Author: CD Staff

Union Minister for Finance recently presented the Economic Survey 2020-21 in the Parliament. The key highlights are as follows:

[1] Saving Lives and Livelihoods amidst a Once-in-a-Century Crisis

• India focused on saving lives and livelihoods by its willingness to take short-term pain for long-term gain, at the onset of the COVID-19 pandemic
• Response stemmed from the humane principle that Human lives lost cannot be brought back
• GDP growth will recover from the temporary shock caused by the pandemic
• An early, intense lockdown provided a win-win strategy to save lives, and preserve livelihoods via economic recovery in the medium to long-term
• The strategy also motivated by the Nobel-Prize winning research by Hansen & Sergeant (2001): a policy focused on minimizing losses in a worst-case scenario when uncertainty is very high.

[2] State of the Economy in 2020-21: A Macro View

Growth and recovery

• COVID-19 pandemic ensued global economic downturn, the most severe one since the Global Financial Crisis
• The lockdowns and social distancing norms brought the already slowing global economy to a standstill
• Global economic output estimated to fall by 3.5% in 2020 (IMF January 2021 estimates)
• India adopted a four-pillar strategy of containment, fiscal, financial, and long-term structural reforms:
• India’s real GDP to record a 11.0% growth in FY2021-22 and nominal GDP to grow by 15.4% – the highest since independence.
• Agriculture set to cushion the shock of the pandemic on the Indian economy in FY21 with a growth of 3.4%
• Industry and services estimated to contract by 9.6% and 8.8% respectively during FY21
• V-shaped recovery is underway, as demonstrated by a sustained resurgence in high frequency indicators such as power demand, e-way bills, GST collection, steel consumption, etc.

External sector

• India remained a preferred investment destination in FY 2020-21 with FDI pouring in amidst global asset shifts towards equities and prospects of quicker recovery in emerging economies:
• Net FPI inflows recorded an all-time monthly high of US$ 9.8 billion in November 2020, as investors’ risk appetite returned

Vaccination boost

• Economy’s homecoming to normalcy brought closer by the initiation of a mega vaccination drive
• India became the fastest country to roll-out 10 lakh vaccines in 6 days and also emerged as a leading supplier of the vaccine to neighbouring countries and Brazil

[3] Does Growth lead to Debt Sustainability? Yes, But Not Vice- Versa!

Growth causes debt to become sustainable in countries with higher growth rates; such clarity about the causal direction is not witnessed in countries with lower growth rates. Fiscal multipliers are disproportionately higher during economic crises than during economic booms. 

Hue over debts

• Growth leads to debt sustainability in the Indian context but not necessarily vice-versa:
• Debt sustainability depends on the ‘Interest Rate Growth Rate Differential’ (IRGD), i.e., the difference between the interest rate and the growth rate
• Negative IRGD in India – not due to lower interest rates but much higher growth rates – prompts a debate on fiscal policy, especially during growth slowdowns and economic crises
• In India, the interest rate on debt is less than the growth rate – by the norm, not by exception

Policy goals

• Active fiscal policy can ensure that the full benefit of reforms is reaped by limiting potential damage to productive capacity
• Fiscal policy that provides an impetus to growth will lead to a lower debt-to-GDP ratio
• Given India’s growth potential, debt sustainability is unlikely to be a problem even in the worst scenarios
• Desirable to use countercyclical fiscal policy to enable growth during economic downturns
• Active, counter-cyclical fiscal policy – not a call for fiscal irresponsibility, but to break the intellectual anchoring that has created an asymmetric bias against fiscal policy

[4] Does India’s Sovereign Credit Rating Reflect Its Fundamentals? No!

• The fifth-largest economy in the world has never been rated as the lowest rung of the investment-grade (BBB-/Baa3) in sovereign credit ratings
• Reflecting the economic size and thereby the ability to repay debt, the fifth-largest economy has been predominantly rated AAA
• China and India are the only exceptions to this rule – China was rated A-/A2 in 2005 and now India is rated BBB-/Baa3

No proper reflection

• India’s sovereign credit ratings do not reflect its fundamentals
• A clear outlier amongst countries rated between A+/A1 and BBB-/Baa3 for S&P/ Moody’s, on several parameters
• Rated significantly lower than mandated by the effect on the sovereign rating of the parameter
• Credit ratings map the probability of default and therefore reflect the willingness and ability of the borrower to meet its obligations
• India’s ability to pay can be gauged by low foreign currency-denominated debt and forex reserves

Transparency is inherent

• India’s fiscal policy reflects Gurudev Rabindranath Tagore’s sentiment of ‘a mind without fear’
• Sovereign credit rating methodology should be made more transparent, less subjective and better attuned to reflect economies’ fundamentals

[5] Inequality and Growth: Conflict or Convergence?

• The relationship between inequality and socio-economic outcomes vis-à-vis economic growth and socio-economic outcomes is different in India from that in advanced economies
• Both inequality and per-capita income (growth) have similar relationships with socio-economic indicators in India, unlike in advanced economies
• Economic growth has a greater impact on poverty alleviation than inequality
• India must continue to focus on economic growth to lift the poor out of poverty
• Expanding the overall pie – redistribution in a developing economy is feasible only if the size of the economic pie grows

[6] Healthcare takes centre stage, finally!

• COVID-19 pandemic emphasized the importance of the healthcare sector and its inter-linkages with other sectors – showcased how a health crisis transformed into an economic and social crisis
• India’s health infrastructure must be agile so as to respond to pandemics – healthcare policy must not become beholden to ‘saliency bias’
• National Health Mission (NHM) played a critical role in mitigating inequity as the access of the poorest to pre-natal/post-natal care and institutional deliveries increased significantly

Reforms are indispensable

• An increase in public healthcare spending from 1% to 2.5-3% of GDP can decrease the out-of-pocket expenditure from 65% to 35% of overall healthcare spending
• Emphasis on NHM in conjunction with Ayushman Bharat should continue.
• Telemedicine needs to be harnessed to the fullest by investing in internet connectivity and health infrastructure

[7] Process Reforms

• India over-regulates the economy resulting in regulations being ineffective even with relatively good compliance with the process        
• The root cause of the problem of over-regulation is an approach that attempts to account for every possible outcome
• Increase in complexity of regulations, intended to reduce discretion, results in even more non-transparent discretion
• The solution is to simplify regulations and invest in greater supervision which, by definition, implies greater discretion
• Discretion, however, needs to be balanced with transparency, systems of ex-ante accountability and ex-post resolution mechanisms
• The above intellectual framework has already informed reforms ranging from labour codes to removal of onerous regulations on the BPO sector

[8] Regulatory Forbearance an emergency medicine, not a staple diet!

• During the Global Financial Crisis, regulatory forbearance helped borrowers tide over temporary hardship
• Forbearance continued long after the economic recovery, resulting in unintended consequences for the economy
• Banks exploited the forbearance window for window-dressing their books and misallocated credit, thereby damaging the quality of investment in the economy
• Forbearance represents emergency medicine that should be discontinued at the first opportunity when the economy exhibits recovery, not a staple diet that gets continued for years

To promote judgement amidst uncertainty, ex-post inquests must recognize the role of hindsight bias and not equate unfavourable outcomes to bad judgement or malafide intent

• An Asset Quality Review exercise must be conducted immediately after the forbearance is withdrawn
• The legal infrastructure for the recovery of loans needs to be strengthened de facto

[9] Innovation: Trending Up but Needs Thrust, Especially from the Private Sector

India entered the top-50 innovating countries for the first time in 2020 since the inception of the Global Innovation Index in 2007, ranking first in Central and South Asia, and third amongst lower-middle-income group economies.

Need for thrust

• India’s gross domestic expenditure on R&D (GERD) is lowest amongst the top ten economies
• India’s aspiration must be to compete on innovation with the top ten economies
• The government sector contributes a disproportionately large share in total GERD at three times the average of the top ten economies
• The business sector’s contribution to GERD, total R&D personnel and researchers is amongst the lowest when compared to the top ten economies
• This situation has prevailed despite higher tax incentives for innovation and access to equity capital
• Indian resident’s share in total patents filed in the country must rise from the current 36% which is much below the average of 62% in the top ten economies

India’s business sector needs to significantly ramp up investments in R&D. For achieving higher improvement in innovation output, India must focus on improving its performance on institutions and business sophistication innovation inputs.

[10] JAY Ho! PM‘JAY’ Adoption and Health outcomes

PM Jan Arogya Yojana (PM-JAY) – the ambitious program launched by Government of India in 2018 to provide healthcare access to the most vulnerable sections demonstrates strong positive effects on healthcare outcomes in a short time.

The impact of PM-JAY on health outcomes by undertaking a Difference-in-Difference analysis based on National Family Health Survey (NFHS)-4 (2015-16) and NFHS-5 (2019-20) is following:

1. Enhanced health insurance coverage: The proportion of households that had health insurance increased in Bihar, Assam and Sikkim from 2015-16 to 2019-20 by 89% while it decreased by 12% over the same period in West Bengal
2. Decline in  Infant Mortality rate: from 2015-16 to 2019-20, infant mortality rates declined by 20% for West Bengal and by 28% for the three neighbouring states
3. Decline in under-5 mortality rate: Bengal saw a fall of 20% while, the neighbours witnessed a 27% reduction
4. Birth Control: Modern methods of contraception, female sterilization and pill usage went up by 36%, 22% and 28% respectively in the three neighbouring states while the respective changes for West Bengal were negligible
5. Low cost care: PM-JAY is being used significantly for high frequency, low cost care such as dialysis and continued during the Covid pandemic and the lockdown.

Overall, the comparison reflects significant improvements in several health outcomes in states that implemented PM-JAY versus those that did not.

[11] Bare Necessities

Access to the ‘bare necessities’ has improved across all States in the country in 2018 as compared to 2012

• It is highest in states such as Kerala, Punjab, Haryana and Gujarat while lowest in Odisha, Jharkhand, West Bengal and Tripura
• Improvement in each of the five dimensions viz., access to water, housing, sanitation, micro-environment and other facilities
• Inter-State disparities declined across rural and urban areas as the laggard states have gained relatively more between 2012 and 2018
• Improved access to the ‘bare necessities’ has led to improvements in health indicators such as infant mortality and under-5 mortality rate and also correlates with future improvements in education indicators.

What next?

• The thrust should be given to reduce variation in the access to bare necessities across states, between rural and urban and between income groups
• The schemes such as Jal Jeevan Mission, SBM-G, PMAY-G, etc. may design an appropriate strategy to reduce these gaps
• A Bare Necessities Index (BNI) based on the large annual household survey data can be constructed using suitable indicators to assess the progress on access to bare necessities.

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References

https://www.indiabudget.gov.in/economicsurvey/

https://pib.gov.in/PressReleseDetail.aspx?PRID=1601273

“Faith is the bird that feels the light and sings when the dawn is still dark.”

– Rabindranath Tagore (quoted by FM in her Budget Speech)

The Union Minister for Finance has finally presented the Union Budget 2021-22 in Parliament, which is the first budget of this new decade and also a digital one in the backdrop of unprecedented COVID-19 crisis.

It was been increasingly seen as a financial vaccine for the infected economy.

Before proceeding with the budget provisions, let’s brush up our basics of what the Union Budget actually is. Refer the following links:

[Prelims Spotlight] Important Keywords Regarding Budget, Fiscal Policy and Taxation

Budgetary procedure in India

Highlights of the 2021 Budget

Rupee Dynamics:

Part: A

The Budget proposals for 2021-22 rest on 6 pillars.

1. Health and Wellbeing
2. Physical & Financial Capital, and Infrastructure
3. Inclusive Development for Aspirational India
4. Reinvigorating Human Capital
5. Innovation and R&D
6. Minimum Government and Maximum Governance

[I]  Health and Wellbeing

• There is substantial increase in investment in Health Infrastructure and the Budget outlay for Health and Wellbeing is Rs 2,23,846 crore in BE 2021-22 as against this year’s BE of Rs 94,452 crore.
• This is an increase of 137 %.

PM Aatmanirbhar Swasth Bharat Yojana

• FM announced this new centrally sponsored scheme, which will be launched with an outlay of about Rs 64, 180 crore over 6 years.
• This will develop capacities of primary, secondary, and tertiary care Health Systems, strengthen existing national institutions, and create new institutions, to cater to detection and cure of new and emerging diseases.
• This will be in addition to the National Health Mission. 

Vaccines

• Provision of Rs 35,000 crore made for Covid-19 vaccine in BE 2021-22.
• The Pneumococcal Vaccine, a Made in India product, presently limited to only 5 states, will be rolled out across the country aimed at averting 50,000 child deaths annually.

Nutrition

• To strengthen nutritional content, delivery, outreach, and outcome, Government will merge the Supplementary Nutrition Programme and the Poshan Abhiyan and launch the Mission Poshan 2.0.
• Government will adopt an intensified strategy to improve nutritional outcomes across 112 Aspirational Districts.

Universal Coverage of Water Supply

• The FM announced that the Jal Jeevan Mission (Urban), will be launched for universal water supply in all Urban Local Bodies with crore household tap connections.

Vehicle scrapping

• A voluntary vehicle scrapping policy to phase out old and unfit vehicles was also announced.
• Fitness tests have been proposed in automated fitness centres after 20 years in case of personal vehicles and after 15 years in case of commercial vehicles

[II] Physical and Financial Capital and Infrastructure

Aatmanirbhar Bharat-Production Linked Incentive Scheme

• FM said that for a USD 5 trillion economy, our manufacturing sector has to grow in double digits on a sustained basis.
• Our manufacturing companies need to become an integral part of global supply chains, possess core competence and cutting-edge technology.
• To achieve all of the above, PLI schemes to create manufacturing global champions for an Aatmanirbhar Bharat have been announced for 13 sectors.

Textiles

• Similarly, to enable the textile industry to become globally competitive, attract large investments and boost employment generation, a scheme of Mega Investment Textiles Parks (MITRA) will be launched in addition to the PLI scheme.
• This will create world class infrastructure with plug and play facilities to enable create global champions in exports. 7 Textile Parks will be established over 3 years.

Infrastructure

• The National Infrastructure Pipeline (NIP) which the FM announced in December 2019 is the first-of-its-kind, whole-of-government exercise ever undertaken.
• The NIP was launched with 6835 projects; the project pipeline has now expanded to 7,400 projects.
• Around 217 projects worth Rs 1.10 lakh crore under some key infrastructure Ministries have been completed.

Infrastructure financing – Development Financial Institution (DFI)

• Dwelling on the infrastructure sector, FM has said that infrastructure needs long term debt financing.
• A professionally managed Development Financial Institution is necessary to act as a provider, enabler and catalyst for infrastructure financing. Accordingly, a Bill to set up a DFI will be introduced.

Asset Monetisation

• Monetizing operating public infrastructure assets is a very important financing option for new infrastructure construction.
• A “National Monetization Pipeline” of potential Brownfield infrastructure assets will be launched.
• An Asset Monetization dashboard will also be created for tracking the progress and to provide visibility to investors.

Roads and Highways Infrastructure

• FM announced that more than 13,000 km length of roads, at a cost of Rs 3.3 lakh crore, has already been awarded under the Rs. 5.35 lakh crore Bharatmala Pariyojana project.
• Of this 3,800 km have been constructed.
• By March 2022, govt. would be awarded another 8,500 km and complete an additional 11,000 km of national highway corridors.
• To further augment road infrastructure, more economic corridors are also being planned.

The states of West Bengal, Tamil Nadu, Kerala, Puducherry and Assam are due to go for Assembly polls by May. So, it is not surprising that budget announcements impacting these states would make headlines.

Railway Infrastructure

• Indian Railways have prepared a National Rail Plan for India – 2030.
• The Plan is to create a ‘future ready’ Railway system by 2030. Bringing down the logistic costs for our industry is at the core of our strategy to enable ‘Make in India’.
• It is expected that Western Dedicated Freight Corridor (DFC) and Eastern DFC will be commissioned by June 2022.

Power Infrastructure

• The past 6 years have seen a number of reforms and achievements in the power sector with the addition of 139 Giga Watts of installed capacity.
• We have almost achieved last mile connectivity, connecting an additional 2.8 crore households and addition of 1.41 lakh circuit km of transmission lines.
• Expressing a serious concern over the viability of Distribution Companies, the FM proposed to launch a revamped reforms-based result-linked power distribution sector scheme.
• The scheme will provide assistance to DISCOMS for Infrastructure creation including pre-paid smart metering and feeder separation, upgradation of systems, etc., tied to financial improvements.

Also read UDAY Scheme

Ports, Shipping, Waterways

• Major Ports will be moving from managing their operational services on their own to a model where a private partner will manage it for them.
• A scheme to promote flagging of merchant ships in India will be launched by providing subsidy support to Indian shipping companies in global tenders floated by Ministries and CPSEs.
• This initiative will enable greater training and employment opportunities for Indian seafarers besides enhancing Indian companies share in global shipping.

Petroleum & Natural Gas

• The government has kept fuel supplies running across the country without interruption during the COVID-19 lockdown period.
• Taking note of the crucial nature of this sector in people’s lives, the following key initiatives are being announced:
• Ujjwala Scheme which has benefited 8 crore households will be extended to cover 1 crore more beneficiaries.
• Government will add 100 more districts in next 3 years to the City Gas Distribution network.
• A gas pipeline project will be taken up in Union Territory of Jammu & Kashmir.
• An independent Gas Transport System Operator will be set up for facilitation and coordination of booking of common carrier capacity in all-natural gas pipelines on a non-discriminatory open access basis.

Financial Capital

• The FM proposed to consolidate the provisions of SEBI Act, 1992, Depositories Act, 1996, Securities Contracts (Regulation) Act, 1956 and Government Securities Act, 2007 into a rationalized single Securities Markets Code.
• The Government would support the development of a world class Fin-Tech hub at the GIFT-IFSC.

Increasing FDI in Insurance Sector

• FM also proposed to amend the Insurance Act, 1938 to increase the permissible FDI limit from 49% to 74% and allow foreign ownership and control with safeguards. 

Disinvestment and Strategic Sale

• In spite of COVID-19, Government has kept working towards strategic disinvestment.
• The FM said a number of transactions namely BPCL, Air India, Shipping Corporation of India, Container Corporation of India, IDBI Bank, BEML, Pawan Hans, Neelachal Ispat Nigam limited among others would be completed in 2021-22.
• Other than IDBI Bank, Government propose to take up the privatization of two Public Sector Banks and one General Insurance company in the year 2021-22.

[III] Inclusive Development

Under the pillar of Inclusive Development for Aspirational India, the Finance Minister announced to cover Agriculture and Allied sectors, farmers’ welfare and rural India, migrant workers and labour, and financial inclusion.

Agriculture

• Dwelling on agriculture, FM has said that the Government is committed to the welfare of farmers.
• The MSP regime has undergone a sea change to assure price that is at least 1.5 times the cost of production across all commodities.
• The procurement has also continued to increase at a steady pace. This has resulted in increase in payment to farmers substantially.

Land ownership and mapping

• Early this year, PM had launched SWAMITVA Scheme.
• Under this, a record of rights is being given to property owners in villages.
• To provide adequate credit to our farmers, the Government has enhanced the agricultural credit target to Rs. 16.5 lakh crore in FY22.

Operation Green Scheme

• In an important announcement to boost value addition in agriculture and allied products and their exports is the scope of ‘Operation Green Scheme’.
• It is presently applicable to tomatoes, onions, and potatoes, will be enlarged to include 22 perishable products.

Fisheries

• FM proposed substantial investments in the development of modern fishing harbours and fish landing centres.
• To start with, 5 major fishing harbours – Kochi, Chennai, Visakhapatnam, Paradip, and Petuaghat – will be developed as hubs of economic activity.

Migrant Workers and Labourers

• Government has launched the One Nation One Ration Card scheme through which beneficiaries can claim their rations anywhere in the country. 
• ONORC plan is under implementation by 32 states and UTs, reaching about 69 crore beneficiaries – that’s a total of 86% beneficiaries covered.
• The remaining 4 states and UTs will be integrated in the next few months.
• Government proposes to conclude a process that began 20 years ago, with the implementation of the 4 labour codes.
• For the first time globally, social security benefits will extend to gig and platform workers.
• Minimum wages will apply to all categories of workers, and they will all be covered by the Employees State Insurance Corporation.
• Women will be allowed to work in all categories and also in the night-shifts with adequate protection.

Financial Inclusion

• To further facilitate credit flow under the scheme of Stand Up India for SCs, STs, and women, the FM proposed to reduce the margin money requirement from 25% to 15% and to also include loans for activities allied to agriculture.
• Moreover, a number of steps were taken to support the MSME sector and in this Budget, the Government has provided Rs. 15,700 crore to this sector – more than double of this year’s BE.

[IV] Reinvigorating Human Capital

Education

• The FM has said that the National Education Policy (NEP) announced recently has had good reception.
• More than 15,000 schools will be qualitatively strengthened to include all components of the National Education Policy.

Welfare of the SCs/STs

• Government has set a target of establishing 750 Eklavya model residential schools in tribal areas with an increase in the unit cost of each such school from Rs. 20 crore to Rs. 38 crore, and for hilly and difficult areas, to Rs. 48 crore.
• Similarly, under the revamped Post Matric Scholarship Scheme for the welfare of SCs will benefit 4 crore SC students till 2026.

[V] Innovation and R&D

Research

• The FM has announced the National Research Foundation and added that the NRF outlay will be of Rs. 50,000 crore, over 5 years.
• It will ensure that the overall research ecosystem of the country is strengthened with focus on identified national-priority thrust areas.

Knowledge

• Government will undertake a new initiative – National Language Translation Mission (NTLM).
• This will enable the wealth of governance-and-policy related knowledge on the Internet being made available in major Indian languages.

Space sector

• The New Space India Limited (NSIL) a PSU under the Department of Space will execute the PSLV-CS51 launch, carrying the Amazonia Satellite from Brazil, along with a few smaller Indian satellites.
• As part of the Gaganyaan mission activities, four Indian astronauts are being trained on Generic Space Flight aspects, in Russia. The first unmanned launch is slated for December 2021.

[VI] Minimum Government, Maximum Governance

• Tribunals: FM proposed to take a number of steps to bring reforms in Tribunals for speedy delivery of justice and proposes to take further measures to rationalized the functioning of Tribunals.
• Healthcare: Government has introduced the National Commission for Allied Healthcare Professionals Bill in Parliament, with a view to ensure transparent and efficient regulation of the 56 allied healthcare professions.
• Census: FM announced that the forthcoming Census could be the first digital census in the history of India and for this monumental and milestone-marking task, Rs. 3,768 crore allocated in the year 2021-2022.

Fiscal health

• On Fiscal position, FM underlined that the pandemic’s impact on the economy resulted in a weak revenue inflow.
• The FM said fiscal deficit in 2020-21 is pegged at 9.5% of GDP and it has been funded through Government borrowings, multilateral borrowings, Small Saving Funds and short term borrowings.
• The govt would need another Rs 80,000 crore for which it would be approaching the markets in these 2 months.

Deficit targets

• The fiscal deficit in BE 2021-2022 is estimated to be 6.8% of GDP. The gross borrowing from the market for the next year would be around 12 lakh crore.
• The FRBM Act mandates fiscal deficit of 3% of GDP to be achieved by 31st March 2020-2021.
• The govt plans to continue the path of fiscal consolidation, and intend to reach a fiscal deficit level below 4.5% of GDP by 2025-2026 with a fairly steady decline over the period.

Fiscal consolidation

• The govt hopes to achieve this by-

 the consolidation by first, increasing the buoyancy of tax revenue through improved compliance, and secondly, by increased receipts from monetisation of assets, including Public Sector Enterprises and land etc.

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Part: B

In Part B of the Budget Speech seeks to further simplify the Tax Administration, Litigation Management and ease the compliance of Direct Tax Administration.  The indirect proposal focuses on custom duty rationalization as well as rationalization of procedures and easing of compliance.

Direct Tax Proposals

• The FM provided relief to senior citizens in filing of income tax returns, reduced time limit for income tax proceedings announced setting up of the Dispute Resolution Committee, , relaxation to NRIs, increase in exemption limit from audit and relief for dividend income.
• FM also announced steps to attract foreign investment into infrastructure, relief to affordable housing and rental housing, tax incentives to IFSC, relief to small charitable trusts, and steps for incentivizing Start-ups in the country.
• The Budget proposes to make dividend payment to REIT/InvIT exempt from TDS.
• Stating the resolve of the Government to reduce litigation in the taxation system, the FM said that the Direct Tax Vivad se Vishwas Scheme announced by the Government has been received well.
• In order to allow funding of infrastructure by issue of zero coupon bonds, the Budget proposes to make notified infrastructure debt funds eligible to raise funds by issuing tax efficient zero coupon bonds.

Indirect Tax Proposals

• On the issue of Indirect Tax proposals, the Minister said that record GST collections have been made in the last few months.
• She said several measures have been taken to further simplify the GST.
• The capacity of GSTN system has been announced. Deep analytics and artificial intelligence have been deployed to identity tax evaders and fake billers, launching special drives against them.
• With respect to the custom duty policy, the FM has said that it has the twin objectives of promoting domestic manufacturing and helping India get on to global value change and export better.

Export promotion

• The Budget proposes certain changes to benefit MSMEs which include increasing duty on steel screws, plastic builder wares and prawn feed.
• It also provide for rationalizing exemption on import of duty free items as an incentives to exporters of garments leather and handicraft items.
• It also provides withdrawing exemption on imports of certain kind of leather and raising custom duty on finished synthetic gem stones.
• To benefit farmers, the FM announced raising custom duty on cotton, raw silk and silk yarn.
• She also proposed an Agriculture Infrastructure and Development Cess on a small number of items.
• The Minister said that the Turant Custom Initiative rolled out in 2020 has helped in putting a check of misuse of Free Trade Agreements.

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Other Highlights of Budget Speech

Achievements and Milestones during the COVID-19 pandemic-

Pradhan Mantri Garib Kalyan Yojana (PMGKY)

• Valued at Rs. 2.76 lakh crore
• Free food grain to 80 crore people
• Free cooking gas for 8 crore families
• Direct cash to over 40 crore farmers, women, elderly, the poor and the needy

Aatmanirbhar Bharat package (ANB 1.0)

• Estimated at Rs. 23 lakh crore – more than 10% of GDP
• PMGKY, three ANB packages (ANB 1.0, 2.0, and 3.0), and announcements made later were like 5 mini-budgets in themselves
• Rs. 27.1 lakh crore worth of financial impact of all three ANB packages including RBI’s measures – amounting to more than 13% of GDP

Status of India’s fight against COVID-19

• 2 Made-in-India vaccines – medically safeguarding citizens of India and those of 100-plus countries against COVID-19
• 2 or more new vaccines expected soon
• Lowest death rate per million and the lowest active cases

2021 – Year of milestones for Indian history

• 75th year of India’s independence
• 60 years of Goa’s accession to India
• 50 years of the 1971 India-Pakistan War
• Year of the 8th Census of Independent India
• India’s turn at the BRICS Presidency
• Year for Chandrayaan-3 Mission
• Haridwar Maha-Kumbh

Vision for Aatmanirbhar Bharat

• Atmanirbharta – not a new idea – ancient India was self-reliant and a business epicentre of the world
• AtmaNirbhar Bharat – an expression of 130 crore Indians who have full confidence in their capabilities and skills

    Strengthening the Sankalp of:

• Nation First
• Doubling Farmer’s Income
• Strong Infrastructure
• Healthy India
• Good Governance
• Opportunities for Youth
• Education for All
• Women Empowerment
• Inclusive Development

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Reading the budget

• The Budget, at its simplest, is the government’s tentative income and expenditure statement. Like all financial statements, the devil lies in the fine print.
• At its broadest, the Budget is a pious statement of the government’s policy and ideological intentions.
• It is also the government’s statement of how it seeks to tackle the immediate political (electoral) and economic challenges.
• Hence, any quick assessment of the Budget has to be preliminary.

An act of balancing

• The Union Budget 2021-22 is focused on the revival of economic growth and takes cognizance of the need for higher allocation for Covid-19 vaccine development and distribution.
• The expansionary nature of the Budget was the need of the hour and comes along with a roadmap for fiscal consolidation.
• Higher allocation to capital expenditure should support growth revival and job creation.
• All in all, the Budget addresses key issues facing the Indian economy and does the balancing act required in these unusual times.

Few hits to count

• The government gave proper attention to fiscal sustainability while increasing the size of the Budget.
• The budget follows a series of measures as part of the AtmaNirbhar Bharat packages over the last 10 months, which she said, added up to Rs 27.1 lakh crore or 13 per cent of GDP.
• The FM in his speech has accepted the recommendations of the Fifteenth Finance Commission that 41 per cent of net Union tax proceeds be shared with states, and 1 per cent for the UTs of J7K, and Ladakh.
• The spending push is directed towards infrastructure sectors including roads and highways, railways, textiles, metro trains, health and water supply.
• A much-awaited scrapping policy for personal and commercial vehicles is also expected to boost demand for automobiles.
• The budget puts in place an institutional structure – a bad bank and a developmental financial institution (DFI) – that will enable low-cost funds for infrastructure investments.
• What really caught the attention of FIIs tracking the Indian economy was the decision to hike the FDI limit in the insurance sector to 74 per cent from 49 per cent now.
• Budget speech nods for a policy of strategic disinvestment of PSUs barring a bare minimum in four key strategic sectors: from transport and telecom to defence, atomic energy, power, coal, banking and insurance.

Major misses:

Job losses ignored

• The novel coronavirus pandemic and the resultant lockdown led to massive job and livelihood losses.
• Unlike most advanced countries and emerging market economies, India’s response to address the distress of the masses has been meagre.

Extreme spendings

• With its fiscal deficit at 9.5% of GDP for FY21 and 6.8% in FY22 Budget for 2021-22 seems to signal “spend like there is no tomorrow”.
• For well over a decade-and-a-half, we have tried attaining deficit targets (3%) set out in the Fiscal Responsibility and Budget Management (FRBM) Act (2003).

A mirage for farmers

• The Finance Minister has rightly drawn attention to the fact that the purchases under the MSP Programme have increased 1.5 times between 2013-4 and 2019-20.
• Thus, the “true” increase in the purchase price was a meagre 19 %in six years.
• Even this does not translate into a 19 % increase in incomes of the farmer because the costs of inputs such as diesel, labour and seeds have also gone up.

High on agri-subsidies

• From a policy perspective, one must point to the huge bias towards subsidies as compared to investments, especially research and development.
• India spends not even half of what a private global company like Bayer spends on agri-R&D — almost Rs 20,000 crore every year.
• The expenditure on agri-R&D needs to be doubled or even tripled in the next three years if growth in agriculture has to provide food security at a national level and subsidies on food and fertilizers need to be contained.

No tax relief

• Even though the revenue position of the government was tight going into the budget, it must be noted that citizens have also been waiting for a tax exemption relief since 2014.
• But only compliance issues were dealt with in the budget besides giving tax relief to those above 75 years of age.

Environment less in focus

• The budget announces good initiatives like a mission on hydrogen energy, a vehicle scrapping policy and reducing allocation to coal exploration.
• However, reducing the budget for autonomous institutes under the union environment ministry amounts to a symbolic message that when cash strapped environment takes a back seat.

This January 20^th officially marked the end of the Trump era in US politics as Joe Biden took over from him to become the 46th president of the United States of America. This major event is seen worldwide as undoing or a reset of American regressive protectionist policies and moves by Donald Trump.

The world has been waiting for the day to unfold the broad contours of the policy on globalization and international relations. Most expect a return to the pre-Trump era with the US playing a more active role in world dynamics.

India welcomes Biden

PM Modi has personally congratulated Biden on his success and used the occasion to emphasize on the importance of strategic partnership between the two countries.  There is no doubt that the change of regime in the US will not affect the time-tested foundations of this friendship that were in fact laid with Obama administration declaring India as a major defense partner of the U.S.

But much water has flown down the bridge since the time of Obama-Biden rule in the US after Trump.

Lets’ have a look over recent developments in India-US ties:

India’s relationship with the US has been largely confined only on strategic terms and the ties have been unusually constructive under Trump administration.

In the strategic domain, this included, the finalization of many agreements and ministerial and QUAD meets among others.

• India and the United States have recently signed the Basic Exchange and Cooperation Agreement (BECA).
• The two agreements signed earlier are— the Logistics Exchange Memorandum of Agreement (LEMOA) and the Communications Compatibility and Security Agreement (COMCASA).
• American lawmakers had introduced key legislation called HR 2123 which seeks to advance the US-India strategic relationship.
• The legislation would ensure that the US State Department treats India as a “NATO ally” for the purposes of the Arms Export Control Act.

Challenges before the new regime

President Joe Biden faces a slew of important foreign policy challenges some of which include:

(A) Climate change

• Joe Biden has warned the climate crisis poses an “existential threat” to the world as he unveiled a radical change in direction from the Trump era by halting fossil fuel activity on public lands.
• He reaffirmed US commitment for Paris Agreement.
• Biden said he will host an early Leaders’ Climate Summit aimed at raising climate ambition and making a positive contribution to the COP26 and beyond.

(B) China’s expansionism

• The coalition against China is likely to persist and ties with India and other Pacific nations, including Japan and Australia, may be further boosted.
• Ties with Beijing were remarkably tense during the Trump administration.
• The newly administered pentagon has continued Trumps legacy against China’s expansionist moves in the South East Asia.

(C) Pakistan and terror

• The Biden administration considers Pakistan a “major non-NATO ally,” a status bestowed upon only seventeen countries that facilitate military trade and cooperation.
• However, in reality, Pakistan has not acted as an ally ever. The listing of Pakistan in FATF ‘Grey List’ clearly indicates its ambiguous policies.
• It is against this backdrop that new US president Joe Biden must now confront the Pakistan test of appeasement of the new regime.

(Lets’ not get into what the US prospect plans are with the Russia, Taliban and Afghanistan.)

India’s expectations from the new regime

• The US and India see each other as key strategic partners and analysts expect Indo-US relations to be less strained.
• The major change India is hoping for is in terms of—software exports, H1 visa policy, minimum compensation for engineers via which Trump tried discouraging hiring Indian IT professionals.
• Of late, the US was seen pressurizing India on its Agri subsidy policy, for which, there may not be a major shift, but it might be easier to deal with the new regime.

Defense priorities

• The new administration under Biden has iterated that India is ‘bipartisan success story’, and made it clear that strategic ties with India will remain strong, especially on the Indo-Pacific.
• It ensured continuity from the Trump administration in dealing with China’s aggressive actions.

India’s concerns remain

South Asia does not seem to be a priority operational theatre for the new US administration. The Indian apprehension with regard to the Biden liberal administration seems to be a hard-press on various issues like:

(A) Policies toward China and Pakistan

• This could disrupt India’s current strategy. Whatever the complications for the US, Trump’s strident opposition toward China served Indian interests well.
• India could avoid balancing against China and, until the recent troubles on the border, could actually entertain cooperation with Beijing.
• India thus enjoyed the best of both worlds: limiting China’s opposition toward itself while having its rival constrained by American hostility.

(B) Trade disputes

• India seeks reinstatement of its privileged access as a developing country to the U.S. market.
• Trump abolished this benefit and Biden may not restore it without greater U.S. access to the Indian market in return—exactly when New Delhi itself has become more Atmanirbhar.
• More liberal U.S. visa policies for Indian professionals could take the sting out of these trade problems.

(C) Look-out policies

• Excepting its adversaries, the United States did not care much about what happened inside other countries in the areas of human rights, religious freedoms, and democratic practices.
• A Biden administration would likely be different, bringing domestic Indian political developments under greater U.S. scrutiny and possibly pushback.
• This could invite undue interference on Kashmir matters as well.

(C) Iran

• To be a friend of Iran and the US at the same time is getting more and more difficult day by day.
• New Delhi may have to face a disappointment with Washington to continue its oil imports from Iran
• After all, India needs Iran because of Chabahar and Afghanistan — where the American withdrawal is another bone of contention.

Why does this regime change impacts India?

(A) Support against terrorism

• This intense engagement has helped achieve robust support from the US against terrorism.
• This was evident after the Pulwama attack last year, leading to designation of Jaish-e-Mohammed chief Masood Azhar as a global terrorist under UN Security Council Resolution 1267, and the placing of Pakistan on the grey-list of the FATF.

(B) Defence ties

• For India, its relationship with the US on defence issues has strengthened. India has procured over $18 billion worth of defence items from the US, almost half of this in the last five years.
• India conducts more bilateral exercises with the US than with any other country.

(C) Energy

• The other area where the relationship has grown in recent years is energy.
• The bilateral Strategic Energy Partnership was launched in April 2018; India has started importing crude and LNG from the US from 2017 and 2018 respectively.
• The total imports are estimated at $6.7 billion — having grown from zero.

(D) Trade

• In the backdrop of the global economic slowdown, where India’s global exports have fallen consistently, it is important for the country to diversify and strengthen bilateral relations with other markets.
• It has set its sights on “large developed markets”, improved access to which would help its industry and services sectors.
• These include the US, which has, over the last two decades, become a crucial trading partner in terms of both goods and services.

US has no alternatives to India

(A) India as an open data market

• India is, after all, the largest open data market in the universe. Per capita, more data is consumed in India than anywhere else in the world.
• For American “big tech” firms, India provides a scale for their products unavailable in any other country.
• Despite current economic woes, this will continue to be the largest growing and relatively open consumer market for American products and business.

(B) Indian-Americans

• About 4.5 million people of Indian origin live in the US today, but despite their relatively small numbers, Indian Americans are a growing political force in the country.
• Trump and even Biden has sought to court the Indian-American vote in the run-up to the 2020 election.

(C) India as a defence partner

• India is also a large arms importer.
• Defence trade is widely seen as the silver lining in this relationship – US-India defence deals have ballooned in the past decade, from nearly zero in 2008 to a little more than $15bn in 2019.

(D) Solution to China’s hegemony

• On the trade front, India can be an effective supplier rather than being an outsourcing hub if compared to China.
• Strategically also, the U.S. views India as a platform to contain China’s hegemony in the Indo-Pacific.
• India sees it as an opportunity for economic expansion, with the U.S. being an equal partner.

Way forward

• There are rising concerns in the US about India’s fiscal limitations, its ties with Russia, its ponderous response to a pattern of Chinese provocations on its border, and its drift toward illiberal politics.
• The current state of play suggests that the two countries might come at a crossroads.
• India should be prepared to face a situation where Biden presidency is fully geared to deal with Chinese aggressiveness in the Indo-Pacific region militarily through QUAD.
• India has to continue building its defence forces to counter any joint mischief by Pakistan and China on our borders even as our military-level talks with China for disengagement on LAC in Ladakh are kept up.
• Also, India has to use all international forums to warn the democratic world against the grave threat of terrorism that it faces on account of the spread of radicalization.

Conclusion

• President Trump would be remembered for breaking from the traditional polity to confront the new challenges of the present, for shifting the focus from international politics to the domestic situation.
• As usual, India cheers the inevitable strong support by the US on multiple fronts discussed above.  
• However, India needs to keep the new US regime on its side for strategic and security reasons.
• Till then, India should keenly watch Joe Biden unfold his foreign policy agenda.

As the world’s economy transitions into one where economic value is created by bringing about disruption, and consequently behavioural change, governments know they have to create ample runway space for startups to take off.

With that in mind, five years ago, the central government took this into consideration and launched the Startup India Scheme on January 16, 2016, to give new firms, particularly in the Micro, Small and Medium Enterprises (MSME) sector a boost.

What are Startups?

• A startup or start-up is a company or project undertaken by an entrepreneur to seek, develop, and validate a scalable economic model.
• While entrepreneurship refers to all new businesses, including self-employment and businesses that never intend to become registered, startups refer to new businesses that intend to grow large beyond the solo founder.
• At the beginning, startups face high uncertainty and have high rates of failure, but a minority of them does go on to be successful and influential.  Some startups become unicorns.

Why do we need start-ups?

Start-ups make an indispensable contribution in the economic growth of a nation.

(1) Employment Generation

Entrepreneurship creates more avenues for new job in the economy. This would help harness the readily available employment in our country. This mission will reduce the burden from service and agricultural sector and enables condition of balance in economy.

(2) Creation of Wealth

Since entrepreneurs are attracting investors by investing their own resources, the people of the nation would get benefit when startups grow. Since the money is sharing with the society, wealth is creating within the nation.

(3) Better standard of living

Startups can implement innovations and technologies to improve the living of people. There are many startups who are working for rural areas to develop the community.

(4) Economic growth

GDP plays a vital role in enhancing the economic growth of a country. By supporting and encouraging more startups, it is possible to generate more revenue domestically and consumer’s capital will also flow around the Indian economy.

(5) Source for FDI

It has been noted that in recent years, the volume of foreign investments made in the Indian startup is quite huge. The foreign investments in the startups act as an easy capital raise and technological investment for the startups which makes them readily accept the investments coming towards them.

(6) Culture of Entrepreneurship

Startups encourage a culture of entrepreneurship and innovation which leads to create new job opportunities and provide support to the economy. Success stories motivate talented youth to start their own ventures and help them to become a job provider instead of a job seeker.

(7) Advancement in technology

Startups are more focused on new technologies and cutting-edge innovation. Free from a multilayered corporate bureaucracy, startups are more agile and able to build an idea into a product and improve it upon consumer demand with faster decision-making communications.

Startup India Scheme

• Startup India is an initiative of the Government of India.
• The campaign was first announced by PM Modi during his speech on 15 August 2015 address from the Red Fort.
• The action plan for this initiative is focusing on three areas:
• Simplification and Handholding.
• Funding Support and Incentives.
• Industry-Academia Partnership and Incubation.
• An additional area relating to this initiative is to discard restrictive States Government policies within this domain, such as License Raj, Land Permissions, Foreign Investment Proposals, and Environmental Clearances.
• It was organized by the Department for promotion of industry and internal trade (DPI&IT).

An evaluation of the Scheme

(A) Successes

• Investment: $63 Bn has been invested in Indian startups in the last five years. The Indian tech startups rose about $13.5 Bn in funding across 885 deals in 2017, which is the peak year in terms of funding in the past five years.
• Growth: From 29K startups in 2014, the numbers grew exponentially from 2015-2018 to touch 55K in 2020. Between 2016 and August 2020, Startup India programme says it has recognised over 34.8K startups. 
• IPRs: Among these, 8.3K startups received intellectual property rights (IPR) fee benefits, while over 2.6 lakh people enrolled in the entrepreneurship-focused learning courses.
• Gender inclusion: In terms of gender diversity across workspaces in India, just 9% of the board members of the top 20 unicorn startups in India are women.

(B) Failures

• Clearances: The Startup India scheme had received around 1368 applications by mid-December last year out of which DPIIT has only accepted 502 application forms and recognized them as ‘startups’.
• Delay: The delay and lack of efficiency is a cause for the startup plan to fail in some cases.
• Funding: The concerns of domestic angel and VCs on capital gains tax remain largely unaddressed.
• EODB issues: Venture capital firms and angel investors are more cautious while investing in Indian startups. It is because the conditions, the ease of capital flow and doing business are not stable enough.

Some lacunae of the scheme

• Definitional issues: The scheme is criticized by professionals because of the definition of Start-up provided in the scheme. The definition states that a mere act of developing products or services that do not have the potential for commercialization or have no or limited incremental value for customers would not be a start-up.
• Test of ‘Innovation’: Each startup is scrutinized by an Inter-Ministerial Board (IMB) to see if the startup is ‘innovative’ – i.e. if it is unique or a world first. Most of the start-ups would lie outside the purview of this definition.
• Red tapism: Further eligibility of start-up, lies under definition or not, shall be approved or certified by an inter-ministerial board which is a retrograde step and against the government policy of ‘Min Government Max Governance’.
• Taxation mirage: A tax break of three years has been given in the scheme. Anyone who has business sense knows that only a few of start-ups will be profitable in the first three years and so this handful can avail them of the tax break.
• Patenting terms: The other option for startups to get tax benefits is to get a patent. And we all know that it takes several years to register a patent in India, and if royalty profits accrue before then, the tax benefits will be denied.

Inherent challenges to Start-ups in India

• Financial scarcity: Availability of finance is critical for the startups and is always a problem to get sufficient amounts.
• Lack of Infrastructure: There is a lack of support mechanisms that play a significant role in the lifecycle of startups which include incubators, science and technology parks, business development centers etc.
• Regulatory bottlenecks: Starting and exiting a business requires a number of permissions from government agencies. Although there is a perceptible change, it is still a challenge to register a company and exiting it.
• Compliance hurdles: For example earlier Angel tax, which stands removed no, falls under corruption and bureaucratic inefficiencies as it takes the focus of entrepreneurs away from building a product or service to responding to tax notices and filing appeals.
• Low success rate: Several startups fail due to poor revenue generation as the business grows. As the operations increase, expenses grow with reduced revenues forcing startups to concentrate on the funding aspect, thus, diluting the focus on the fundamentals of business.
• Lack of an Innovative Business Model: To be successful a startup must be innovative. Unfortunately, Indian startups are less innovative than startups elsewhere. Many Indian startups don’t have an original business idea that is disruptive and by which consumers will be provided with better service.
• Non-competitive Indian Markets: Too many startups serving too few consumers are saturating the Indian market.  Most startups serve the fraction of Indians who live in urban India. The majority of Indians who live in rural areas and small towns remain untouched by most startups.

Various initiatives by the Govt.

There are numerous government initiatives to assist start-ups,

• MUDRA Scheme: Through this scheme, start-ups get loans from the banks to set up, grow and stabilize their businesses.
• SETU (Self-Employment and Talent Utilization) Fund: Government has allotted Rs 1,000 Cr in order to create opportunities for self-employment and new jobs mainly in technology-driven domains.
• E-Biz Portal: Government launched e-biz portal, India’s first government to business portal that integrates 14 regulatory permissions and licenses at one source to enable faster clearances and improve the ease of doing business in India.
• Credit Guarantee Fund: launched by the GoI to make available collateral-free credit to the micro and small enterprise sector. Both the existing and the new enterprises are eligible to be covered under the scheme.
• Fund of Funds for Start-ups (FFS): 10,000 Rs corpus fund established in line with the Start-up India action plan under Small Industries Development Bank of India (SIDBI) for extending support to Start-ups.
• Tax Sops: Tax exemption on Capital gain tax, Removal of Angel tax, Tax exemption for 3 years and Tax exemption in investment above Fair Market Value.

Entrepreneurship today is ‘survival driven’ self-employment, formed out of necessity, as well as opportunity motivated, largely because poverty and lack of formal employment opportunities rear its ugly head in striving economies.

Way Forward

The best of the Indian startup ecosystem still lies ahead.

• There is a need for policies and progressive strategies from governments to encourage startups and provide access and assistance in key areas including tax clarity, incubation, affordability and licensing.
• In any case, governments should be well prepared and dedicated to creating a culture of startups to impact the entrepreneurial ecosystem in their cities, countries and citizens.
• Innovation and economic growth depend on being able to produce excellent individuals with the right skills and attitudes to be entrepreneurial in their professional lives.
• It is critical, therefore, that nations set out to develop entrepreneurial skills, attitudes and behaviour in the school systems at all levels as a part of the lifelong learning process.
• To produce effective entrepreneurs who can initiate change, governments need to cut ‘red tape’ and streamline regulations.
• Funding, another daunting and difficult challenge, has to be resolved at earliest with liberal funding mechanisms.
• Apart from all these concerns, Start-up India has potential to solve India’s problems and create jobs. Nonetheless, the challenges and changes are not to be dreaded but defeated.

Conclusion

• The current economic scenario in India is in expansion mode.  Indian Startups are now spread across the length and breadth of the entire country.
• The Indian government’s policies like Make in India, Digital India, Atmanirbhar etc. shows the enthusiasm of centre to imbibe reforms.
• With the government going full hog on Startups, it could arrest the brain drain.
• Efforts are being made by diverse stakeholders in the Indian startup ecosystem to elevate domestic policies in concurrence with global trends.

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References

RSTV

https://www.desientrepreneurs.com/importance-of-startups/

https://inc42.com/features/startupindia-at-5-the-defining-moments-from-indias-startup-ecosystem-in-the-last-5-years/

https://www.financialexpress.com/industry/sme/cafe-sme/startup-india-how-entrepreneurs-can-realise-full-potential-of-govts-scheme-remain-competitive/1907610/

https://www.theweek.in/news/biz-tech/2019/01/03/Corruption-securing-funds-key-challenges-for-startups-in-2019-Report.html

https://timesofindia.indiatimes.com/blogs/yankeedoodle/why-startup-india-has-failed-how-to-fix-it/

India battles on multi-layered fronts to counter cross-border terrorism.

Our security forces are constantly engaged in creating an environment of security in the country.  They have been quite successful in diagnosing and executing them.

The airstrike after the Pulwama attack and the earlier surgical strike made clear the zero-tolerance policy of India towards terrorism.

Context

• International terrorism is one of the most serious threats to international peace and security.
• Highlighting yet again the issue of terror at the UN, India has said terror has become a “means of waging war” and requires “global action”.

Why in news?

• Foreign Minister S Jaishankar has recently addressed the United National Security Council (UNSC) open debate over ’20 years after the adoption of resolution 1373’ on combating terrorism.
• Describing terrorism as the greatest threat to mankind, he had proposed an eight-point action plan at the UNSC to ensure effective action against the menace of terrorism.

What is Resolution 1373?

• The Security Council Resolution 1373, adopted unanimously on 28 September 2001, is a counter-terrorism measure passed following the 9-11 terrorist attacks on the United States.
• The resolution was adopted under Chapter VII of the United Nations Charter and is therefore binding on all UN member states.

Major provisions of the resolution

• The resolution aimed to hinder terrorist groups in various ways. 
• UN member states were encouraged to share their intelligence on terrorist groups in order to assist in combating international terrorism.
• The resolution also calls on all states to adjust their national laws so that they can ratify all of the existing international conventions on terrorism.
• It stated that all States “should also ensure that terrorist acts are established as serious criminal offences in domestic laws and regulations and that the seriousness of such acts is duly reflected in sentences served.”

How Terrorism has become a global issue?

• The rise of ISIS and the growing problem of foreign fighters have led, in recent years, to some wider acknowledgment that terrorism is a global catastrophe.
• 9/11, 26/11, Christchurch terror attacks have transformed the global belief of terrorism being a local problem.

Impacts of Terrorism

(1) Economic impacts

Terrorism also thwarts economic growth indirectly by affecting macroeconomic variables, e.g., by reducing FDI, lessening domestic investment, increasing inflation, increasing non-development government expenditures (law and order and Security), damaging stock markets, and increasing unemployment, among others.

(2) Political impacts: A Terror incident shakes the very foundation of a legitimate government and its establishments on moral grounds of accountability (for intelligence failure to avert terror incidences). This results in political instability.

(3) Socio-cultural impacts: Terrorism is often associated with a particular religion or ethnicity. This often leads to paranoia towards a religion leading to communal tensions. Multi-diverse countries like India are the worst hit.

(4) Loss of Life & Property

This is the main impact of a terrorist event. But as we know, casualties are not the only way terrorists can achieve their goals. When people stop leaving their homes and carrying out their lives as normal due to real or perceived terrorist threats, businesses see the impact on their bottom line.

The 8-Point Action Plan

In a first intervention since India joined the UNSC as a temporary member on 1 January 2021, S. Jaishankar had put forward an eight-point action plan as part of his zero-tolerance policy for terrorism, saying there are “no good and bad terrorists” and there should be “no ifs and buts” around terrorist activities.

1. Summon the political will to combat terrorism.

Nor should we allow terrorism to be justified and terrorists glorified. All member states must fulfill their obligations enshrined in international counter-terrorism instruments and conventions.

2. Do not countenance double standards in this battle.

Terrorists are terrorists; there are no good and bad ones. Those who propagate this distinction have an agenda. And those who cover up for them are just as culpable.

3. Reform the working methods

Reform the working methods dealing with sanctions and counter-terrorism. The practice of placing blocks and holds on listing requests without any rhyme or reason must end.

4. Firmly discourage exclusivist thinking that divides the world and harms our social fabric.

Such approaches facilitate radicalization and recruitment by breeding fear, mistrust, and hatred among different communities. The UNSC should be on guard against new terminologies and misleading priorities that can dilute our focus.

5. Enlisting and delisting

Enlisting and delisting individuals and entities under the UN sanctions regimes must be done objectively, not for political or religious considerations.

6. Curbing terror linkages

Linkages between terrorism and transnational organized crime must be fully recognized and addressed vigorously.

7. Combating terrorist financing

It will only be as effective as the weakest jurisdiction. The Financial Action Task Force (FATF) should continue to identify and remedy weaknesses in anti-money laundering and counter-terror financing frameworks. Enhanced UN coordination with FATF can make a huge difference.

8. Adequate funding

Adequate funding to UN Counter-Terrorism bodies from the UN regular budget requires immediate attention. The forthcoming 7th review of the UN’s Global Counter-Terrorism Strategy offers an important occasion to strengthen measures to prevent and combat terrorism and building capacities of member states.

Global facets of Terrorism

Terrorism is the calculated use of violence to create a general climate of fear in a population and thereby to bring about a particular political or social objective.

It has been practiced by political organizations with both rightist and leftist objectives, by nationalistic and religious groups, by revolutionaries, and even by state institutions such as armies, intelligence services, and police.

Various attempts have been made to distinguish among types of terrorist activities. In general, there are three basic facets of terrorism – international terrorism, domestic terrorism and transnational terrorism.

We need to be familiar with these five types of terrorism:

• State-Sponsored terrorism, which consists of terrorist acts on a state or government by a state or government.
• Dissent terrorism, which are terrorist groups which have rebelled against their government.
• Terrorists and the Left and Right, which are groups rooted in political ideology.
• Religious terrorism, which are terrorist groups which are extremely religiously motivated and
• Criminal Terrorism, which are terrorists acts used to aid in crime and criminal profit.

Terror tactics these days are more modernizing through new technologies such as:

Bio-terrorism: It is the intentional release of biological agents to cause illness or death in humans, animals, or plants. These agents may be bacteria, fungi, toxins, or viruses. They may be naturally occurring or human-modified.

Cyber-terrorism: It is the convergence of cyberspace and terrorism. It refers to unlawful attacks and threats of attacks against computers, networks, and the information stored therein when done to intimidate or coerce a government or its people in furtherance of political or social objectives.

Why do people resort to terrorism?

Individuals and groups choose terrorism as a tactic because it can:

• Act as a form of asymmetric warfare in order to directly force a government to agree to demands
• Get attention and thus political support for a cause
• Directly inspire more people to the cause (such as revolutionary acts) – propaganda of the religion/separatism
• Indirectly inspire more people to the cause by provoking a hostile response or over-reaction from enemies to the cause

Somewhere in the roots of domestic terrorism, socio-cultural deprivation remains the prime mover.

Terrorism in India

Following are the types of terrorism which threatens India’s security and internal peace and tranquility.

1. Ethnic terrorism
2. Religious terrorism
3. Ideological terrorism

Ethnic Terrorism: Terrorism based on an identity crisis, resource crisis, and cultural imperialism among various ethnic groups is called ethnic terrorism. It is spread in the northeast region of India.

Religious terrorism: The systematic violence propagated based on religion is called religious terrorism. The feeling of religious superiority is at the root of this terrorism. Religious terrorism in modern times is considered terrorism.

Ideological terrorism: If the purpose of planned violence is motivated by communist elements, it is called Left Terrorism or Naxalism/Maoism.

The UN and its handling of Terrorism

The UN’s counter-terrorism work in recent years can be organized under three headings:

First, a norm-setting role that includes-

• the development and promotion of a Global Counter-Terrorism Strategy and efforts to counter violent extremism,
• a set of international conventions, and
• far-reaching UNSC  resolutions imposing counter-terrorism obligations on member states;

Second, capacity-building activities to help countries meet some obligations (through FATF and all) and

Third, Security Council-mandated sanctions, in the 1990s, against state sponsors of terrorism, and since 9/11 against hundreds of individuals and entities affiliated with Al Qaida.

The UN has accumulated ample experience and a proven record of success in its efforts to end civil wars over the past two and a half decades.

However, serious questions arise regarding the preparedness of the UN’s conflict management tools, in particular its peace operations, to deliver mandates in countries affected by terrorist insurgencies, such as Afghanistan, Iraq, Libya, Syria, Somalia, Yemen and Lebanon.

Limitations to the UN

The U.N. is too political, too uncoordinated, too focused on process rather than outcomes and follow-up, and too far removed from the people who actually deal with the problems of terrorism.

• Invocation of a “war on terrorism” and adoption of reflexive security measures renders very serious pressure on any organization such as the UN.
• As an intergovernmental organization catering to the needs and driven by the interests of national governments, the UN is constitutionally ill-equipped to implement counter-terror measures.
• The UN’s comparative advantage may thus lie in supporting and mobilizing funding for networks that would allow for the sharing of best practices among such local actors.

Need for a global action

A high-level review of UN peace operations concluded in 2015 that the UN peacekeeping missions, due to their composition and character, are not suited to engage in counter-terrorism operations. This is mainly because-

• The growing presence of religious terrorist groups in many of today’s civil war environments complicates the UN’s peacemaking.
• This is because many of these groups pursue maximalist demands that are very difficult to meet or to incorporate into political settlements based on human rights and democratic governance.
• Even where such groups may be motivated primarily by local, legitimate, and reversible grievances, key powers tend to discourage negotiations with them.
• Again, extremists groups have proven difficult to engage around respect for humanitarian norms, which the UN has successfully employed elsewhere with other armed non-state actors.
• The UN has increasingly become a target of such groups, which has led it to ever greater preoccupation with protecting itself rather than local civilians.
• This has greatly hampered its ability to engage with the local population, win hearts and minds, and mediate local disputes.

India’s action: Leading from the front

India has been fighting insurgency and terrorism since its days of independence.

• India has been at the forefront for a call of global action against terrorism which is increasingly becoming a global phenomenon.
• India has been calling for the passing of the Comprehensive Convention on International Terrorism (CCIT) at the UN. CCIT calls for a common definition of terror and the criminalization of international terrorism.
• A decade of relentless efforts by India to get Pakistan-based terror master Masood Azhar listed as a global terrorist by the UNSC finally came to fruition in 2019.
• India has been successful in drawing attention to its problem of terrorism by casting Pakistan as a breeder and supporter of terrorist organizations.  To this testimony, India’s role play at the FATF against Pakistan is globally visible.

This signifies India’s leadership in global counter-terrorism efforts.

Way Forward

• Indeed, around the world many governments continued to rely primarily on military and law enforcement tools in their counter-terrorism efforts often to the detriment of human rights and with insufficient attention paid to underlying drivers of extremism.
• The world needs to shift its focus primarily from military and law enforcement tools towards a holistic approach.
• This is because counter-terrorism efforts often tend to detriment the human rights and least attention is paid to underlying drivers of extremism.

Endorsing the Christchurch Call

Christchurch call of action is an initiative named after the New Zealand city where 51 people were killed in an attack on mosques.

The attack had highlighted the urgent need for action and enhanced cooperation among the wide range of actors with influence over this issue, including governments, civil society, and online service providers, such as social media companies, to eliminate terrorist and violent extremist content online.

The initiative outlines collective, voluntary commitments from governments and online service providers intended to address the issue of terrorist and violent extremist content online and to prevent the abuse of the internet.

Such collaboration can be extended over various parameters of counter-terrorism moves by the global community.

A note for the UN

While it is true that the UN’s operational counter-terrorism activities have faced severe shortfalls and limitations; the UN has proven a useful venue for establishing the broad normative and cooperative frameworks for collective counter-terrorism action.

• The UN needs to reflect on how it can adapt its peace operations to deliver on their mandate in theaters where terrorist networks are present.
• Among the key questions the UN will need to confront are: how to identify elements among violent extremist groups that could potentially be engaged in mediation, peace and reconciliations processes.
• The UN has to arrive at a how to adapt Disarmament, Demobilization, and Reintegration programs to the context of violent extremism.

India has to be ‘all-alert ‘

Looking to international organizations such as the UN has lost much of its appeal since the war in Iraq and Afghanistan. The loss of credibility renders it incapacity of any substantial action against these insurgents or the countries that harbor them.

• Technological advancements and, arguably, new geopolitical alliances also bring with them new terrorist threats.
• Despite myriad ideological and operational complexities when it comes to terrorist groups active in the country, India is outperforming its peers when it comes to meeting these challenges.
• However, the fight against terrorism is far from over.
• India must be prepared with its military and diplomatic options to eliminate these threats well in advance.

Conclusion

• Terrorism is not just a violent activity but it attacks the social, cultural, and defense fabric of the country and society and hinders its sustainable development.
• All countries must solve problems like the socio-economic unjust, refugee crisis, human rights abuses globally, and stands unanimously against all forms of terrorism to end it.

In conclusion it can be said, India’s war against terrorism remains largely her own problem.  For time to come, India will have to deal with its problem of terrorism on its own accord.

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References

https://www.orfonline.org/research/one-year-since-the-christchurch-call-to-action-a-review/

https://timesofindia.indiatimes.com/india/in-8-point-action-plan-against-terrorism-jaishankar-slams-pak-takes-a-dig-at-china/articleshow/80241500.cms

https://www.thequint.com/news/india/eam-jaishankars-8-point-action-plan-in-unsc-to-combat-terrorism#read-more#read-more

https://en.wikipedia.org/wiki/Terrorism_in_India

http://www.ipcs.org/comm_select.php?articleNo=1657

This December, we commemorated the 30th anniversary of the HDI.

Out of 189 countries, India has ranked 131 on the Human Development Index 2020 prepared by the United Nations Development Programme (UNDP). With an HDI value of 0.645, the country fell in the medium human development category.

People are the real wealth of a nation. The basic objective of development should be to create an enabling environment for people to live long, healthy and creative lives. This may appear to be a simple truth.

Background

• The human quest for knowledge has been sustained by an unspoken assumption: that the answers to life’s questions can be found if we try hard enough.
• And when we do, we will be able to reorganize society in rational ways, free from superstition, dogma, and oppression.
• Yet, the ideas that liberate one generation become the shackles of the next. It is the relentless march of ideas that add to the beauty, sense and the meaning of life.
• One such simple, but the transformational idea was the Human Development Index (HDI) as a measure of progress.

The Human Development Index

• The HDI combines indicators of life expectancy, education or access to knowledge and income or standard of living, and captures the level and changes to the quality of life.
• The index initially launched as an alternative measure to the gross domestic product, is the making of two acclaimed economists from Pakistan and India, namely Mahbub ul Haq and Amartya Sen.
• It stresses the centrality of human deve­lop­ment in the growth process and was first rolled out by the United Nations Development Programme in 1990.

Dimensions of the Human Development Index

The idea that progress should be conceived as a process of enlarging people’s choices and enhancing their capabilities is the central premise of the HDI.

Since its launch, the HDI has been an important marker of attempts to broaden measures of progress. The HDI considers three main dimensions to evaluate the development of a country:

1. Long and healthy life

The long and healthy life dimension is measured by life expectancy at birth. The life expectancy at birth is a statistical measure that an average individual is expected to live based on certain demographic factors such as the year of birth and current age.

2. Education

This is a second dimension in the HDI. The indicators of education are the expected years of schooling and the mean years of schooling. According to the UN, the average maximum years of schooling is 18 years, while the mean maximum years of schooling is 15 years.

3. Standard of living

The standard of living is usually measured by the gross national income (GNI) per capita. The GNI indicates the total domestic and foreign output created by the residents of a certain country.

Major highlights of the 2020 Report

• Out of 189 countries, Norway, Ireland and Switzerland are in the top three rungs.
• The size of economic resources, as usual, has been a key factor affecting human development; the distribution and allocation of these resources also play a major role in determining the level of human development.
• The 2019 HDI ranks India with a per capita income of $6,681 in the 131st position, a notch lower than its 130th rank in 2018, which puts it in the medium human development category.

What India has achieved over the years?

• The report stated that since 1990, the HDI value of India has increased to 0.645 from 0.429, registering an increase of over 50%.
• During the same period, the life expectancy at birth in India rose by nearly 12 years, while mean years of schooling witnessed an increase of 3.5 years.
• During this while, the expected years of schooling also rose by 4.5 years.
• Moreover, during this period, GNI per capita of India also increased, registering a rise of nearly 274%.

India has gained but still lags far behind

• However, trends for the last three decades indicate that India has raised its HDI score at an annual average rate of 1.42%, almost a third higher than the 1% growth clocked by developing countries as a whole.
• But India’s gains still lag behind many other Asian nations like China (1.47%), Bangladesh (1.64%), Cambodia (1.66%) and Myanmar (1.86%).
• And a closer look at the other composite indices from the family of development indices shows that India falters badly in many areas, especially on the gender and income distribution fronts.

All of which isn’t surprising given that it was in 1991 that India initiated economic liberalisation. The HDI improvement over this period essentially captures the benefits that accrued to Indian society from that historic decision.

• Decline in Infant Mortality Rate & Maternal Mortality Rate.
• Increased Immunization.
• Better housing, sanitation and education.
• Smaller families, growing income.
• Improved public healthcare infrastructure, particularly, preventive healthcare.

Very often has been insisted on the inadequacy of income as the sole indicator of welfare and augmented, that measuring income is losing its utility, becoming more puzzling and contributes only insignificantly to human development.

Limitations of HDI

HDR has been always disputable and has caught the public-eye, whenever it was published. It has many reasons.

One of them is that the concept of human development is much deeper and richer than what can be caught in any index or set of indicators. Another argument is that its concept has not changed since 1990 when it was also defined in the first.

(1) An incomplete indicator

• Human development is incomplete without human freedom and that while the need for qualities judgement is clear; there is no simple quantitative measure available yet to capture the many aspects of human freedom.
• HDI also does not specifically reflect quality of life factors, such as empowerment movements or overall feelings of security or happiness.

(2) Limited idea of development

• The HDI is not reflecting the human development idea accurately.
• It is an index restricted to the socio-economic sphere of life; the political and civil spheres are in the most part kept separate.
• Hence there is a sub-estimation of inequality among countries, which means that this dimension is not being taken into consideration appropriately.

(3) A vague concept

• Concerning data quality and the exact construction of the index HDI is conceptually weak and empirically unsound.
• This strong critic comes from the idea that both components of HDI are problematic. The GNP in developing countries suffers from incomplete coverage, measurement errors and biases.
• The definition and measurement of literacy are different among countries and also, this data has not been available since 1970 in a significant number of countries.

(4) Data quality issues

• The HDI, as a combination of only four relatively simple indicators, doesn’t only raise a questions what other indicators should be included, but also how to ensure quality and comparable input data.
• It is logical that the UNDP try to collect their data from international organizations concentrating in collecting data in specific fields.
• Quality and trustworthiness of those data is disputable, especially when we get the information from UN non-democratic members, as for example Cuba or China.

(5) A tool for mere comparison

• The concept of HDI was set up mainly for relative comparison of countries in one particular time.
• HDI is much better when distinguishing between countries with low and middle human development, instead of countries at the top of the ranking.
• Therefore, the original notion was not to set up an absolute ranking, but let’s quite free hands in comparison of the results.

(6) Development has to be greener

• The human development approach has not adequately incorporated environmental conditions which may threaten long-term achievements on human development. The most pervasive failure was on environmental sustainability.
• However, for the first time in 2020, the UNDP introduced a new metric to reflect the impact caused by each country’s per-capita carbon emissions and its material footprint.
• This is Planetary Pressures-adjusted HDI or PHDI. It measured the amount of fossil fuels, metals and other resources used to make the goods and services it consumes.

(7) Wealth can never equate welfare

• Higher national wealth does not indicate welfare. GNI may not necessarily increase economic welfare; it depends on how it is spent.
• For example, if a country spends more on military spending – this is reflected in higher GNI, but welfare could actually be lower.

Significance of HDI

Social measures of development ought to be factored in to calculate a country’s overall level of development. Some believe that additional factors such as human rights and happiness are very important. But still, HDI is a relevant factor.

• It is one of the few multidimensional indices as it includes indicators such as literacy rate, enrollment ratio, life expectancy rate, infant mortality rate, etc.
• It acts as a true yardstick to measure development in real sense.
• Unlike per capital income, which only indicates that a rise in the per capital income implies economic development; HDI considers many other vital social indicators and helps in measuring a nation’s well-being.
• It helps as a differentiating factor to distinguish and classify different nations on the basis of their HDI ranks.

Lessons for India

• Global experiences offer India a way out of this predicament.
• Studies show that high growth accompanied by more effective income distribution and female empowerment strategies can help enhance human development, even with moderate social expenditures.
• Clearly, India’s HDI scores can also be substantially enhanced if a politically committed government rolls out inclusive policies that strengthen public health, education and nutrition, and end gender discrimination to usher in a more egalitarian order.

Way forward: It lies in Sustainable Development

• Both sustainable development and poverty eradication are both long-term and urgent endeavours, requiring not only the gradual and substantial redirection of country policies but a rapid response to pressing problems.
• Ideally, sustainable development could provide an overarching framework within which all sub-goals (eg poverty eradication, social equality, ecosystem maintenance, climate compatibility) are framed.
• It is not a subset of development; it is development (in a modern world of resource limits).
• Environmental issues are not one factor among many but the meta-context within which poverty and other goals are sought.
• Investing more in public research could lead to technological solutions to poverty and sustainability problems becoming more rapidly and openly available.

Developed nations owe it to all

• To engage the broad coalition of support required to maintain high levels of development co-operation, rich countries will have to appeal to mutual benefit, not just charity.
• There is a serious danger that poor countries may come under pressure to compromise on poverty reduction objectives for the sake of the planet – “green aid conditionalities” could emerge.
• It should be made explicit that the poorest countries should follow whatever path best brings them out of poverty, including engaging in dirty growth if that means eradicating poverty faster.

Not to forget

• From its beginnings, the HDR has argued for taking seriously the role of local specificity in thinking about economic and social development.
• This recognition underlines the inherent limitations of global indicators and rankings. Such indicators can only help prompt focus and consideration relative backwardness.

Conclusion

• To sum up, the introduction of the HDI three decades ago was an early attempt to address the shortcomings in conventional measures of wellbeing.
• The HDI has continued to attract widespread attention and motivates the work of activists, scholars and political leaders around the world.
• The HDI compels us to ask what matters more, the quantitative expansion of an economy, or the qualitative improvement in the capabilities of society.
• Indeed the revival of interest in this subject at the highest levels of government is the need of the hour.

If a metaphor is used, human development accounting represents a house and the HDI is the door to the house. One should not mistake the door to be the house and one should not stop at the door, rather one should enter the house.

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References

https://www.epw.in/tags/human-development-index#slideshow-2

https://www.deccanherald.com/opinion/the-measure-of-progress-926696.html

https://www.financialexpress.com/lifestyle/health/india-ranks-131-on-human-development-index-2020-all-you-need-to-know/2155827/

http://www.globalpolitics.cz/clanky/human-development-index-how-to-cope-with-its-limitations

https://timesofindia.indiatimes.com/blogs/toi-editorials/unfinished-story-indias-hdi-ranking-shows-success-in-poverty-reduction-but-failure-on-equality/

Our PM has inaugurated Rewari-Madar section of Western Dedicated Freight Corridor (DFC).  He also flagged off the world’s first double-stack long-haul 1.5-km-long container train hauled by electric traction from New Ateli-New Kishangarh. Last month, he had inaugurated a 351-km section between Khurja and Bhaupur in Uttar Pradesh for commercial operations.

For years, freight trains suffered second class treatment as express trains and other passenger trains got priority to use the tracks. All trains use the same tracks. As a result, goods never reached their destination in time. Both industry and the railways suffered as a result.

Dedicated Freight Corridors (DFCs)

• The DFC project was first proposed in April 2005 to address the needs of the rapidly developing Indian economy.
• They were proposed to ensure a more reliable, economical and faster transportation of goods.
• DFCs are planned to be ‘freight-only’ corridors which will make it cheaper, faster, and more reliable to move goods between industrial heartlands in the North and ports on the Eastern and Western coasts.
• These corridors seek to bring a paradigm shift in Railway Freight Operations in the country, thus providing relief to the heavily congested Golden Quadrilateral.

Its conceptualization

• The inception of DFCs can be understood clearly as one delves into Indian Railways’ freight operations scenario in the past.
• It was majorly the Golden Quadrilateral, linking the four metropolitan cities of Delhi, Mumbai, Chennai and Howrah and its two diagonals.
• This comprised 16% of the route, that carried over 52% of passenger traffic and 58% of freight traffic.

Executing into reality

• Several large coal mines and steel production facilities are located along the proposed Eastern DFC line.
• Container traffic is also predominant along the Western DFC route, arriving mainly from the Jawaharlal Nehru Port (JNPT).
• An SPV, ‘Dedicated Freight Corridor Corporation of India Limited’ (DFCCIL) has been set up under the Ministry of Railways to facilitate the functioning of these corridors.
• Both corridors entail an investment of $12 billion, with the World Bank and JICA (Japan International Cooperation Agency) partly funding the project with around $1.86 bn and $5.2 bn respectively.

Eastern and Western DFCs

(A) The Eastern DFC passes through Punjab, Haryana, Uttar Pradesh, Bihar, Jharkhand and West Bengal. It will be divided into two segments:

1. An electrified double-track segment of 1,409 km between Dankuni in West Bengal and Khurja in Uttar Pradesh
2. A single line segment of 447 km between Ludhiana – Khurja – Dadri

(B) From JNPT to Dadri via Vadodara-Ahmedabad- Palanpur-Phulera- Rewari, Western DFC will pass through Haryana, Rajasthan, Gujarat, Maharashtra and Uttar Pradesh.

• It is proposed to join the Eastern Corridor at Dadri.
• The Western Corridor primarily comprises of container traffic from JNPT and Mumbai Port in Maharashtra and other ports, including Pipavav, Mundra and Kandla in Gujarat.

The western corridor would primarily cater to containerized traffic, mostly exports and imports, while the eastern corridor will be used most to move coals from mines in east India to power plants in north.

Why need DFCs?

• To resolve the increasing need for road decongestion, accident reduction and ensuring energy security, the DFCs were launched to aid the growth of rail transportation in India.
• With the construction of these Freight Corridors, Indian Railways will open new avenues for investment and greater economic development.
• This will also lead to the construction of industrial corridors and logistic parks along these routes, thereby making the industrial ecosystem more competitive.
• The new corridors will permit the trains to carry higher loads, in a more reliable manner.
• These lines are also being built to maximise speeds to 100 km/hour, up from the current average freight speed of 20 km/hour. They will carry a capacity of 6,000 to 12,000 gross tonne of freight trains.
• Additionally, the DFCs will also reduce transit time from freight source to destination.

Global examples

Critical economies across the world have their own DFCs.

• China’s new DFCs have been designed with the objective to link hinterland areas with ports, along with the aim to transfer commodities, raw materials, and other critical resources of production to-and-fro from the northern to the southern region.
• As per their recent plans, China aims to divorce its passenger traffic completely from its freight traffic by 2020.
• Freight Railways in America, though privately-owned, is one of the best in the world, and while some of its routes are used by passenger Amtrak service trains, it carries 4 times the freight for a single kilometre.
• While China carried 3,358 million tonnes of freight in 2015 via rail, for India the number stood at 1,220 million tonnes as late as 2018.

Clearly, for its geographic scale, India must look at China and the US as ideal examples when it comes to DFCs.

Issues with Railways Freight

(a) Highways are more feasible

• The share of roads in freight transport is more than half in India; while in China, it is only 30%.
• As more highways are getting built rapidly, the share of roads in freight transport is increasing at accelerating rate.

(b) Costly transport

• The working of Indian Railways is caught up between making it a self-sufficient organisation and serving it as a transport system for the poor.  The passenger fares usually remain static for years.
• In order to keep finances in check, freight charges have been raised in the past. This discrepancy between freight charges and passenger fares seem to distort the Railways’ performance.

(c) Decline in coal freight

• Freight contributes nearly two-thirds of Indian Railway’s revenue and coal transport alone contributes to half of that.
• Decreasing dependency on coal with increasing thrust on renewable energy has crippled railway revenue from freights.

(d) Lack of finances

• Indian Railways spends heavily on revenue expenditure – there is little left for capital expenditure.
• About 94 percent of the system’s revenues are spent on operating costs and social obligations, leaving little to modernize its infrastructure.

(e) A network of delays

• The railways have been losing freight for years. Today, trains carry just 30 percent of India’s freight, down from nearly 80 percent 30 years ago.
• Most passenger and freight lines are shared, and, when there is a delay, passenger trains are always prioritized. This makes it impossible to ensure deliveries within a set time.

(f) Stuck into monopoly

• The Indian railways have lacked investment. There’s been an inability to raise passenger fares because it’s a political ideology that public transport in India needs to be accessible for everyone.
• Popular reforms aim at subsidised tariff due to political incentives. This leads to an increase in freight pricing which adds to inflation.

(g) Populist development

• Railways sometimes seem to be diverting from core issues of safety and operation and to populist needs.
• These measures are aimed at wooing corporate travellers. Rail budgets are often about new trains, bullet trains and Wifi.

Significance of DFCs

 (a) Decongestion of roads

Around 70% of the freight trains currently running on the Indian Railway network are slated to shift to the freight corridors, leaving the paths open for more passenger trains. This will reduce congestion on the main tracks and enable passenger trains to move faster.

(b) Increased NTKM Capacity

The DFC shall reform the transportation sector and will create more capacity on trunk routes of Indian Railways as goods trains shall be able to run freely on DFC without any restrictions imposed by the movement of passenger trains. (NTKM stands for transportation of 1 tonne of goods over 1 km.)

(c) Improvised logistics and connectivity

Tracks on DFC are designed to carry heavier loads than most of the Indian Railways. It will connect the existing ports and industrial areas for faster movement of goods.

(d) Speed and Punctuality

To begin with, freight trains will run according to a timetable and as fast as express trains. DFCs would offer a sharp increase in the average speed of freight trains – from a frustrating 25kmph to 70kmph.

(e) Employment generation

Thousands of people will get employed in the construction of the corridor and other facilities along the corridor, including logistics parks to handle cargo and townships these corridors.

Some inevitable challenges

DFC has been a showcase project for IR in the past decade but it has suffered challenges relating to land acquisition, utility shifting, funding from multilateral and donor agencies, lack of consensus on the design and re-bidding of construction contracts.

These bottlenecks have seen the project fall behind the original timelines.

Way forward

DFCs present a significant opportunity for freight logistics in India. What is important is to see how increasingly optimistic traffic projections will be realized.  That depends upon the industrial and trade growth in India and the development of industrial corridors and the feeder network.

• Once DFC is operational, the average speed of freight trains will go up from 25 kmph to 70 kmph, reducing the transit time by more than half.
• Trainload would be increased almost thrice (5000 tonnes to 13,000 tonnes), ensuring an enhanced economy of scale and reduced the cost of transport.
• This will ensure a higher modal share for railways in the freight business.
• Also, the capacity released by freight trains on the existing lines can be used by IR to operate more passenger trains at higher speeds, resulting in increased revenues for the transporter.

It would also play a lead role in transforming the railways from a loss-making operation to an efficient and profitable venture. Also, it would be interesting to see the potential all these corridors hold for the regions they pass through.

Conclusion

• The DFCs project is the biggest leap for Indian Railways, not just because of its route length, but also because of the technology it ushers, the rail infrastructure it will enable, and the socio-economic transformation it shall result in.
• 20-30 years from now, the DFCs are going to be indispensable to India’s logistics sector. From private to public, every company would want a ride on these corridors.

If completed on a timely basis, DFC has the potential to be a game-changer not just for Indian Railways, but the trade and economics of the country. It will reduce the overall logistics cost of trade between the hinterland and gateway ports, making India a favourable destination for EXIM trade.

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References

https://swarajyamag.com/infrastructure/indian-railways-dedicated-freight-corridor-will-change-more-than-just-the-way-goods-are-hauled

https://www.financialexpress.com/economy/dedicated-freight-corridor-vital-for-getting-indain-railways-back-on-track-irctc-co-in/243542/

https://www.dailyo.in/business/indian-railways-transportation-narendra-modi-freight-trains-national-development-alliance/story/1/2859.html

https://www.businesstoday.in/current/policy/5-big-challenges-indian-railways-faces/story/237388.html

Ethiopia has been on the brink of a civil war. On Nov 4 2020, Prime Minister Abiy Ahmed declared war on the country’s Tigray region. The Tigray region is ruled by the Tigray People’s Liberation Front (TPLF). The war was declared in response to the TPLF’s attack on a federal military base in Tigray.

The Ethiopian Crisis: A backgrounder

• The animosity between Tigrayans and Eritrea goes back to the Ethiopian-Eritrean war that occurred between 1998 and 2000.
• It occurred approximately two decades ago was extremely brutal and resulted in the deaths of thousands of soldiers.

• The roots of this crisis can be traced to Ethiopia’s system of government. Since 1994, Ethiopia has had a federal system in which different ethnic groups control the affairs of 10 regions.
• The Tigray People’s Liberation Front (TPLF) – was influential in setting up this system.
• It was the leader of a four-party coalition that governed Ethiopia from 1991, when a military regime was ousted from power.
• Under the coalition, Ethiopia became more prosperous and stable, but concerns were routinely raised about human rights and the level of democracy.

How it escalated into a crisis?

• Eventually, discontent morphed into protest, leading to a government reshuffle that saw Mr Abiy appointed PM.
• Abiy liberalized politics, set up a new party (the Prosperity Party), and removed key Tigrayan government leaders accused of corruption and repression.
• Meanwhile, Abiy ended a long-standing territorial dispute with neighbouring Eritrea, earning him a Nobel Peace Prize in 2019.
• These moves won Abiy popular acclaim, but caused unease among critics in Tigray. Tigray’s leaders see Abiy’s reforms as an attempt to centralize power and destroy Ethiopia’s federal system.

The clouds of a Civil War

• The conflict came to a head in September, when Tigray defied the central government to hold its own regional election.
• The central government, which had postponed national elections because of coronavirus, said it was illegal.
• The rift grew in October, when the central government suspended funding for and cut ties with Tigray. Tigray’s administration said this amounted to a “declaration of war”.
• Tensions increased. Then, in what the International Crisis Group termed a “sudden and predictable” descent into conflict.

Abiy accused Tigrayan forces of attacking an army base to steal weapons. His government, he said, was therefore forced into a military confrontation.

Its’ repercussions

• If the conflict intensifies, there are fears it could spill over into neighbouring countries.
• There have already been reports of missiles fired into Eritrea and 27,000 refugees fleeing to Sudan.
• There is also a concern that the conflict could exacerbate ethnic tensions elsewhere in Ethiopia.
• There have been reports of blocked roads, with internet and communication lines being cut off in Ethiopia.
• Now, this latest conflict has only increased the number of displaced people and may lead to a humanitarian crisis.

The larger conflict: A new ‘Afghanistan of Africa’ in making

• The US and China have several strategic military bases in that region, the closest being Djibouti.
• In November 2020, it was reported that President Vladimir Putin had approved the creation of a Russian naval facility in Sudan.
• This would be capable of mooring nuclear-powered surface vessels, clearing the way for Moscow’s first substantial military foothold in Africa since the Soviet fall.
• If these military bases and facilities were to be impacted in any way, it may cause foreign powers to get militarily involved in the region’s conflict.

A crisis beyond a country

• The Horn of Africa is also a short water crossing away from the crisis torn Yemen and the rest of the Arabian Peninsula.
• Earlier, in the midst of Ethiopia’s long-standing conflict with Egypt over the construction of the Grand Ethiopian Renaissance Dam over the Blue Nile, Sudan had already found itself forcefully involved in the spat.
• Sudan and Egypt were engaged in joint military exercises in what observers said was an indication of deepening ties between the two countries.
• With Ethiopian civilians escaping in large numbers to Sudan, the country may find itself inadvertently drawn into the war.  
• If the conflict were to spill outside Ethiopia’s borders, it may potentially destabilize the Horn of Africa region.

A quick recap: Horn of Africa

• The Horn of Africa comprises four countries — Ethiopia, Eritrea, Djibouti and Somalia, but, in its wider political and economic context, the term also includes Sudan, South Sudan, Kenya and Uganda.
• As a quintessential microcosm of Africa, the area has seen it all: imperialism, neo-colonialism, Cold War, ethnic strife, intra-African conflict, poverty, disease, famine and much else.
• The sub-region covers a wide spectrum from Ethiopia — an ancient civilization and a nation that retained its independence (except for a short period) — to Somalia, the most failed state on the planet today.
• Eritrea and Djibouti, smaller neighbours located on the seashore, have had their own share of strife and strained relations with Ethiopia and Somalia respectively.
• Eritrea emerged as an independent state after a 30-year-long confrontation with Ethiopia, a development that turned the latter into a landlocked country.
• Djibouti, the erstwhile French Somaliland, has been a beacon of relative stability and prosperity, which has contributed to mediation and peace-making efforts in and outside the Horn of Africa.

Why is Horn of Africa so important?

The turn of such events near the Horn of Africa has direct consequences for the safety and future of all seaports on the Red Sea as well as on the entire security of the Arabian Gulf.

• The Horn of Africa enjoys an excellent strategic location south-west of the Red Sea and the Gulf of Aden.
• The strategic importance of this East African region comes from it being the source of the Nile and a gate to the Red Sea and the Gulf of Aden.
• Its location on one side of some of the world’s major trade sea lanes and land routes gives it vital importance.
• The straits of Bab El-Mandeb, which lies at the heart of this region, connects the energy-rich Middle East to Europe and, along with the Suez Canal, is considered a jugular vein for global trade.
• Djibouti is the choke point on this shipping route.

Geopolitical angle

The area has always been a magnet for international powers because of the sea traffic going by, major ports in the area, tremendous nearby riches, weapons trading, crossing points for people and merchandise and the dangers of piracy.

• The international importance of the Horn of Africa was boosted after the first war on Iraq and foreign intervention in Somalia.
• Now, with the war in Yemen, the international and regional competition for control over the Horn of Africa is at its fiercest.
• Besides positioning for control of the major ports in the area, there is the China competing with the West in Djibouti, and so is the US.

Indian perspective

• India has been paying greater attention to the region. Since 2017, India has opened embassies in Djibouti and Eritrea and our President has also made a state visit to Djibouti and Ethiopia.
• India has been always a foremost responder for humanitarian assistance in the Horn of Africa Region through the Indian Navy.
• Such latest missions underline India’s growing capability and willingness to undertake naval missions and support regional countries in the greater Indian Ocean region.
• These efforts must be directed to increase Indian leverage and limit Chinese influence in the region.

The China factor and Indian concerns

• Since 2008, China’s People’s Liberation Army (PLA) has been present in the region under the pretext of conducting anti-piracy operations off the coast of Somalia.
• In fact, it has even sent nuclear submarines to the region and has also conducted naval exercises with the navies of Russia and Iran.
• In 2017, China opened its first overseas military base in the region at Djibouti and is now firmly consolidating itself as a major player in regional affairs.
• Furthermore, China has built a spate of large infrastructure projects in the Horn of Africa, including the modern railway line connecting land-locked Ethiopia with the port of Djibouti.
• It is emerging as a major economic partner for other Red Sea states like Egypt.
• Hence the steadily growing military and economic footprint of China makes this region increasingly more important from India’s geostrategic calculations.

Thus China has stepped up activity in the African region, which is traditionally within India’s sphere of influence, thereby looking to expand its presence in the Indian Ocean Region.

Way forward

• The global strategic community should pay more attention to the prevailing conditions and power dynamics in this African region.
• The world must become more active in examining and discussing the complex problem in-depth with the governments in Eastern Africa, the African Union and others to be able to make a meaningful its resolution.
• What happens in the region has a direct bearing on India’s security and well-being, and this is becoming clearer and more urgent by the day.

The crisis must be averted

• Ethiopia in recent years has been achieving respectable economic growth.
• Regional tensions, however, with Eritrea and Egypt because of Ethiopia’s Grand Renaissance Dam project increased until the beginning of 2018.
• During the past two decades, the region has seen horrible human tragedies because of famines and wars.
• The world still remembers the tragic famines in Ethiopia and Eritrea and how these two countries depended for a long time on foreign aid.
• It must also not be forgotten that the 1998 war between these belligerent sister countries caused the death of about 100,000 people and ended any contact between them.

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References

https://www.thehindu.com/opinion/editorial/the-war-within-on-ethiopia-political-situation/article33061048.ece

https://indianexpress.com/article/explained/how-ethiopias-tigray-crisis-is-impacting-the-horn-of-africa-7054436/

https://www.rnz.co.nz/news/world/431248/ethiopia-s-tigray-crisis-explained-the-long-medium-and-short-story

https://thearabweekly.com/strategic-turning-point-horn-africa

https://www.deccanherald.com/opinion/understanding-indian-ties-with-horn-of-africa-countries-908243.html