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  • Qissa Khwani Bazaar massacre and the Khudai Khidmatgars

    • Qissa Khwani Bazaar is a renowned market place in the city of Peshawar.
    • Before the Partition, the marketplace was also the site of a massacre perpetrated by British soldiers against non-violent protesters of the Khudai Khidmatgar movement on April 23, 1930.

    We can expect a possible mains question inspired from this newscard. The question could be like- “Discuss the role of Abdul Ghaffar Khan and his Khudai Khidmatgar in infusing the Gandhian principle of non-violence in the Frontiers of India “.

    The Red Shirts:  Khudai Khidmatgars

    • The Khudai Khidmatgar was a non-violent movement against the British occupation of the Indian subcontinent led by Abdul Ghaffar Khan, a Pashtuns freedom fighter, in the North-West Frontier Province.
    • Over time, the movement acquired a more political colour, leading to the British taking notice of its growing prominence in the region.
    • Following the arrest of Khan and other leaders in 1929, the movement formally joined the Indian National Congress after they failed to receive support from the All-India Muslim League.
    • Members of the Khudai Khidmatgar were organised and the men stood out because of the bright red shirts they wore as uniforms, while the women wore black garments.

    Why did the massacre happen?

    • Abdul Ghaffar Khan and other leaders of the Khudai Khidmatgar were arrested on April 23, 1930 by British police after he gave a speech at a gathering in the town of Utmanzai in the North-West Frontier Province.
    • A respected leader well-known for his non-violent ways, Khan’s arrest spurred protests in neighbouring towns, including Peshawar.
    • Protests spilled into the Qissa Khwani Bazaar in Peshawar on the day of Khan’s arrest. British soldiers entered the market area to disperse crowds that had refused to leave.
    • In response, British army vehicles drove into the crowds, killing several protesters and bystanders. British soldiers then opened fire on unarmed protestors, killing even more people.
    • Historical records suggest the British attempted to deploy the Garhwal Regiment against the civilians in the marketplace, but two platoons of this respected regiment refused to shoot at unarmed protesters.
    • In retaliation, British officials court-martialled the platoon members with upto eight years of imprisonment.

    Aftermath of the massacre

    • The British ramped up the crackdown on Khudai Khidmatgar leaders and members following the Qissa Khwani Bazaar massacre.
    • In response, the movement began involving young women in its struggle against the British, a decision in line with tactics adopted by revolutionaries across undivided India.
    • Women were able to move undetected with more ease than men.
    • According to accounts by Khudai Khidmatgar activists, the British subjected members of the movement to harassment, abuse and coercive tactics adopted elsewhere in the subcontinent.
    • This included physical violence and religious persecution. Following the recruitment of women in the movement, the British also engaged in violence, brutality and abuse of women members.

    Khudai Khidmatgars  gets wasted into history

    • British adopted their tactic of sowing divisions on religious grounds in the North-West Frontier Province as well, in an attempt to weaken the Khudai Khidmatgar.
    • In a move that surprised the British government, in August 1931, the Khudai Khidmatgar aligned themselves with the Congress party, forcing the British to reduce the violence they were perpetrated on the movement.
    • The Khudai Khidtmatgar opposed Partition, a stance that many interpreted as the movement not being in favour of the creation of the independent nation of Pakistan.
    • Post 1947, the Khudai Khidmatgar slowly found their political influence decreasing to such an extent that the movement and the massacre 90 years ago in the Bazaar has been wiped out from collective memory (of Pakistan).

  • [Burning Issue] India’s Amended FDI Norms amidst Hostile Takeover Efforts by China

     

     

    For India, the problem lies that, trade with China has often been viewed as a positive in a relationship without any positive sentiment.

    Post-Doklam, the Wuhan ‘reset’ with China was premised largely on India and China working towards a more robust economic relationship.

    Yet, China’s reluctance to adequately address Indian concerns and the challenges posed by sectors like trade and health also emerging as traditional national security threats in the Sino-Indian matrix meant that New Delhi had had to finally bite the bullet.

    FDI is an all-season hot topic for both prelims as well as mains. Reading the Burning Issue will make you aware of its scope. We can expect a mains question like –  Recent amendment in the FDI Policy aims for curbing opportunistic takeovers/acquisitions of Indian companies. Elucidate.

    Context

    • The Government of India has reviewed the extant Foreign Direct Investment (FDI) policy for curbing opportunistic takeovers/acquisitions of Indian companies due to the current COVID-19.
    • The Indian policy revision is meant for sectors and enterprises other than defence, space, atomic energy and sectors and activities “prohibited for foreign investment”.
    • It was understood that the Indian decision was a response to the news of an incremental purchase of shares in HDFC by the People’s Bank of China.

    Background

    What is Foreign Direct Investment (FDI)?

    An FDI is an investment in the form of a controlling ownership in a business in one country by an entity based in another country. It means where a foreign company, generally an MNC, may invest in a country in any of the following 3 forms:

    1) Set up a plant or project to manufacture a commodity- consumer goods, capital goods, automobile, aircraft, ships etc. It may also engage itself in construction activity- highways, roads, bridges, ports, airports, real estate etc.

    2) Setup a network for providing services- banking, insurance, shipping, telecom, software, civil aviation etc.

    3) Only provide technology by way of Technology Transfer through any company of the country. It can provide technology only or provide technology along with #1 & #2 above

    Why Foreign Investors go for FDI?

    • To take advantage of cheaper wages in the country, special investment privileges such as tax exemptions offered by the country as an incentive
    • To gain tariff-free access to the markets of the country
    • To acquire a lasting interest in enterprises operating in the target country

    What attracts FDI?

    • The growth rate of the source economy is an important determinant
    • The political and economic stability of the target region
    • How ‘open’ the economy is towards foreign trade (both imports and exports)
    • The policies, rules, regulations and loopholes incidental thereto
    • For example, Mauritius has been the top FDI source for India due to the later (loophole) reasons

    FDI in India

    • Foreign investment was introduced in 1991 under Foreign Exchange Management Act (FEMA), driven by then FM Manmohan Singh.
    • There are two routes by which India gets FDI.

    1) Automatic route: By this route, FDI is allowed without prior approval by Government or RBI.

    2) Government route: Prior approval by the government is needed via this route. The application needs to be made through Foreign Investment Facilitation Portal, which will facilitate the single-window clearance of FDI application under Approval Route.

    • India imposes a cap on equity holding by foreign investors in various sectors, current FDI in aviation and insurance sectors is limited to a maximum of 49%.
    • In 2015 India overtook China and the US as the top destination for the Foreign Direct Investment.

    Chinese contribution

    • Almost 18 of India’s 23 unicorns have investments from China.
    • According to a report, China has remarkable investments in the tech sector in India.
    • “TikTok, the video app, has 200 million subscribers and has overtaken YouTube in India.
    • Alibaba, Tencent and ByteDance rival the US penetration of Facebook, Amazon and Google in India.
    • Chinese smartphones like Oppo and Xiaomi lead the Indian market with an estimated 72 per cent share, leaving Samsung and Apple behind.

    What is the recent amendment all about?

    • The govt. has amended para 3.1.1 of extant FDI policy as contained in Consolidated FDI Policy, 2017.
    • In the event of the transfer of ownership of any existing or future FDI in an entity in India, directly or indirectly, resulting in the beneficial ownership, such subsequent change in beneficial ownership will also require Government approval.

    The present position and revised position in the matters will be as under:

    Earlier Position

    • A non-resident entity can invest in India, subject to the FDI Policy except in those sectors/activities which are prohibited.
    • However, a citizen of Bangladesh or an entity incorporated in Bangladesh can invest only under the Government route.
    • Further, a citizen of Pakistan or an entity incorporated in Pakistan can invest, only under the Government route, in sectors/activities other than defence, space, atomic energy and sectors/activities prohibited for foreign investment.

    Revised Position

    • A non-resident entity can invest in India, subject to the FDI Policy except in those sectors/activities which are prohibited.

    [spot the difference]

    • However, an entity of a country, which shares a land border with India or where the beneficial owner of investment into India is situated in or is a citizen of any such country, can invest only under the Government route.
    • Further, a citizen of Pakistan or an entity incorporated in Pakistan can invest, only under the Government route, in sectors/activities other than defence, space, atomic energy and sectors/activities prohibited for foreign investment.

    What do these restrictions mean?

    • FDI from rest of the countries could come in through the automatic route in sectors where it is allowed such as automobiles, auto parts, construction, asset reconstruction, agriculture, single-brand retail, manufacturing, coal, gems & jewellery, and textiles, capital goods, pharmaceuticals, electronic systems and ports and shipping etc.
    • If FDI is made from investors in China and six other neighbouring countries it will need to have prior government approval.
    • Earlier, these restrictions were applicable only on Pakistan and Bangladesh.

    What led India to change the FDI norms?

    • Chinese investments sometimes do follow a pattern. At the peak of the debt crisis, there was a massive inflow of Chinese direct investment into the European Union.
    • In 2010, the total stock of Chinese direct investment in the EU was just over €6.1bn, less than what was held by India, Iceland or Nigeria.
    • By the end of 2012, Chinese investment stock had quadrupled, to nearly €27bn. This was partly opportunistic buying because assets were cheap.
    • It was a structural secular shift in Chinese outbound investment, from securing natural resources in developing countries to acquiring brands and technology in developed countries.
    • Chinese firms are quite ready for discount deals, where domestic companies are reeling under an economic crisis spurred on by the coronavirus pandemic.

    Impact on investments

    • The amended policy brings every kind of Chinese investors to India within the ambit of government approval reducing the space for private business negotiations.
    • The decision would face difficulties, especially if the government tried to attribute nationality to venture capital funds.
    • China has argued that the barriers set by the Indian side for investors from specific countries violate WTO’s principle of non-discrimination, and go against the general trend of liberalization and facilitation of trade and investment.

    China’s objection raises an important question:

    Is India’s revision of its FDI policy valid under international investment law?

    1) Invoking WTO

    • It is important to note that the entry or regulation of FDI into a country is not governed by the World Trade Organization (WTO).
    • The multilateral WTO Agreements mainly regulate disciplines on trade in goods and services, and intellectual property and not the right to regulate foreign investment per se.

    2) Emergency provisions

    • Many international agreements, including WTO Agreements, provide exceptions for extraordinary measures taken in times of emergencies.
    • The WHO has classified the COVID-19 crisis as a public health emergency of international concern.
    • Therefore, any measures that a country considers necessary for the protection of its essential security interests, which are taken in time of war or other emergencies, are not considered to be in contravention of its international commitments.
    • A state’s commitment to trade and investment liberalization certainly does not include forfeiture of its essential security interests.

    3) A more bilateral issue (if considered any)

    • Disputes over the regulation of FDI would normally be considered under the dispute settlement mechanisms of a bilateral investment treaty (BIT).
    • However, currently, there are no bilateral investment treaties between India and China.
    • Therefore, China lacks the ability to challenge India’s amendment to its FDI policy under a BIT arbitration mechanism as well.

    Conclusion

     

    • India’s revised FDI policy clearly intends to protect an essential security interest and cannot be considered inconsistent with the relevant WTO Agreements.
    • The amendments are not aimed at any one country but at curbing “opportunistic” takeovers of Indian firms, many of which are under strain.
    • The amendments are not prohibiting investments. Only the approval route for these investments has been changed.
    • Before India, the European Union and Australia had initiated similar measures. These, again, were seen as being targeted at Chinese investments.

    Way Forward

    • India is unlikely to be bullied as its FDI moves are on an extremely strong legal footing. But it is important to address the larger picture.
    • The financial and strategic exploitation of a pandemic-induced economic slowdown is reprehensible and unquestionably needs urgent attention.
    • Considering the injury caused to China’s status as a responsible stakeholder (being failed at share information of coronavirus), Beijing would be wise to avoid actions that risk a reaffirmation of its bad faith.
    • Particularly at a time when manufacturing companies are exiting its shores and Chinese capital is increasingly becoming unwelcome, India needs to adopt a more conciliatory approach.

    Also read:

    FDI in Indian economy

     

    References

    https://www.theweek.in/news/biz-tech/2020/04/23/the-great-wall-against-china-understanding-india-new-foreign-investment-rules.html

    https://www.orfonline.org/expert-speak/india-fires-a-salvo-at-china-65011/

    https://indianexpress.com/article/explained/why-india-tightened-fdi-rules-and-why-its-china-thats-upset-6374693/

  • Why US’s offer of financial aid to Greenland has angered Denmark?

    Context

    • The US had last year sent a proposal to “purchase” Greenland from the Nordic nation.
    • This proposal follows plans by the US government to open a consulate in Nuuk, Greenland’s capital.
    • This move is being considered to be “extremely provocative” interference by the US.

    Go for a detailed map reading of the Arctic region. It has been in news for several times this year.

    Why is the US opening a consulate in Greenland?

    • The US is opening a consulate in Greenland after nearly seven decades of closing its first consulate after the Second World War.
    • Russia has been steadily expanding its military presence in the Arctic and China has done its bit on the economic front.

    US’s interests in Greenland

    1) Domestic interest

    • The US claims that its aid is to ensure “sustainable growth” in the autonomous island.
    • It also cited Russia’s “aggressive behavior and increased militarisation in the Arctic” and China’s “predatory economic interests” as reasons for the decision.
    • The US acquiring new territory under Trump would appeal to the nationalistic and imperialistic views of Americans.
    • Acquiring Greenland would also secure Trump’s position in US history of having been the third president to add land to the country’s territory.

    2) Strategic interest

    • Due to climate change, the Arctic ice is melting at an accelerated rate, opening up water routes for military and maritime trade.
    • This is in addition to global superpowers and regional players vying for control over Greeland’s vast untapped natural resources.

    3) Economic interest

    • Greenland is also a resource-rich landmass, strategically located between the Arctic Sea and the Atlantic Ocean, with some of the largest deposits of rare-earth metals, including iron-ore, uranium, and by-products of zinc, neodymium, praseodymium, dysprosium and terbium.
    • These rare-earth metals are used in the production of electric cars, mobile phones and computers.
    • For the longest time, China has been the world’s largest supplier of these rare-earth metals and has expanded its acquisitory plans by excavating mines across the African continent.
    • An acquisition of Greenland would make the US less reliant on China for these rare-earth metals.
    • Greenland, as a part of the Arctic region, also has large deposits of undiscovered oil and gas, resources that the US always wants more of.

    The US obsession

    • Trump’s interest in Greenland is almost an extension of his world view and US foreign policy in his administration.
    • Purchasing another country or territory is unusual, but the US government has done this twice before.
    • Erstwhile President Thomas Jefferson acquired Louisiana from the French in 1803 and the second time when President Andrew Johnson purchased Alaska from Russia in 1867.

    Back2Basics: Greenland

    • Greenland is the world’s largest island located between the Arctic and Atlantic oceans, east of the Canadian Arctic Archipelago.
    • It is an autonomous territory within the Kingdom of Denmark.
    • Though physiographically a part of the continent of North America, Greenland has been politically and culturally associated with Europe
    • The majority of its residents are Inuit, whose ancestors migrated from Alaska through Northern Canada, gradually settling across the island by the 13th century.

  • What is Operation Twist?

    The Reserve Bank of India (RBI) has announced simultaneous purchase and sale of government bonds in a bid to soften long-term yields under its Operation Twist.

    Operation Twist

    • Operation Twist is a move taken by U.S. Federal Reserve in 2011-12 to make long-term borrowing cheaper.
    • It first appeared in 1961 as a way to strengthen the U.S. dollar and stimulate cash flow into the economy.
    • It is the name given to a Federal Reserve monetary policy operation that involves the purchase and sale of bonds.
    • The operation describes a form of monetary policy where the bank buys and sells short-term and long-term bonds depending on their objective.

    Its genesis

    • The name “Operation Twist” was given by the mainstream media due to the visual effect that the monetary policy action was expected to have on the shape of the yield curve.
    • If we visualize a linear upward sloping yield curve, this monetary action effectively “twists” the ends of the yield curve, hence, the name Operation Twist.
    • To put another way, the yield curve twists when short-term yields go up and long-term interest rates drop at the same time.

     Back2Basics: Open Market Operations

    • Open market operations are the sale and purchase of government securities and treasury bills by RBI or the central bank of the country.
    • The objective of OMO is to regulate the money supply in the economy.
    • When the RBI wants to increase the money supply in the economy, it purchases the government securities from the market and it sells government securities to suck out liquidity from the system.
    • OMO is one of the tools that RBI uses to smoothen the liquidity conditions through the year and minimise its impact on the interest rate and inflation rate levels.

  • Mobile Virology Research and Diagnostics Laboratory (MVRDL)

    The Defence Research and Development Organisation (DRDO) has developed a mobile virology research lab.

    We can expect a  prelim question on BSL ratings as the term is widely appearing in news these days.

    About the MVRDL

    • The MVRDL is the combination of a bio-safety level (BSL)-3 lab and a BSL-2 lab and was set up in a record time of 15 days.
    • It can process 1,000-2,000 samples a day.
    • The mobile lab will be helpful in carrying out a diagnosis of COVID-19 and in virus-culturing for drug screening, convalescent plasma-derived therapy, comprehensive immune profiling of patients towards vaccine etc.

    What are Biosafety Level (BSL) Ratings?

    • A BSL is a set of biocontainment precautions required to isolate dangerous biological agents in an enclosed laboratory facility.
    • The levels of containment range from the lowest biosafety level 1 (BSL-1) to the highest at level 4 (BSL-4).
    • BSL-1 is suitable for work with well-characterized agents which do not cause disease in healthy humans.
    • BSL- 2 is suitable for work involving agents of the moderate potential hazard to personnel and the environment.
    • BSL-3 is appropriate for work involving microbes which can cause serious and potentially lethal disease via the inhalation route.
    • BSL-4 is the highest level of biosafety precautions and is appropriate for work with agents that could easily be aerosol-transmitted within the laboratory and cause severe to fatal disease in humans for which there are no available vaccines or treatments.

  • Highlights of the World Press Freedom Index, 2020

     

    India has dropped two places on a global press freedom index to be ranked 142nd out of 180 countries in the annual World Press Freedom Report.

    Press freedom  especially after the abrogation of Art. 370 in J&K was profoundly debated back then.  We can expect a mains question like-

    “Reasonable restrictions to the freedoms enjoyed by media are necessary while addressing the concerns of national security.  Critically comment.”

    World Press Freedom Index

    • The Press Freedom Index is an annual ranking of countries compiled and published by Reporters Without Borders.
    • It is based upon the organization’s own assessment of the countries’ press freedom records.
    • It intends to reflect the degree of freedom that journalists, news organisations, and netizens have in each country, and the efforts made by authorities to respect this freedom.
    • The report is partly based on a questionnaire which asks questions about pluralism media independence, environment and self-censorship, legislative framework, transparency, and infrastructure.

    Highlights on India

    • The report said that with no murders of journalists in India in 2019, as against six in 2018.
    • However, there have been constant press freedom violations, including police violence against journalists, ambushes by political activists, and reprisals instigated by criminal groups or corrupt local officials.

    Global scenario

    • Norway is ranked first in the Index for the fourth year running.
    • India ranked better than its neighbours Pakistan (145) and Bangladesh (151), but worse than Sri Lanka (127) and Nepal (112).
    • China at 177th position is just three places above North Korea, which is at 180th.

    Various threats to press freedom

    • Across the world, press freedom is under pressure from aggressive authoritarian regimes.
    • The media is also facing a technological crisis, due to a lack of democratic guarantees and a democratic crisis following polarization and repressive policies, the report reads.
    • In addition comes a crisis of trust following growing suspicion and even hatred of the media, and an economic crisis and impoverishing of quality journalism.
    • Among other issues, the report has listed coordinated social media hate campaigns against journalists reporting on issues that “annoy right-wing followers”, criminal prosecutions to gag journalists critical of authorities and police violence against journalists.

  • [pib] VidyaDaan 2.0 Programme for e-learning content contributions

    The Union HRD Ministry has e-launched VidyaDaan 2.0 program for inviting e-learning content contributions.

    There are various web/portals/apps with peculiar names such as YUKTI, DISHA, SWAYAM etc. Their core purpose is similar with slight differences. Pen them down on a separate sheet under the title various digital HRD initiatives.

    Add one more to this list.

    VidyaDaan

    • ‘Vidya Daan’ is a digital program to enable contributions to improve teaching & learning.
    • It encourages the sharing of high quality, curated, relevant & curriculum-linked digital content.
    • This program attempts to synergize countrywide developments in the field of education by providing schools all over India, from the Metro cities to the smallest villages with good quality e-content.

    How does it work?

    • VidyaDaan has a content contribution tool that provides a structured interface for the contributors to register and contribute different types of content (such as, explanation videos, presentations, competency-based items, quizzes etc.), for any grade (from grade 1 to 12), for any subject as specified by the states/UTs.

    About phase 2.0

    • The programme has been re-launched due to the increasing requirement for e-learning content for students especially in the backdrop of the situation arising out of COVID- 19.

  • [pib] Species in news:  Anthurium

    A women innovator from Thiruvananthapuram, Kerala, has developed ten varieties of Anthurium, a flower with high market value, by cross-pollination.

    Anthurium

    • An anthurium is a vast group of beautiful blooming plants available in a wide range of colours.
    • Anthurium is one of the best domestic flowering plants in the world.
    • They are decorative as well as purify the surrounding air and remove harmful airborne chemicals like formaldehyde, ammonia, toluene, xylene, and allergens.
    • Its importance of removing toxic substances from the air, NASA has placed it in the list of air purifier plants.
    • Anthurium has larger economic importance because of its eye-catching and beautiful inflorescence and fetches a good market price.

    Salient features of the Anthurium varieties are

    • Large beautiful flowers
    • Different colors of spathe and spadix
    • Long stalks
    • Better shelf life
    • Good market value

  • Fiscal empowerment of States

    The article elaborates on the central role played by the States in the fight against Covid-19. The article emphasises the role that States can play in the implementation of the various measures to tackle the epidemic and economic revival of the country. It also highlights the lack of resources at the States’ disposal and reasons for the lack such as revenue loss in the lockdown and lower devolution by the Central Government. In the end, there is a suggestion to increase the borrowing limit of the States’.

    Time to relax fiscal constraints on the States

    • The speed of economic revival will depend on how long it will take to revive economic activities and the volume of stimulus through public spending the government is able to provide.
    • It now appears that the lockdown will be lifted in stages and the recovery process will be prolonged.
    • The country is literally placed in financing a war-like situation.
    • The government will have to postpone the fiscal consolidation process for the present, loosen its purse strings and finance its deficits substantially through monetisation.
    • This is also the time for the government to announce relaxation in the States’ fiscal deficit limit to make them effective participants in the struggle.

    The following points highlight the importance of States in dealing with the crisis. The federal structure of India comes to the fore here. The UPSC can aks question on this theme, for example, “Discuss the important role played by the States in dealing with the Covid-19 and how it underscores the federal character of the Indian polity?”

    The important role played by the States

    • Prioritise health spending: It is also important for the States to realise the importance of health and prioritise spending on health-care services.
    • Being closer to the people, the States have a much larger responsibility in fighting this war.
    • Public health, as well as public order, are State subjects in the Constitution.
    • Acts invoked for lockdown: Some States were proactive in dealing with the COVID-19 outbreak by involving the Epidemic Diseases Act, 1897, even before the Government of India declared a universal lockdown invoking the Disaster Management Act, 2005.
    • Of course, the Centre under Entry 29 of the Concurrent List has the powers to set the rules of implementation which states, “Prevention of the extension from one State to another of infectious or contagious diseases or pests affecting men, animals or plants”.
    • Implementation at the ground level: While Central intervention was done to enable, “consistency in the application and implementation of various measures across the country”, the actual implementation on the ground level will have to be done at the State level.
    • Furthermore, States are better informed to decide the areas and activities where relaxations should be done as the coronavirus curve is flattened.
    • Coordination: Hopefully, there will be better coordination between the Union and State governments instead of claiming credit and apportioning blame.

    Covid-19 has made clear the neglect and poor state of health in India. The UPSC can frame the question based on the health infrastructure and expenditure on it. The question can be framed on the following lines “Covid-19 has highlighted India’s lack of preparedness and the poor health infrastructure in the country. What are the reasons for it? Give suggestions to improve it.”

    Neglect of the health-care sector in the country

    • The pandemic has underlined the historical neglect of the health-care sector in the country.
    • Expenditure on health as a percentage of GDP: The total public expenditures of Centre and States works out to a mere 3% of GDP.
    • In 2017-18, in per capita terms, the public expenditure on medical and public health varied from an abysmal ₹690 in Bihar and ₹814 in Uttar Pradesh to the highest of ₹2,092 in Kerala.
    • The centrally sponsored scheme, the National Health Mission, is inadequately funded, micromanaged with grants given under more than 2,000 heads and poorly targeted.
    • The focus of “Ayushman Bharat” has been to advocate insurance rather than building wellness centres.

    Economic revival by the States

    • Besides protecting lives and livelihoods, States will have to initiate and facilitate economic revival, and that too would require substantial additional spending.
    • Hand holding small and medium enterprises which have completely ceased production, providing relief to farmers who have lost their perishable crops and preparing them for sowing in the kharif season are other tasks that require spending.
    • In fact, States have been proactive. Kerala came out with a comprehensive package allocating ₹20,000 crores to fight the pandemic.
    • Almost all States have taken measures to provide food to the needy besides ramping up health-care requirements.

    Lack of resources and revenue loss suffered by the States

    • While the requirement of States for immediate expenditures is large, they are severely crippled in their resources.
    • In the lockdown period, there has virtually been no economic activity and they have not been able to generate any revenue from State excise duty, stamp duties and registration fees, motor vehicles tax or sales tax on high-speed diesel and motor spirit.
    • The revenue from Goods and Services Tax is stagnant and compensation on time for the loss of revenue has not been forthcoming.
    • As the recovery process will be staggered, it is doubtful whether tax revenues will register any positive growth in 2020-21.
    • Not surprisingly, the State has decided to monetise land through auctions to get money besides regularising unauthorised constructions by paying high fees.

    Lower tax devolution from the Centre

    • The position regarding tax devolution from the Centre is even more precarious.
    • To begin with, the tax devolution in the Union Budget estimate is lower than the Commission’s estimate by ₹70,995 crores.
    • In fact, the Budget estimate for 2020-21 itself is a huge overestimate when seen against the 11-month actual collections in 2019-20.
    • The required growth to achieve the Budget estimate is 33.3% over the annualised actual collection.
    • The projections are that the growth of nominal GDP in 2020-21 will be just about 4%.
    • And if the tax revenue increases by the same rate, devolution to the States would be lower by ₹2.2-lakh crore than the Finance Commission’s estimate.
    • This results in a loss of ₹9,173 crores for Tamil Nadu, ₹9,000 crores for Andhra Pradesh, ₹8,000 crores for Karnataka, ₹4,671 crores for Telangana, and ₹4,255 crores for Kerala.
    • Supplementary report by the Finance Commission: There is a strong case for the States to go back to the Finance Commission with a request to make and give a supplementary report.

    Of late, the poor fiscal health of the States has been in the news. Following are some of the factors that are responsible for it. A question can be asked with relation to this problem like “The States are facing fiscal constraints owing to the lack of revenue. What are the reasons for it? What are the options available to help the States to deal with such a situation?”

    Problems faced by the States in raising resources

    • There is only a limited scope for expenditure switching and reprioritisation now.
    • Limited space for borrowing: Their borrowing space too is limited by the fiscal responsibility and budget management limit of 3% of Gross State Domestic Product (GSDP).
    • High yield no the State bonds: Faced with an acute fund crunch, Kerala floated 15-year bonds but was faced with a huge upsurge in the yield to 8.96%.
    • Increase in the WMA limit: The announcement by the Reserve Bank of India on the increase in the limit of ways and means advances by 60% of the levels prescribed in March 31 could help States to plan their borrowing better.
    • But that is too little to provide much relief.

    Conclusion

    It is important for the Central government to provide additional borrowing space by 2% of GSDP from the prevailing 3% of GSDP. This is the time to fiscally empower States to wage the COVID-19 war and trust them to spend on protecting lives, livelihoods and initiate an economic recovery.

  • Super-power rivalries exacerbated by coronavirus pandemic offer India an opportunity

    The article discusses three fronts on which actions are required viz- health, economy and geopolitics. How much the global economy is going to be affected? how the US-China rivalry would affect the recovery? what the lack of global coordination means? all such questioned are discussed here.  It also suggests actions that India should take to deal with the crisis.

    Many unknowns than knowns about Covid-19

    • The virus currently has many more unknowns than knowns.
    • We don’t know for sure how it spreads, whether people can get re-infected, whether it is mutating, whether the hot weather kills it, and what the real fatality rate is.
    • We don’t know for sure how far we are from an anti-viral.
    • We know that we are at least 18 months away from having a vaccine that works and is available at scale.
    • Till an anti-viral is found, economic activity will be constrained, and this will affect people, industries and countries in disparate ways.

    The extent of damage to the global economy

    • Loss of ten trillion dollars: The global economy is set to lose close to ten trillion dollars because of the “self-induced coma” it has been put into — to use Paul Krugman’s evocative phrase.
    • Loss of effectiveness of monetary policy: The preceding global financial crisis (GFC) has exhausted the efficacy of monetary tools.
    • In addition, corporates globally are leveraged to the tune of $12 trillion.
    • The slump in demand: The accompanying oil price collapse, beginning due to a spat between producers Saudi Arabia and Russia have been compounded by a precipitous slump in demand.
    • The Chinese economy can’t help as it did during the GFC, as it is hemmed in itself.
    • Even if it could, there is too much global suspicion of China to allow it to do so. So, countries will largely be on their own.

    Tensions between the US and China

    • The tensions between the US and China have escalated into a full-scale superpower crisis after the virus spread.
    • Since 2010, there has been great concern in the US about China’s rise.
    • China’s muscular foreign policy together with its aggressive stance on multiple issues, most importantly on technology and technology standards, has created conflict.
    • The coronavirus is spreading in the US in an election year and smashing its economy.
    • The virus infected over three-quarter of a million people in the country and killed more than 40,000.
    • After this, China could be seen as enemy number one in the US.

    No global coordination

    • No wonder then that at a time when the world yearns for global coordination, there is almost none — in healthcare responses and economic coordination.
    • Multilateral agencies, especially the WHO and UN, suffer a complete loss of credibility.
    • India needs to chart its own course in these turbulent times.
    • If India takes the requisite actions it may come out well.

    Following suggestions are important from the UPSC perspective. The suggestions deals with three fronts-health, economic and geopolitics.

    How India could come out of the crisis?

    • India needs to act at three levels — health, economic and geopolitical.

    1. Actions at the health level

    • The Union Ministry of Health and Family Welfare has done well to stem the spread of the infection.
    • It has sensitised the public, introduced the concept of social distancing and isolation in the most challenging situations.
    • Now it must test at scale and isolate.

    2. Actions at the economic level

    • Indians cannot afford to stay locked much longer.
    • We are too poor and too many of us live on a day-to-day basis — not even on a paycheck to paycheck basis.
    • Economic activity will be subdued in the near-term, but it must be “unlocked”.
    • The current IMF projections suggest that India will have the highest growth rate in the world this year.
    • Oil prices have collapsed, really helping our balance of payments.
    • Our food stocks are plentiful, the rabi crop has been good, and the prognosis for the monsoon is positive.
    • Low inflationary pressure: This, together with the fact that aggregate demand is down, will dampen inflationary impulses.
    • The “new RBI” has acted boldly and strongly.
    • It has taken prompt actions to reduce rates, increase liquidity, adjust prudential norms, allow moratoriums, and protect financial entities.
    • Indian is better placed: The weakened rupee will help our exports and with a debt to GDP ratio of about 73 per cent, along with better growth prospects, India is relatively better placed than several other countries.
    • We should, therefore, not unduly worry about our credit rating. This both allows and actually requires the government to act on the fiscal front.
    • The government needs to implement the following four steps to spur the economy.
    • (1) It should do so by “printing money” given the moderated inflation
    • (2) It needs to provide additional direct benefit transfers of Rs 2,000 every month for three months to Jan Dhan accounts, together with foodgrains release from the FCI, to the tune of around Rs 65,000 crore, to alleviate people’s miseries.
    • (3) It needs to protect MSMEs directly by providing them working capital (with an RBI backstop) and, like in the UK, provide 80 per cent of the salary to employees of the “GST-paying MSMEs” for six months.
    • (4) It needs to launch a massive public works programme outside the Budget as suggested by the chairman of CII’s National Committee of Infrastructure and PPP, Vinayak Chatterjee.
    • This fund should be earmarked for infrastructure and a quarter of its budget should be set aside for strengthening and upgrading primary health centres.
    • The allocation should not be less than Rs 200,000 crore.
    • Push through pending reforms: The government should take advantage of the crisis to push through much needed pending reforms in agriculture-especially those pertaining to APMC), power-pricing and discoms, banks-government ownership at 30 per cent and bad banks.
    • Revenue from private gold: Given the paucity of tax revenues, the government could also consider having the PM making an appeal for private gold from people and temples.
    • It could target 1,000 tonnes of gold worth $30 billion and offer a five per cent tax-free return repayable ($1.5 billion a year) after 10 years, in rupees or gold.

    3. Actions at the geopolitical level

    • India can come out ahead if we act now.
    • Super-power rivalries will create opportunities to replace China as a major supplier to the US and Japan.

    Conclusion

    The battle to deal with the corona disaster has to be fought on many fronts. India must form a strategy and act on various front i.e. health, economic and geopolitical- to be victorious at the end.