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Distribution: weekly

  • A demarcation in the interest of public order

    The article analyses how could the duel role assigned to an official leads to the problems in certain situations and so suggest the separation of the roles.

    Context

    • Delhi Police, having magisterial powers under the Criminal Procedure Code to take preventive action has been criticised for failing to maintain public order and prevent riots in Delhi.

    Issue with delegation: Confusion powers with the role

    • The distinction between independent actions, for which no political clearance is needed, by the District Magistrate to maintain public order and by the police to investigate crime and make arrests, was ignored.
    • Maintaining public order requires the District Magistrate to make hard choices but there can be no justification for lack of effective police action.
    • The District Magistrate is expected to consider protest as legitimate.
    • In Delhi, the police did not distinguish between wider political support and violence caused by a few.

    Distinction between “law and order” and “public order”

    • The Supreme Court has made a distinction between law and order, relating to individual crime, and public order.
    • Law and order consists of the analysis made by police of the situation in an area and their commitment to firm action and penalties under criminal law.
    • Public order is a duty imposed on the District Magistrate to assess whether it is necessary to rush to the spot where law and order has been breached to prevent violence.
    • The District Magistrate’s role is important in exceptional situations — for example, to prevent a breach of peace at a particular place.
    • If an official is allotted a dual role, this could lead to the displacement of one goal in favour of the other.

    Supreme Court’s guidelines

    • The Supreme Court has formulated certain guidelines and rules when it comes to these distinct duties.
    • 1) In Ram Manohar Lohia vs. State of Bihar, in 1965, the Supreme Court held that in the case of ‘public order’, the community or the public at large have to be affected by a particular action as it “embraces more of the community than ‘law and order’, which affects only a few individuals”.
    • 2) In the Madhu Limaye case, the Bench reiterated that “the emergency must be sudden and the consequences sufficiently grave” for imposition of restrictions.
    • 3) In Anuradha Bhasin vs. Union of India, the Supreme Court held that prohibitive orders should not prevent legitimate expression of opinion or grievance or exercise of democratic rights.
    • The Supreme Court has also specifically recognised the importance of the assessment of the role of the District Magistrate, distinct from that of the police.

    Way forward

    • Judicial review of roles and proportionality of decisions for maintaining public order requires a policy rethink.
    • Prevention through grievance redress and reliance on the least blunt instruments are critical for legitimacy.
    • The National Police Commission also recognises the coordinating role of the District Magistrate, having more leverage than the police.

    Conclusion

    The role of the District Magistrate needs to be clearly differentiated from the role of the Police Commissioner.

  • Lessons to learn from Vodafone ruling

    Context

    •  An Investor-State Dispute Settlement (ISDS) tribunal has ruled that India’s imposition of tax liability amounting to ₹22,000 crore on Vodafone is in breach of India-Netherlands bilateral investment treaty obligations.

    Background of the case

    • This case arose after the Indian Parliament in 2012 amended the Income Tax Act.
    • As per the amendment, income deemed to be accruing to non-residents, directly or indirectly, through the transfer of a capital asset situated in India is taxable retrospectively with effect from April 1, 1962.
    • This amendment was carried out to override the Supreme Court ruling in favour of Vodafone.
    • This amendment dented India’s reputation as a country governed by the rule of law, and shook the faith of foreign investors.

    Key lessons from Vodafone case

    • 1) All the three organs of the Indian state — Parliament, executive, and the judiciary — need to internalise India’s BIT and other international law obligations.
    • These organs need to ensure that they exercise their public powers in a manner consistent with international law, or else their actions could prove costly to the nation.
    • 2) India should learn that being a country that values the rule of law is an important quality to win over the confidence of foreign investors and international goodwill.
    • 3) It is likely that the government might challenge the award at the seat of arbitration or resist the enforceability of this award in Indian courts alleging that it violates public policy.
    •  It would mean that India does not honour its international law obligation.
    • 4) This ruling might have an impact on the two other ISDS claims that India is involved in with Cairn Energy and Vedanta on the imposition of taxes retrospectively.
    • 5) It is quite possible that India might use this award to further harden its antagonistic stand against ISDS and BITs.
    • India unilaterally terminated almost all its BITs after foreign investors started suing India for breaching BITs.
    • But the fact is that this case and several others are a result of bad state regulation.
    • 6) This decision shows the significance of the ISDS regime to hold states accountable under international law when in case of undue expansion of state power.
    • The case is a reminder that the ISDS regime, notwithstanding its weaknesses, can play an important role in fostering international rule of law.

    Consider the question “What were the issues involved in the Vodafone tax case? What are the implication of Investor-State Dispute Settlement ruling for India?”

    Conclusion

    If government is serious about wooing foreign investment, India should immediately comply with the decision.

  • Maharashtra modifies Forest Rights Act

    Maharashtra government has issued a notification modifying the Forest Rights Act (FRA), 2006 that will enable tribals and other traditional forest dwelling families to build houses in the neighbourhood forest areas.

    Try this question for mains:

    Q.Forest dwellers are integral to the very survival and sustainability of the forest ecosystem. Analyse.

    Historical Background

    1878: The Forest Act of 1878 was introduced and it truncated the centuries-old traditional use by communities of their forests and secured the colonial governments control over the forestry. The provision of this Act established a virtual State monopoly over the forests in a legal sense on one hand, and attempted to establish, on the other, that the customary use of the forests by the villagers was not a ‘right’, but a ‘privilege’ that could be withdrawn at will.

    1927:  The Indian Forest Act, 1927. In continuance with the forest use policy of 1878, this landmark law – India’s main forest law, had nothing to do with conservation. It was created to serve the British need for timber. It sought to override customary rights and forest management systems by declaring forests state property and exploiting their timber.

    1952: ‘National interests’ overrode all interests and forests were viewed as a national asset. It was made clear that local priorities and interests and claims of the communities around forest areas should be subservient to larger national interests

    About the FRA, 2006

    • The Scheduled Tribes and Other Traditional Forest Dwellers (Recognition of Forest Rights) Act, 2006, is a key piece of forest legislation in India.
    • It has also been called the Forest Rights Act, the Tribal Rights Act, the Tribal Bill, and the Tribal Land Act. In the colonial era, the British diverted abundant forest wealth of the nation to meet their economic needs.
    • While the procedure for settlement of rights was provided under statutes such as the Indian Forest Act, 1927, these were hardly followed.
    • As a result, tribal and forest-dwelling communities, who had been living within the forests in harmony with the environment and the ecosystem, continued to live inside the forests in tenurial insecurity, a situation which continued even after independence as they were marginalised.
    • The symbiotic relationship between forests and forest-dwelling communities found recognition in the National Forest Policy, 1988.
    • The FRA, 2006, was enacted to protect the marginalised socio-economic class of citizens and balance the right to the environment with their right to life and livelihood.

    What empowers the Governor?

    • The notification has been issued by the Governor using his powers under subparagraph (1) of paragraph 5 of the Schedule V of the Constitution, according to a statement issued by Raj Bhavan.
    • PESA rules in the State have given recognition to many habitations as villages, but there is no provision for land for house-building.

    Significance of the move

    • The decision is likely to provide a major relief to Scheduled Tribes and other traditional forest-dwelling families residing in the scheduled areas of the State.
    • The urban areas get increased FSI, the rural areas (on revenue lands) get the same too, but tribal villages (on forest lands) have no legal space for building houses.
    • The move aims to prevent the migration of forest-dwelling families outside their native villages and provide them with housing areas by extending the village site into forest land in their neighbourhood.

    Back2Basics: Fifth Schedule of the Constitution

    • It deals with the administration and control of Scheduled Areas as well as of Scheduled Tribes residing in any State other than the States of Assam, Meghalaya, Tripura and Mizoram (ATM2).
    • In Article 244(1) of the Constitution, expression Scheduled Areas means such areas as the President may by order declare to be Scheduled Areas (SA).

    The President may at any time by order-

    1. direct that the whole or any specified part of SA shall cease to be a SA or a part of such an area;
    2. increase the area of any SA in a State after consultation with the Governor of that State;
    3. alter, but only by way of rectification of boundaries, any Scheduled Area;
    4. on any alteration of the boundaries of a State on the admission into the Union or the establishment of a new State, declare any territory not previously included in any State to be, or to form part of, a SA;
    5. rescind, in relation to any State of States, any order or orders made under these provisions and in consultation with the Governor of the State concerned, make fresh orders redefining the areas which are to be SA.
    • The Governor may, by public notification, direct that any particular Act of Parliament or of the Legislature of the State shall or shall not apply to a SA or any part thereof in the State, subject to such exceptions and modifications, as specified.
    • The Governor may make regulations for the peace and good government of any area in the State which is for the time being a SA. Such regulations may
    1. prohibit or restrict the transfer of land by or among members of the Scheduled Tribes in such area;
    2. regulate the allotment of land to members of the STs in such area;
    3. regulate the carrying on of business as money-lender by persons who lend money to members of the STs in such area.

    In making such regulations, the Governor may repeal or amend any Act of Parliament or of Legislature of the State or any existing law after obtaining the assent of the President.

  • What’s behind the Armenia-Azerbaijan clashes?

    Fresh clashes erupted on the Armenia-Azerbaijan border, threatening to push the countries back to war 26 years after a ceasefire was reached.

    Try this PYQ:

    Q.Turkey is located between-

    (a) The Black Sea and Caspian Sea

    (b) The Black Sea and Mediterranean Sea

    (c) Gulf of Suez and the Mediterranean Sea

    (d) Gulf of Aqaba and the Dead Sea

    The conflict

    • The largely mountainous and forested Nagorno-Karabakh, home for some 150,000 people, is at the centre of the conflict.
    • Nagorno-Karabakh is located within Azerbaijan but is populated, mostly, by those of Armenian ethnicity (and mostly Christian compared to the Shia Muslim majority Azerbaijan).
    • The conflict can be traced back to the pre-Soviet era when the region was at the meeting point of Ottoman, Russian and the Persian empires.

    A legacy of soviet era

    • Once Azerbaijan and Armenia became Soviet Republics in 1921, Moscow gave Nagorno-Karabakh to Azerbaijan but offered autonomy to the contested region.
    • In the 1980s, when the Soviet power was receding, separatist currents picked up in Nagorno-Karabakh.
    • In 1988, the national assembly voted to dissolve the region’s autonomous status and join Armenia.
    • But Baku suppressed such calls, which led to a military conflict.
    • When Armenia and Azerbaijan became independent countries after the collapse of the Soviet Union in 1991, the clashes led to an open war in which tens of thousands of people were killed.
    • The war lasted till 1994 when both sides reached a ceasefire (they are yet to sign a peace treaty and the border is not clearly demarcated).

    Issue over control

    • By that time, Armenia had taken control of Nagorno-Karabakh and handed it to Armenian rebels. The rebels have declared independence, but have not won recognition from any country.
    • The region is still treated as a part of Azerbaijan by the international community, and Baku wants to take it back.

    What is the strategic significance of the region?

    • The energy-rich Azerbaijan has built several gas and oil pipelines across the Caucasus (the region between the Black Sea and the Caspian Sea) to Turkey and Europe.
    • This includes the Baku-Tblisi-Ceyhan oil pipeline (with a capacity of transporting 1.2 billion barrels a day), the Western Route Export oil pipeline, the Trans-Anatolian gas pipeline and the South Caucasus gas pipeline.
    • Some of these pipelines pass close to the conflict zone (within 16 km of the border). In an open war between the two countries, the pipelines could be targeted, which would impact energy supplies.

    What’s Turkey’s role?

    • Turkey has historically supported Azerbaijan and has had a troublesome relationship with Armenia.
    • In the 1990s, during the war, Turkey closed its border with Armenia and it has no diplomatic relations with the country.
    • The main point of contention between the two was Ankara’s refusal to recognise the 1915 Armenian genocide in which the Ottomans killed some 1.5 million Armenians.
    • On the other end, the Azeris and Turks share strong cultural and historical links. Azerbaijanis are a Turkic ethnic group and their language is from the Turkic family.

    Where does Russia stand?

    • Moscow sees the Caucasus and Central Asian region as its backyard. But the current clashes put President Vladimir Putin in a difficult spot.
    • Russia enjoys good ties with both Azerbaijan and Armenia and supplies weapons to both.
    • But Armenia is more dependent on Russia than the energy-rich, ambitious Azerbaijan. Russia also has a military base in Armenia.
    • But Moscow, at least publicly, is trying to strike a balance between the two. Like in the 1990s, its best interest would be in mediating a ceasefire between the warring sides.

  • Obesity in India

    Adults in urban India consume much more fat than those in rural areas, found the latest survey by the Indian Council of Medical Research and National Institute of Nutrition.

    Do you know?

    Over-nutrition is also a form of malnutrition.

    ‘What India Eats’ Survey

    • Adults in India’s urban centres consumed 51.6 grammes fat per day per head on an average. The volume was 36 g in rural areas, according to the survey report What India Eats.
    • The report categorised fat into two groups:
    1. Visible or added fat, comprising oils and fat in preparing food, in fried food and those derived from meat and poultry
    2. Invisible fat, including fat/oils from rice, pulses, nuts and oilseeds

    Urban-Rural data

    • 84 per cent of the rural population secured their energy (E) per day requirement from total fats/oils, or visible / added fats.
    • On the other hand, less than 20 per cent of the urban population derived their E / day from this category.
    • In urban areas of the country, northern India had the highest intake of added fat with 45.9 g / day.
    • Southern India reported the lowest per capita consumption of added fat/oils with 22.9 g / day in this segment of the population.
    • In the urban region of north India, fat intake (67.3 g) was among the highest; and overweight, obesity and abdominal obesity were highest when compared to other regions.

  • Explained: Farm Acts and federalism

    The President has finally given assent to the controversial farm Bills passed by Parliament last week. Amid protests by farmers’ organisations across the country, questions are being raised about the anti-federal nature of these ‘Acts’.

    Here we shall only discuss its constitutionality and federal nature. Tap to read more about the theme at:

    What is the question over the constitutionality of these laws?

    • These are some of the questions that will be raised in the petitions challenging the constitutionality of the Acts.
    • As per Union of India v H.S.Dhillon (1972), the constitutionality of parliamentary laws can be challenged only on two grounds — that the subject is in the State List, or that it violates fundamental rights.
    • As per Ram Krishna Dalmia v Justice S R Tendolkar (1958) and other judgments, the Supreme Court will begin hearings after presuming the constitutionality of these laws.
    • The bills (now Acts as they have got the President’s assent) do not mention, in the Statement of Objects & Reasons, the constitutional provisions under which Parliament has the power to legislate on the subjects covered.

    Where does the question of federalism come in?

    What is federalism, first?

    • Federalism is the system of government in which sovereignty is constitutionally divided between a central governing authority and constituent political units.
    • It is based upon democratic rules and institutions in which the power to govern is shared between national and state governments, creating a federation.
    • It essentially means both the Centre and states have the freedom to operate in their allotted spheres of power, in coordination with each other.

    Try this PYQ:

    Q.Which of the following federal principles are not found in Indian federation?

    1. Bifurcation of the judiciary between the Federal and State Governments
    2. Equality of representation of the states in the upper house of the Federal Legislature
    3. The Union cannot be destroyed by any state seceding from the Union at its will
    4. Federal Government can redraw the map of the Indian Union by forming new States

    Select the correct answer using the codes given below:

    a) 1, 2 and 3

    b) 2, 3 and 4

    c) 1 and 2

    d) 3 and 4

    Federalism in India

    • The Seventh Schedule of the Constitution contains three lists that distribute power between the Centre and states.
    • There are 97 subjects in the Union List, on which Parliament has exclusive power to legislate (Article 246); the State List has 66 items on which states alone can legislate.
    • The Concurrent List has 47 subjects on which both the Centre and states can legislate, but in case of a conflict, the law made by Parliament prevails (Article 254).
    • Parliament can legislate on an item in the State List under certain specific circumstances laid down in the Constitution.

    Concretization of the idea

    • Federalism, like constitutionalism and separation of powers, is not mentioned in the Constitution. But it is the very essence of our constitutional scheme.
    • In the State of West Bengal v Union of India (1962), the Supreme Court held that the Indian Constitution is not federal.
    • But in SR Bommai v Union of India (1994), a nine-judge Bench held federalism as part of the basic structure of the Constitution.
    • Neither the relative importance of the legislative entries in Schedule VII, Lists I and II of the Constitution, nor the fiscal control by the Union per se is decisive to conclude the Constitution is unitary.
    • The respective legislative powers are traceable to Articles 245 to 254… The State qua the Constitution is federal in structure and independent in its exercise of legislative and executive power,” it said.

    Where is agriculture in the scheme of legislative powers?

    Terms relating to agriculture occur at 15 places in the Seventh Schedule.

    1. Entries 82, 86, 87, and 88 in the Union List mention taxes and duties on income and assets, specifically excluding those in respect of agriculture.
    2. In the State List, eight entries contain terms relating to agriculture: Entry 14 (agricultural education and research, pests, plant diseases); 18 (rights in or over land, land tenures, rents, transfer agricultural land, agricultural loans, etc.); 28 (markets and fairs); 30 (agricultural indebtedness); 45 (land revenue, land records, etc.); 46 (taxes on agricultural income); 47 (succession of agricultural land); and 48 (estate duty in respect of agricultural land).
    3. In the Concurrent List, Entry 6 mentions the transfer of property other than agricultural land; 7 is about various contracts not relating to agricultural land; and 41 deals with evacuee property, including agricultural land.
    • It is clear that the Union List and Concurrent List put matters relating to agriculture outside Parliament’s jurisdiction, and give state legislatures exclusive power.
    • No entry in respect of agriculture in the State List is subject to any entry in the Union or Concurrent Lists.

    What about Entry 27 of the State List that is subject to Entry 33 of List III (Concurrent)?

    • Entry 33 of the Concurrent List mentions trade and commerce, production, supply and distribution of domestic and imported products of an industry over which Parliament has control in the public interest.
    • This includes foodstuffs, including oilseeds and oils; cattle fodder; raw cotton and jute.
    • The Centre could, therefore, argue that it is within its powers to pass laws on contract farming and intra- and inter-state trade, and prohibit states from imposing fees/cesses outside APMC areas.
    • However, like education, farming is an occupation, not trade or commerce.
    • If foodstuffs are considered synonymous with agriculture, then all the powers of states in respect of agriculture, listed so elaborately in the Constitution, shall become redundant.

    So what happens in case of legislation that covers entries in two Lists?

    • In cases such as State of Rajasthan v G Chawla (1959), courts have used the doctrine of “pith and substance” to determine the character of legislation that overlaps between entries.
    • The constitutionality of legislation is upheld if it is largely covered by one list and touches upon the other list only incidentally.
    • But the two new farm Acts go beyond that — they impinge on entries in the State List.
    • In interpreting the lists, the Supreme Court in State of Bihar v Kameshwar Singh (1952) invoked the doctrine of colourable legislation, which means you cannot do indirectly what you cannot do directly.

    What is the Doctrine of Colorable Legislation?

    • This doctrine refers to the question of competency of the legislature while enacting a provision of law.
    • If a legislature is prohibited from doing something, it may not be permitted to do this under the guise or pretence of doing something while acting within its lawful jurisdiction and this prohibition is an implied result of the maxim “what cannot be done directly, cannot be done indirectly”
    • This doctrine is a tool used to determine the legislative competence of laws enacted by various legislatures.
    • Therefore, it is a means to implement the separation of powers and impose judicial accountability.

  • What are the ESG funds?

    ESG funds are witnessing a growing interest in the Indian mutual fund industry these days.

    Try this PYQ:

    Sustainable development is described as the development that meets the needs of the present without compromising the ability of future generations to meet their own needs. In this perspective, inherently the concept of sustainable development is intertwined with which of the following concepts?

    (a) Social justice and empowerment

    (b) Inclusive Growth

    (c) Globalization

    (d) Carrying capacity

    What are the ESG funds?

    • ESG means using Environmental, Social and Governance factors to evaluate companies and countries on how far advanced they are with sustainability.
    • ESG investing is used synonymously with sustainable investing or socially responsible investing.
    • While selecting a stock for investment, the ESG fund shortlists companies that score high on the environment, social responsibility and corporate governance, and then looks into financial factors.
    • So, the scheme focuses on companies with environment-friendly practices, ethical business practices and an employee-friendly record.
    • They imbibe the environment, social responsibility and corporate governance in their investing process.

    Why so much focus on ESG now?

    • Modern investors are re-evaluating traditional approaches and look at the impact their investment has on the planet.
    • As a result of this paradigm change, asset managers have started incorporating ESG factors into investment practices.
    • Companies with good ESG scores tick most of the checkboxes for investing, tend to mitigate environmental and social risks and tends to have stronger cash flows, lower borrowing costs and durable returns.

  • Dealing with the problems of medical education

    The article discusses the issues with medical education in India and how it affects the principle of equality.

    Role of private entities

    • Due to demand for high-quality medical care on the one hand and constraints on public resources on the other, private entities have been permitted to establish medical educational institutions to supplement government efforts.
    • In the field of health care, there is a continuing shortage of health-care personnel.
    • The infrastructure required for high-quality modern medical education is expensive.
    • The three stated objectives of medical education has been — providing health-care personnel in all parts of the country, ensuring quality and improving equity.
    • None of the three stated objectives of medical education has been achieved by the private sector.
    • Though they are supposed to be not-for-profit, taking advantage of the poor regulatory apparatus and the ability to both tweak and create rules, these private entities, with very few exceptions, completely commercialised education.

    Demand for regulation and equity

    • There have been attempts to regulate fees, sometimes by governments and sometimes by courts.
    •  These efforts have not been fruitful.
    • The executive, primarily the Medical Council of India, has proven unequal to the task of ensuring that private institutions comply with regulations.
    •  When the courts are approached, which issues are seen as important depends on the Bench.
    • It was in this situation that led to the introduction of the National Eligibility-cum-Entrance Test (Undergraduate), or NEET-UG, as a single all-India gateway for admission to medical colleges.
    •  Challenged in courts, after an initial setback, the NEET scheme has been upheld.

    How NEET affected equity

    • NEET may have improved the quality of candidates admitted to private institutions to some extent, but it seems to have further worsened equity.
    • Under any scheme of admission, the number of students from government schools who are able to get admission to a medical college is very low.
    • With NEET, the number has become lower.
    • The high fees of private medical colleges have always been an impossible hurdle for students from government schools, whatever the method used for admission.

    Way forward

    • The basic cause of inequity in admission to higher educational institutions is the absence of a high quality school system accessible to all.
    • Allowing government medical colleges to admit students based on marks in Standard XII and using NEET scores for admission to private colleges will be more equitable right now.

    Conclusion

    Only a resolute government, determined to ensure that economic policy facilitates quality and equity in education, can do it.

  • Growth compulsion, fiscal arithmetic

    The government faces the challenge of high fiscal deficit and declining revenue. This article discusses the challenge and suggests the way forward to deal with the situation.

    Dismal growth prospects

    • At (-)23.9% contraction for the first quarter of 2020-21, India’s growth showed one of the highest contraction globally.
    • What is most surprising in the Q1 data is that the sector ‘Public Administration, Defence and other Services’ contracted at (-) 10.3%.
    • This means that there was no fiscal stimulus.
    • The 2020-21 real GDP growth for India is forecast in the range of (-) 5.8% (RBI) to (-) 14.8% (Goldman Sachs).
    • The OECD in its September 2020 Interim Economic Outlook has projected a contraction of (-) 10.2% in FY21 for India.

    Challenge of decline in revenue

    • Due to a sharp contraction in nominal GDP growth, central and State tax revenue, both may contract.
    • . In the first quarter of 2020-21, the Centre’s gross tax revenues contracted by (-) 32.6%.
    • The CAG-based data pertaining to 19 States show a contraction of (-) 45% in their own tax revenues.
    • Given the adverse impact of the lockdown, even the budgeted non-tax revenues are not likely to be realised.
    • The revenue calculations of the Budget were made on the assumption that the nominal income of the country would grow at 10%.
    • Some estimates indicate that the tax and non-tax revenue and non-debt capital receipts in the current fiscal may fall well short of the budget estimates by an amount higher than ₹5-lakh crore.
    • The combined fiscal deficit of the Centre and the States will have to make up for the shortfall in tax and non-tax revenues, if the level of budgeted expenditures is to be maintained.

    Challenge of widening of fiscal deficit

    • In order for the central government to maintain the level of budgeted expenditure and also provide for additional stimulus, its fiscal deficit may have to be increased to close to an estimated 8.8% of GDP.
    • If one adds the Centre’s and States’ fiscal deficit, the combined fiscal deficit amounts to 13.8% of GDP.
    • If the nominal GDP actually contracts in 2020-21, the fiscal deficit as the percent of GDP would go up further.

    Role of the RBI

    • The International Monetary Fund, in its June 2020 update of the World Economic Outlook, estimated the fiscal deficit of India and China at 12.1% of GDP.
    • India doesn’t have adequate resources to support a fiscal deficit of nearly 14% of GDP.
    • All this will therefore require substantial support from the Reserve Bank of India which will have to take on itself, either directly or indirectly, a part of the central government debt.
    • In the direct mode, the RBI takes on the debt directly from government at an agreed rate.
    • It took India long to move away from the automatic monetisation of debt.
    • Even if the RBI wants to support the borrowing programmes, it should not do so directly.
    • The indirect method is preferable as the market still sends out the signals on interest rate.
    • In both cases, the RBI is the provider of liquidity.
    • The question ultimately relates to the extent of debt monetisation that may be undertaken.
    • The country has also to guard against high inflation.

    Role of government

    • The economic situation warrants enhanced government expenditure.
    • It appears that governments are withholding expenditure. That is not the right approach.
    • At the same time, there is a limit to monetisation of debt.

    Conclusion

    Perhaps the best course of action would be to keep the combined fiscal deficit at around 14% of GDP in the current year and find ways to finance it. This will have to be brought down gradually. It may take several years of normalisation.

  • Where are the funds collected through cess parked?

    The Comptroller and Auditor General (CAG) of India, in its latest audit report of government accounts, has observed that the government withheld in the Consolidated Fund of India (CFI) more than ₹1.1 lakh crore out of the almost ₹2.75 lakh crore collected through various cesses in 2018-19.

    Try this PYQ:

    Q.Consider the following items:

    1. Cereal grains hulled
    2. Chicken eggs cooked
    3. Fish processed and canned
    4. Newspapers containing advertising material

    Which of the above items is/are exempted under GST (Goods and Services Tax)? (CSP 2018)

    (a) 1 only

    (b) 2 and 3 only

    (c) 1, 2 and 4 only

    (d) 1, 2, 3 and 4

    Issues with the cess deposits

    • The CAG found this objectionable since cess collections are supposed to be transferred to specified Reserve Funds that Parliament has approved for each of these levies.
    • The nation’s highest auditor also found that over ₹1.24 lakh crore collected as Cess on Crude Oil over the last decade had not been transferred to the designated Reserve Fund — the Oil Industry Development Board.
    • Similarly, the Goods and Services Tax (GST) Compensation Cess was also “short-credited” to the relevant reserve fund.

    What is Cess?

    • The Union government is empowered to raise revenue through a gamut of levies, including taxes (both direct and indirect), surcharges, fees and cess.
    • While direct taxes, including income tax, and indirect taxes such as GST are taxes where the revenue received can be spent by the government for any public purpose in any manner it deems appropriate for the nation’s good, a cess is an earmarked tax that is collected for a specific purpose and ought to be spent only for that.
    • Every cess is collected after Parliament has authorised its creation through enabling legislation that specifies the purpose for which the funds are being raised.
    • Article 270 of the Constitution allows cess to be excluded from the purview of the divisible pool of taxes that the Union government must share with the States.

    How many cesses does government levy?

    • A report submitted to the Fifteenth Finance Commission listed 42 cesses that have been levied at various points in time since 1944.
    • The very first cess was levied on matches, according to this report.
    • Post Independence, the cess taxes were linked initially to the development of a particular industry, including a salt cess and a tea cess in 1953.
    • Subsequently, the introduction of cess was motivated by the aim of ensuring labour welfare.
    • Some cesses that exemplified this thrust were the iron ore mines labour welfare cess in 1961, the limestone and dolomite mines labour welfare cess of 1972 and the cine workers welfare cess introduced in 1981.

    Cesses after GST

    • The introduction of the GST in 2017 led to most cesses being done away with and as of August 2018, there were only seven cesses that continued to be levied.
    • These were Cess on Exports, Cess on Crude Oil, Health and Education Cess, Road and Infrastructure Cess, Building and Other Construction Workers Welfare Cess, National Calamity Contingent Duty on Tobacco and Tobacco Products and the GST Compensation Cess.
    • And in February, Finance Minister Nirmala Sitharaman introduced a new cess — a Health Cess of 5% on imported medical devices — in the Finance Bill for 2020-2021.

    Why is the issue in the news currently?

    • For one, most crucially, the express purpose of this particular cess is to help recompense States for the loss of revenue on account of their having joined the GST regime by voluntarily giving up almost all the power to levy local indirect taxes on goods and services.
    • Also, the share of revenue to the Centre’s annual tax kitty from cess had risen to 11.88% of the estimated gross tax receipts in 2018-19, from 6.88% in 2012-13.
    • Given that cess does not need to be a part of the divisible pool of resources, this increasing share of cess in the Union government’s tax receipts has a direct impact on fiscal devolution.