings are in the range of about 10-40 percent, uncomfortably close to India’s current tariffs, limiting India’s options in the event of import surges

    India should call for a discussion of SSMs not as a generic issue of principle but as a pragmatic negotiating objective covering a small part of agricultural tariffs.

    2. Food security/ stockholding issue

    • The particular policies (MSP) which are being defended are those that India intends to move out of in any case because of their well-documented impacts:
    • decline in water tables, over-use of electricity and fertilizers (causing health harm), and rising environmental pollution, owing to post-harvest burning of husks
    • the government is steadfastly committed to providing direct income support to farmers and crop insurance which will not be restricted by WTO rules

    The way forward in WTO on agriculture

    India should consider offering reduction in its very high tariff bindings and instead seek more freedom to provide higher levels of domestic support: this would be especially true for pulses going forward where higher minimum support prices may be necessary to incentivize pulses production

    India’s “big-but-poor” dilemma

    • India’s self-perception as a poor country translates into a reluctance to recognize and practice reciprocity (give-and-take) in trade negotiations
    • India’s policies have a significant impact on global markets and it has become a large economy in which partner countries have a legitimate stake in seeking market access

    Net effect- India is unable to play reciprocal game in trade negotiations and WTO is fast becoming irrelevant (not good for India)

    Cost of reluctant engagement-

    • India is excluded from Trans Pacific Partnership (TPP) and it is shaped in a way that do not take into account India’s important interests (the rules on intellectual property)
    • If and when India joins, it will be not on India’s terms but on terms already cast in stone, terms that India could not influence because of being perceived as not engaged fully

    What should be India’s response-

    We should use our growing markets as leverage to attain our own market interests abroad, including the mobility of labor and engage in reciprocal game to strengthen WTO.

    How should trade policy deal with ongoing stress?

    Chinese dumping, weak global environment, protectionist measures abroad, beggar thy neighbor policies etc .

    Broad principle- resist calls to seek recourse in protectionist measures, especially in relation to items that could undermine the competitiveness of downstream firms and industries. For instance– imposing higher duty on imported steel hurts domestic manufacturers such as cycle manufacturers and lead to inverted duty structure.

    Three sets of responses-

    1. Exchange rate. Keep rupee’s value fair, avoid strengthening using some combination of monetary relaxation, allow gradual declines in the rupee if capital flows are weak, intervention in foreign exchange markets if inflows are robust.
    2. India should strengthen procedures that allow WTO-consistent and hence legitimate actions against dumping (anti-dumping), subsidization (countervailing duties), and surges in imports (safeguard measures) to be taken expeditiously and effectively.
    3. India should eliminate all the policies that currently provide negative protection for Indian manufacturing and favor foreign manufacturing. Implement GST asap.

    What you have to read for yourself-

    1. All the boxes- read especially Box 1.5: El Niño, La Niña and Forecast for FY 2017 Agriculture
    2. Open all the hyperlinks. Learn, understand and revise.

    Ask all your doubts in the comment section below or in doubts clearing forum . all your suggestions, criticism and feedback is most welcome.

    Suggested Reading

    1. Economic Survey For IAS | Chapter 02
    2. Economic Survey For IAS | Chapter 03
    3. Economic Survey For IAS | Chapter 04

  • 2016 Budget for dummies – Easy explanation (with no jargons)

    1) 60 per cent of provident fund withdrawals will be taxed from April 1, 2016, according to Budget 2016. Currently, withdrawals from Employee Provident Fund are completely exempt from income tax. (Negative for middle class)
    2) Total allocation for agriculture sector has been hiked to Rs. 35,984 crore. (Positive for agrarian sector)
    3) Thumbs up for MGNERGA: Government will spend a record Rs. 38,500 crore on rural jobs programme (MGNREGA). Rural road development schemes will get Rs. 19,000 crore, while another Rs. 20,000 crore will be used to fund irrigation schemes. (Positive to address rural stress as well as to create purchasing power in rural economy)
    4) The finance minister allocated Rs. 2.21 lakh crore for building road and rail infrastructure. (Positive for everyone)
    5) A new amnesty scheme for those holding unaccounted money and assets has been announced. Those declaring undisclosed income under this scheme will have to pay 45 per cent tax. (Negative for honest taxpayers. Also non-starter as nobody is going to pay 45% tax on black money)
    6) some good changes in dispute redressal mechanism in income tax. (positive for taxpayers but negative for CA/Lawyer)
    This budget is good combination of NDA and UPA policies. NDA has adopted AADHAR and MGNREGA with full covictions in this budgets. Trust this will give pro people (marginal population) direction to policies of the government.

  • Vikas ka Budget | Key points from the Ministry of Finance – 2016

    It is true that the Budget could be difficult to understand. Sarkar just made it easier for you to know how your tax-money is being spent. Try evaluating whether your Government is doing enough.

    This time, we were pleasantly surprised to find the lengths to which the Ministry of Finance has gone to make it easier for everyone to understand the Budget.

    What’s in it for me!

    #1. How does it helps a farmer, Khem Lal Khushwaha?

     

    #2. How does it helps a daily wage labourer, Mohan Patel?

     

    #3. How does it helps a student, Shushmita?

     

    There are a few more character sketches and a lot more variations across sectors/ benefits at the Finmin website. Do check out the Vikas ka budget – click here.

    If you have any questions (however basic), feel free to drop them here.

    Source: Finmin.nic.in

  • 9 important takeaways from Union Budget 2016

    The budget focuses its efforts on what needs fixing – the rural distress, the jobs problem, the banking crisis, and infrastructure deficit.

     

    As you prepare for your IAS examination in 2016, keep these recurring themes in mind! Even government is waking up to take them seriously.

    First, the budget sticks to the fiscal deficit roadmap and promises to bring down the deficit to 3.5 percent in 2016-17. Read more on this, click here.

    Second, the corporate sector has been let down, with the promised reduction in corporate taxes restricted to small and new companies. To know all about taxes and ease of doing business, click here.

    Third, the most exciting idea is the introduction of a tax amnesty scheme for domestic black money or undeclared incomes. Black money holders have to pay 45 percent tax – a penalty about 10 percent more than normal – to get immunity from questioning and penal action.

    Read all about black money and the economics around it, click here.

    Fourth, the big numbers are in infrastructure investment. Between railways and roads, both national highways and rural roads, the total investment in 2016-17 will be a massive Rs 2,18,000 crore – this should be a stimulant for jobs and investment. We have been following up developments in this sector for the year round. Click here.

    Fifth, the organised sector is being incentivised to take on more employees with the centre offering to pay the 8.33 percent pension contributions of new employees for three years.

    Sixth, the budget lowers the axe on rich promoters, who have benefited from the fact that dividend tax is paid by companies. They thus got a benefit not intended for the rich. Not any more. Promoters and big shareholders will now face 10 percent additional tax when dividend payments exceed Rs 10 lakh.

    Seventh, the bottom end of the middle class gets some relief. Taxpayers in the sub-Rs 5 lakh income bracket will get a tax rebate of around Rs 3,000. Two crore taxpayers will benefit.

    Eight, there is a strong financial sector angle in the budget. Jaitley has proposed a strong exit policy which will involve legislating the Indian Financial Code, the Bankruptcy Code and quicker disposal of debt recovery cases in debt tribunals.

    Follow up the developments of 2015-16, click here.

    Ninth, the big pitch was to the rural and farm sector. The FM promised Rs 2.87 lakh crore of fiscal transfers to villages, and all villages will be electrified by 2018. This government obviously believes in doing things in mission mode. After Jan Dhan, now it is time for full electrification and taking cooking gas to all rural households.

    Source: SwarajyaMag | Image: India.com

  • International Org. | Part 3 | SCO & India

    This post is a part of an ongoing series to help IAS aspirants prepare for International Relations.

    As of July 2015, India has been accorded full membership of the Shanghai Cooperation Organisation (SCO) along with Pakistan at its Ufa summit held in Russia.

    • SCO is a Eurasian economic, political and military organisation
    • HQ: Beijing, China
    • Established: 2001 in Shanghai by the leaders 6 countries viz. China, Kyrgyzstan, Kazakhstan, Russia, Tajikistan, and Uzbekistan
    • Since 2005, India was having an Observer status of SCO and had applied for full membership in 2014. India would be finally ratified in the member list by 2016

    Connecting the dots with SCO

    Per Chinese and Russian scholars, creation of SCO helped address the security problems and enhance economic cooperation in the Central Asia region. The Western discourse, however, has tended to see the SCO as a mechanism to counter-balance the influence of the United States in the region. Both are correct!

    SCO is considered and tagged as anti-west. Behind the veils, it is alleged that SCO is going to be a NATO like military alliance in East. You might expect a question on that line and be asked to put India’s context in place.

    However, China exaggeratedly says that the SCO was founded on a principle of non-alignment and functions as an effective stabilizer for regional security and peace. China has always maintained that the focus of SCO is on combating the “three evil forces” – terrorism, separatism, and extremism – and other unconventional security menaces.

    Advantage India?

    There are multiple benefits for India as well as the SCO which is concerned with security and stability in the Eurasian space.

    1. India’s presence will help moderate the anti-West bias of the grouping, which will calm Washington’s nerves to a considerable extent
    2. Greater engagement with India will also aid the organisation’s capability to improve regional economic prosperity and security
    3. Membership will give India an opportunity to play an active role in China’s Silk Road initiative which plans to link a new set of routes from the north and east of the country to an old network of routes in the greater Eurasian region.
    4. Indian interest in International North-South Transport Corridor to connect Mumbai with Abbas port in Iran. This route is shorter than the existing Suez Canal and the Mediterranean Sea
    5. SCO may also serve as guarantor for projects such as the Turkmenistan-Afghanistan-Pakistan-India (TAPI) and Iran-Pakistan-India (IPI) pipelines, which are held by India due to security concerns.

    India’s entry is also likely to tip the balance of power in favor of peace and stability in Afghanistan.

    Challenges ahead for SCO?

    It is naive to expect that India’s differences with China regarding the border or its ties with Pakistan will magically disappear. The inclusion of Pakistan in the SCO will also make it difficult for India to enjoy a level playing field.

    Pakistan, which is embroiled in a domestic political crisis, may not be so willing to challenge hardliners in its country, and go along with India in promoting peace and stability in the Eurasian space. We have seen how Indo-Pak presence in SAARC makes it difficult to ink key pacts.

    The clash of interests in a post – 2014 Afghanistan makes prospects of cooperation difficult. There is also a possibility that China may collude with Pakistan to suffocate India’s voice in the decision making process.

    Other than that, India will have to balance the geopolitical ambitions of China and Russia to evolve a mutually beneficial framework.

     

    Further readings:

    SCO becomes a reasonably hot topic post India’s accession to the member status. If you are comfortable with IR, try these articles  –