Author: Explains

Why in News?

In recent times there are various instances of the forest fire in India, which has huge consequences.

Regions where forest fires occur in India

1. The bulk of forest fires in India happens in the tropical dry forests.
2. About 70% of forests in India composed of scrub, grassland, dry and moist deciduous forests.
3. Every year in March, forest fires happen in the dry deciduous forests in India, especially in A.P, M.P, Chhattisgarh, Jharkhand, Karnataka, Maharashtra, Odisha and Assam

Causes of forest fires

Natural causes

1. Temperature, level of moisture in soil and atmosphere, duration of dry spells, lightning, spontaneous combustion and volcanic eruption.
2. The friction of tree branches swaying due to high-velocity wind or rolling stones that causes sparks and ignites fires in leaf litter.

Man-made Causes

1. Arson or open flame, discarded cigarettes, power-line sparks and sparks from equipment.
2. Ignition of wildfires through contact with hot rifle-bullet fragments.
3. It can also be ignited in shifting cultivation areas such as north-eastern regions and eastern coastal regions.
4. It has been estimated that 90% of forest fires in India are man-made, when people enter forests to graze cattle, collect fuelwood, timber and other minor forest produce.

How is policy responsible?

1. The main cause of the forest fire crisis is due to the blanket implementation of no-fire forest policy.
2. This approach of fire protection is not suitable to the ecology of India’s tropical dry forests.
3. For example, the fires in Bandipur Reserve were difficult to control because of sufficient fuel supplied by the invasive species Lantana Camara.
4. The no-fire policy was responsible for the spread of Lantana in the first place.
5. Regular, low-intensity forest fires could have stopped the spread of Lantana in the past.
6. But for now, the future forest fires will be difficult to control until Lantana is physically reduced first.

Consequences

1. Forest fires cause serious health hazards by causing smoke and noxious gases by affecting the local climatic setup.
2. They also result in increased CO2 levels and contribute to climate change.
3. Loss of biodiversity and wildlife habitat affects the ecological setup that may cause problems with other natural resources like drying up of water resources, loss of soil fertility etc.
4. Frequent forest fires in forested areas decrease the natural regeneration capacity of the environment.

Way forward

1. Awareness should be created among the villagers residing near the forests with respect to the long-term ill effects of forest fires.
2. Measures to prevent forest fires have to be taken before summer season when fires are prevalent.
3. Local people should be given skills to use online portals or mobile apps in order to monitor the forests for fires and inform forest authorities regarding the same.
4. The government should make available the alternatives for greener pastures.
5. Village people should have access to employment and sustainable livelihood opportunities through better connectivity and infrastructure.
6. Officers at ground level shall work together with local people to bring a holistic solution

Practice question

1. There are growing instances of frequent fires in the forest regions of India. What do you think are the causes and what measures would you suggest to resolve it?

Why in news?

Recently rupee witnessed a significant depreciation in its value. It’s value against the dollar has fallen by more than 5% since the start of 2018 and the fall is continuing to gain momentum. India is not the only country to face currency depreciation, but also others like Indonesia, Argentina, Mexico, and Turkey.

Causes of depreciation

The U.S. Federal Reserve is expected to tighten its monetary policy stance further through slowing down the growth in U.S. money supply is considered as the main reason. The slowdown in the growth of U.S. money supply affects the value of other currencies in two ways

• 1. Interest rates in the U.S. will begin to rise as the Federal Reserve’s demand for different assets begins to decrease. This causes a rush among investors to sell their assets in other countries and invest the money back in the U.S. where they could earn higher returns. The resultant flow of capital from emerging markets to the U.S. rise the selling pressure on emerging market currencies and buying pressure on the dollar.
  2. When the Fed tightens the money supply, the availability of dollars in the global market begins to decrease which increases the demand for dollars among speculative traders and a decrease in demand for other currencies.

Negative Impacts

1. It keeps the cost of oil imports high. India imports more than 70% of its crude oil requirements. Thus fall in rupee value, means India have to give a higher amount to buy oil from suppliers.
2. Falling rupee increases current account deficit since import expenditure will be higher than export earnings.
3. It will increase inflation in the country since the increase in oil import costs would mean higher fuel costs and it will cause pressure on overall economic activity, thus increasing inflation.
4. The declining rupee would impact corporate revenue due to higher import costs. This would means lower wages or salaries for employees, thus affecting the standard of living.
5. Fall in rupee value will affect the inflow of foreign investments.
6. Importers and oil marketing companies are the biggest losers since they import their main raw material, that is, crude oil.

Positive impacts

1. A cheaper rupee will incentivise Indian companies to export more. It will also help them substitute some of the costlier imported goods in the domestic market with local products. Thus, rupee depreciation can help in developing the manufacturing base of the economy.
2. Travel to India gets cheaper and the tourism industry may benefit from it.
3. Indians working abroad can gain more on remitting money to their family in India. Ultimately, this will result in reducing the current account deficit to an extent.

Way forward

1. To solve the currency problem, Reserve Bank of India (RBI) can influence the value of rupee through effective regulation of money supply through its monetary policy stance.
2. Benchmark interest rate can be used effectively to attract the foreign capital into the country and in result increasing the value of the currency.
3. Direct intervention of RBI in the forex market can also help reduce the selling pressure on the rupee

Practice question

1. What do you understand by the currency depreciation? How does the fall in rupee affect Indian economy? Discuss.

Why in News?

1. Recently, the central government had formed a task force to draft a new Direct Tax law which seeks to replace the existing Income Tax Act, 1961.
2. The Task Force will submit its report to the government on how to fix the more-than-50-year-old Income Tax Act, 1961.

What is the flat tax rate?

It is an income tax system in which everyone pays the same tax rate irrespective of income level. Therefore it is also named as proportional taxation system.

What is the Need?

1. India’s current tax system is progressive in nature, with tax rates going up when the income level goes up. To meet the changing economic needs of the country, and to fix the more than 50-year-old Income Tax Act, 1961 which is not consistent with present times, a flat tax rate system is necessary.
2. To reinstate the Direct Tax Code (DTC) in a new structure.

Arguments in favour

1. A flat tax rate of 12% would be appealing even for low-income people.
2. The compliance rate will increase by eight percentage points to 33%.
3. While simplification and better administration of the law are major reforms that India needs, according to economists, some even suggest going for a flat tax system or lower tax system.
4. The classic case of the flat tax system is of Hong Kong, Russia and New Zealand.

• One of the poorest country during the World War II, Hong Kong adopted a flat tax in 1947 which led to higher compliance and dramatic economic growth.
• Russia adopted a 13% flat tax, which went into effect in 2001 and Russia’s economy has expanded by about 10 percent since then. Russia’s income tax revenue has grown to more than 50% as people found it fair and easier to pay.
• New Zealand is called BBLR — broader bases and lower rates — country. In New Zealand, the tax law experts focus on taking a lot of actions at a low rate, or flat rate and most importantly at the simpler tax code. New Zealand in 1980 did away with deductions and write-offs and instead applied the lowest rates on average workers. With higher compliance, New Zealand is one of the countries with the best income tax practices. Instead of imposing a progressive tax scheme, it gives it as an option for people.

Arguments against

1. India’s current tax system is progressive in nature, with tax rates going up when the income level goes up. India is a democratic country and is expected to invest in social welfare and infrastructure. Hence progressive tax rate is necessary.
2. For a developing country like India, which is in the lower middle-income bracket, a flat tax structure may not be an equitable one. Income inequality in India is one of the highest, with 22 per cent of the national income going to top 1 per cent.
3. Only with a progressive tax system, such wide income inequalities can be addressed. Hence a flat tax system will be regressive, considering India’s current situation.
4. A system prescribing the higher rate of income tax for a higher income group helps garner revenue without becoming burdensome on lower income taxpayers
5. The great success of Russia not just through the imposition of flat tax rate but through several changes in both the structure and the administration of taxes. The reforms widened the tax base by eliminating many exemptions and deductions as well as increasing taxes on capital income.

India’s attempts to impose a flat rate

1. An attempt to redraft the Income Tax Act made by the ex-finance minister P. Chidambaram in 2009 through the Direct Taxes Code (DTC). It proposed a simpler tax code and did away with unnecessary exemptions and created space for lower tax rates. However, the bill lapsed with the dissolution of the 15th Lok Sabha in 2014.
2. The NDA government, since coming to power in 2014, has already implemented general anti-avoidance rules GAAR.
3. In 2016 Finance Minister promised to lower corporate tax rate to 25% in 5 years.
4. Currently, income up to Rs 2.5 lakh per annum is exempt from tax for individuals.

Way forward

Flat income tax rate has many success stories from many countries. Hence it is high time that India also adopts it. However, it should be implemented as a pilot project to monitor various impacts and come up with effective solution to prevent various challenges in the actual implementation. And the government should also ensure that the poor are not affected from this reform.

Practice question

1. What do you understand by the flat income tax rate? Discuss whether implementing a flat income tax rate in a democratic country like India is feasible or not.