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  • The Budget bids goodbye to fiscal orthodoxy

    A whopping fiscal deficit at 9.5% of GDP for FY21 highlights departure of India’s fiscal policy from the path of fiscal consolidation. The article highlights the issues related to such departure.

    Important departure

    • 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 set out in the Fiscal Responsibility and Budget Management (FRBM) Act (2003).
    • In this Budget, target of FRBM Act has not been adhered to.
    • The Budget thus marks an important departure from one of the key tenets of the Washington Consensus that was based on macroeconomic stability.
    • In previous years, Medium Term Fiscal Policy cum Fiscal Strategy Statement would give the indicators for the past two years as well as the projections for the next two years.
    • In this year’s Budget, the yearly projections are missing.
    • The Finance Minister has promised to introduce an amendment to the FRBM Act to formalise the new targets.

    The theoretical basis for departure

    • The Economic Survey laid the groundwork for a departure from rigid adherence to fiscal consolidation. 
    • It has a quote from economist Olivier Blanchard, “If the interest rate paid by the government is less than the growth rate (IRGD), then the intertemporal budget constraint facing the government no longer binds.”
    • The “intertemporal budget constraint” means that any debt outstanding today must be offset by future primary surpluses.
    • The Survey argues that in India, the growth rate is higher than the interest rate most of the time. 
    • The Survey says that, in the current situation, expansionary fiscal policy will boost growth and cause debt to GDP ratios to be lower, not higher.

    Key concerns

    • An important factor for adhering to the fiscal constraint in the past was the fear that the rating agencies would downgrade India if total public debt crossed, say, 10%-11% of GDP.
    • That is a risk that cannot be wished away unless the rating agencies have decided to toe the IMF-World Bank line on fiscal deficits.
    • Another concern is that a large fiscal deficit can fuel a rise in inflation.
    • A third concern is that, with the tax to GDP ratio not rising as expected, the sale of public assets has become crucial to reduction in fiscal deficits in the years ahead. This is a high-risk strategy.
    • A large-scale privatisation almost always involves substantial FDI.
    • In South East Asia and Eastern Europe, privatisation of banks meant a large rise in foreign presence in the domestic economies.

    Consider the question “The Budget 2021-22 is characterised by its departure from the path of fiscal consolidation. Examine the theoretical basis for such departure. What are the key concerns?”

    Conclusion

    If the nation’s political economy came in the way of our meeting the FRBM targets, it is also likely to pose an obstacle to large-scale privatisation. A departure from fiscal orthodoxy is welcome. But the government needs to think of ways to make it more sustainable.

    Back2Basics: Interest Rate Growth Differential

      • A key indicator of an economy’s long-run debt sustainability is the differential between interest paid on government debt and the economy’s nominal growth rate.
      • When the cost of raising debt is lower than the gross domestic product (GDP) growth rate, public debt comes with low fiscal costs.
      • In such a situation, the debt-to-GDP ratio of the economy declines as debts are rolled over.

     

  • Sri Lanka pushes India out of Colombo Terminal Project

    After the strong opposition from within, the Sri Lankan government was forced to revoke a 2019 agreement with India and Japan to develop the strategic East Container Terminal (ECT) at the Colombo Port.

    Map Reading: Note all these major ports and try recalling their sequences in the clockwise and counter-clockwise direction.

    What is the news?

    • PM Mahinda Rajapaksa made a statement that the operation of the east terminal would be done by Sri Lanka Ports Authority on its own.
    • Its cabinet has approved a proposal to develop the West Terminal at the Colombo Port as a PPP with India and Japan, which is seen as a bid to compensate India.
    • It is unclear whether India would accept the latest proposal.

    What is the Project?

    • The tripartite agreement, signed by India, Sri Lanka and Japan, proposes to develop the ECT, which is located at the newly expanded southern part of the Colombo Port.
    • The ECT is located 3 km away from the China-backed international financial city, known as Port City, currently being built in Colombo.
    • A Chinese company was behind the controversial 2018 Hambantota port project, signed its first contract in the Port City last month.
    • It is also on the map of China’s Belt and Road Initiative (BRI).

    India’s reaction

    • A few weeks ago EAM S. Jaishankar visited Sri Lanka where he discussed the development of the stalled project.
    • India’s first response was that the island nation should not be taking a decision in a unilateral manner on an existing tripartite agreement.

    Compensatory offer to India

    • After the decision on revoking the 2019 agreement, SL has approved another proposal to develop the west terminal of the Colombo port with Japan and India.
    • Commercially, the west terminal offer is better for India as it gives 85% stake for developers of the West Terminal against the 49% in ECT.

    Sri Lanka expects India to rethink. Why?

    • Indian response to this compensatory offer is unclear since there was no formal communication by SL authorities.
    • Geo-politically, west terminal is almost the same India considers the security aspect and the necessity to have a port terminal in Sri Lanka.
    • There is no difference between East and West Terminals except for the fact that development of the ECT is partially completed while the development of the West Terminal has to start from scratch.

    SL version of the revocation

    • Incumbent PM Mahinda Rajapaksa said the pressure was immense on the President Gotabaya Rajapaksa to cancel the 2019 agreement.
    • The pressure was brewing so much that he was becoming so unpopular among the people.
    • As per the agreement signed by the former Maithripala Sirisena-Ranil Wickremesinghe administration, India and Japan together were to hold 49% stake in ECT.
    • What had finally made the government surrender before trade unions were the increasing support of many more sections in the society for the protests against privatization.

    The inevitable factor: China

    • This move can be easily interpreted as a reaction to Chinese communication to Sri Lanka.
    • China has reportedly instigated trade unions and civil societies against this project.

    Q.The threat of Chinese presence in South Asia can be tackled more effectively if India changes course in its dealings with its neighbours and becomes more sensitive to their concerns. Critically analyse.

    Outcome: Souring of the ties

    • For India, the strategic ECT project was important. Even the EAM has visited Colombo in January in this regard.
    • Critics of the Sri Lankan government anticipate many national and international impacts surrounding the latest decision on ECT.
    • Meantime, internationally an offended India can make life tough for Sri Lanka, isolating the tiny island nation, geo-politically and on the economic front.
    • The economic isolation will not help Sri Lanka at a time when the country is taking steps to revive the economy amid a pandemic.

  • India Justice Report, 2020

    The second edition of the Indian Justice Report (IJR) was recently launched.

    Note the findings of this report. It is the only such report of its kind published in India.

    India Justice Report

    • The IJR is an initiative of Tata Trusts in collaboration with Centre for Social Justice, Common Cause and Commonwealth Human Rights Initiative among others.
    • It was first published in 2019.
    • It brings together otherwise siloed statistics from authoritative government sources, on the four pillars of justice delivery – Police, Judiciary, Prisons and Legal Aid.

    Major highlights of the Report

    • The report highlights stark conclusions when aggregated for an all-India picture.
    • Women comprise only 29 per cent of judges in India.
    • Two-thirds of the country’s prisoners are yet to be convicted.
    • In the last 25 years, since 1995, only 1.5 crore people have received legal aid, though 80 per cent of the country’s population is entitled to.
    • The report gives ranks Maharashtra once again at the top of the 18 large- and mid-sized states (with a population of over one crore each), followed by Tamil Nadu, Telangana, Punjab and Kerala.
    • The list of seven small states (population of less than one crore each) was topped by Tripura, followed by Sikkim and Goa.

  • Jal Jeevan Mission (Urban) to revive urban water bodies

    The urban water supply mission under the Jal Jeevan Mission announced in the Budget would include rejuvenation of water bodies as well as 20% of supply from reused water.

    Access to safe drinking water has been a grave problem for India, especially in rural areas where lack of usable water has resulted in decades-old sanitation and health problems.

    Jal Jeevan Mission

    • Jal Jeevan Mission, a central government initiative under the Ministry of Jal Shakti, aims to ensure access of piped water for every household in India.
    • The mission’s goal is to provide to all households in rural India safe and adequate water through individual household tap connections by 2024.
    • The Har Ghar Nal Se Jal programme was announced by FM in Budget 2019-20 speech.
    • This programme forms a crucial part of the Jal Jeevan Mission.
    • The programme aims to implement source sustainability measures as mandatory elements, such as recharge and reuse through greywater management, water conservation, and rainwater harvesting.

    Urban component of the mission

    • The mission is meant to create a people’s movement for water, making it everyone’s priority.
    • There are an estimated gap of 2.68 crore urban household tap connections that the Mission would seek to bridge in all 4,378 statutory towns.
    • The Mission would also aim to bridge the gap of 2.64 crore sewer connections in the 500 cities under the existing Atal Mission for Rejuvenation and Urban Transformation (AMRUT).
    • The mission would include rejuvenation of water bodies to boost the sustainable freshwater supply and the creation of green spaces.

  • [pib] Centenary of ‘Chauri Chaura’ Incident

    PM will inaugurate the centenary Celebrations at Chauri Chaura at Gorakhpur Dist. Uttar Pradesh.

    ‘Chauri Chaura’ Incident

    • The incident took place on 4 February 1922 at Chauri Chaura in the Gorakhpur district of the United Province.
    • A large group of protesters participating in the Non-Cooperation Movement clashed with police who opened fire.
    • In retaliation the demonstrators attacked and set fire to a police station, killing all of its occupants.
    • The incident led to the death of three civilians and 22 policemen.
    • Mahatma Gandhi, who was strictly against violence, halted the non-co-operation movement on the national level on 12 February 1922, as a direct result of this incident.

    Try this PYQ:

    Q.The ‘Swadeshi’ and ‘Boycott’ adopted as methods of struggle for the first time during the

    (a) Agitation against the Partition of Bengal

    (b) Home Rule Movement

    (c) Non-Cooperation Movement

    (d) Visit of the Simon Commission to India

    Background

    • In the early 1920s, Indians, led by Mahatma Gandhi, were engaged in a nationwide non-cooperation movement.
    • Using non-violent methods of civil disobedience known as Satyagraha, protests were organised by the INC to challenge oppressive regulations such as the Rowlatt Act.

    Course of the incident

    • Two days before the incident, on 2 February 1922, volunteers participating in the Non-cooperation Movement led by a retired Army soldier named Bhagwan Ahir.
    • The protest was planned against high food prices and liquor sale in the marketplace.
    • Several of the leaders were arrested and put in the lock-up at the Chauri Chaura police station.
    • In response to this, a protest against the police was called on 4 February, to be held at the local marketplace.
    • Infuriated by the gunfire into their ranks, the crowd set the chowki ablaze, killing all of the Indian policemen and other staff trapped inside.

    Aftermath

    • Appalled at the outrage, Gandhi went on a five-day fast as penance for what he perceived as his culpability in the bloodshed.
    • In reflection, Gandhi felt that he had acted too hastily in encouraging people to revolt against the British Raj without sufficiently emphasizing the importance of non-violence.
    • On 12 February 1922, the Indian National Congress halted the Non-co-operation Movement on the national level as a direct result of the Chauri Chaura tragedy.

  • Stardust 1.O: the first rocket to run on biofuel

    Stardust 1.O was recently launched from Maine, the US has become the first commercial space launch powered by biofuel.

    UPSC may puzzle you with the following type of MCQ asking:

    Q.Which of the following is the unique feature of the Stardust 1.0 Spacecraft recenlty seen in news?

    (a) It is propelled by Bio-fuels.

    (b) It has the largest payload capacity.

    (c) It is re-usable launch vehicle.

    (d) All of the above

    What is Stardust 1.O?

    • Stardust 1.O is a launch vehicle suited for student and budget payloads.
    • The rocket is manufactured by bluShift, an aerospace company based in Maine that is developing rockets that are powered by bio-derived fuels.
    • The rocket is 20 feet tall and has a mass of roughly 250 kg.
    • The rocket can carry a maximum payload mass of 8 kg and during its first launch carried three payloads.
    • The payloads included a cubesat prototype built by high-school students, a metal alloy designed to lessen vibrations.

    Why such missions are important?

    • Such efforts are a part of a growing number of commercial space companies that are working to provide easier and cheaper access to space to laypeople.
    • It also makes access to space cost-effective for purposes of academic research, corporate technology development and entrepreneurial ventures among others.

    Back2Basics: Biofuel

    • Biofuels are obtained from biomass, which can be converted directly into liquid fuels that can be used as transportation fuels.
    • The two most common kinds of biofuels in use today are ethanol and biodiesel and they both represent the first generation of biofuel technology.
    • Ethanol, for instance, is renewable and made from different kinds of plant materials.
    • Biodiesel on the other hand is produced by combining alcohol with new and used vegetable oils, animal fats or recycled cooking grease.

    Categories of biofuels

    Biofuels are generally classified into three categories. They are

    1. First-generation biofuels – First-generation biofuels are made from sugar, starch, vegetable oil, or animal fats using conventional technology. Common first-generation biofuels include Bioalcohols, Biodiesel, Vegetable oil, Bioethers, Biogas.
    2. Second-generation biofuels – These are produced from non-food crops, such as cellulosic biofuels and waste biomass (stalks of wheat and corn, and wood). Examples include advanced biofuels like biohydrogen, bioethanol.
    3. Third-generation biofuels – These are produced from micro-organisms like algae.

  • [pib] Mega Investment Textiles Parks (MITRA) Scheme

    The Finance Minister has proposed setting up of a scheme of Mega Investment Textiles Parks (MITRA) Scheme in her budget speech.

    Do not get confused over Sahakar Mitra Scheme and this one.

    MITRA Scheme

    • MITRA aims to enable the textile industry to become globally competitive, attract large investments, and boost employment generation and exports.
    • It will create world-class infrastructure with plug and play facilities to enable create global champions in exports.
    • It will be launched in addition to the Production Linked Incentive Scheme (PLI).
    • It will give our domestic manufacturers a level-playing field in the international textiles market & pave the way for India to become a global champion of textiles exports across all segments”.

  • [pib] 14 new Minor Forest Produce (MFP) included Minimum Support Price (MSP) scheme

    14 new Minor Forest produce items have been included under the Mechanism for Marketing of Minor Forest Produce through Minimum Support Price scheme.

    Which are the 14 new MFP?

    Tasar Cocoon, Cashew Kernel (Anacardiumoccidentale), Elephant Apple Dry, Bamboo Shoot (Phyllostachys edulis), Malkangani Seed, Mahul Leaves, Nagod (Vitex negundo), Gokhru (Tribulus terrestris), Pipla/ Uchithi, Gamhar/ Gamari (dry bark), Oroxylumindicum, Wild Mushroom dry, Shringraj (Eclipta Alba), Tree Moss (Bryophytes).

    Now try this PYQ from CSP 2018:

    Q. Consider the following:

    1. Areca nut
    2. Barley
    3. Coffee
    4. Finger millet
    5. Groundnut
    6. Sesamum
    7. Turmeric

    The Cabinet Committee on Economic Affairs has announced the Minimum Support Price for which of the above?

    (a) 1, 2, 3 and 7 only

    (b) 2, 4, 5 and 6 only

    (c) 1, 3, 4, 5 and 6 only

    (d) 1, 2, 3, 4, 5 and 7

    About MSP for MFP Scheme

    • Under the scheme, Minimum Support Price for Minor Forest Produce (MFP) has been fixed for select MFP.
    • The scheme is designed as a social safety net for improvement of livelihood of MFP gatherers by providing them fair price for the MFPs they collect.
    • The Scheme has been implemented in eight States having Schedule areas as listed in the Fifth Schedule of the Constitution of India.
    • From November 2016, the scheme is applicable in all States.

    Back2Basics: Forest Produce in India

    • Forest produce is defined under section 2(4) of the Indian Forest Act, 1927.
    • Its legal definition includes timber, charcoal, catechu, wood-oil, resin, natural varnish, bark, lac, mahua flowers, trees and leaves, flowers and fruit, plants (including grass, creepers, reeds and moss), wild animals, skins, tusks, horns, bones, cocoons, silk, honey, wax, etc.
    • Forest produce can be divided into several categories.
    • From the point of view of usage, forest produce can be categorized into three types: Timber, Non-Timber and Minor Minerals.
    • Non-timber forest products [NTFPs] are known also as minor forest produce (MFP) or non-wood forest produces (NWFP).
    • The NTFP can be further categorized into medicinal and aromatic plants (MAP), oilseeds, fibre & floss, resins, edible plants, bamboo, reeds and grasses.

  • Municipal finance reform through Finance Commission recommendations

    Transforming the financial governance of India’s municipalities

    • Interim report of the Fifteenth Finance Commission of India (XV FC) indicates that it could fundamentally transform the financial governance of India’s municipalities.
    • Final report for FY 2021-22 to FY 2025-26 is expected to be tabled along with the forthcoming Budget 2021-22.
    • Building on the track record of previous finance commissions, the XV FC Commission has significantly raised the bar on financial governance of India’s municipalities in the interim report in at least four specific ways.

    4 Provisions in the interim report

    1) Increase in the outlay for municipalities

    •  It has set aside Rs 29,000 crore for FY 2020-21 and indicated the intent to raise the share of municipalities in the total grants’ of local bodies including panchayats gradually over the medium term, from the existing 30 per cent to 40 per cent.
    • This could result in the outlay over five years being in the range of Rs 1,50,000-Rs 2,00,000 crore compared to Rs 87,000 crore during the XIV FC period.

    2) Ensuring financial accountability through conditions

    • Two very important entry conditions have been set for any municipality in India to receive FC grants:
    • 1) Publication of audited annual accounts.
    • 2) Notification of floor rates for property tax.
    • These two entry conditions lay strong foundations for financial accountability of municipalities and own revenue enhancement respectively.
    • Similarly, the Atmanirbhar Bharat Abhiyan links Rs 50,000 crore of additional borrowing limits for states to reforms in property taxes and user charges for water and sanitation.
    • There is also a thrust on municipal bonds and municipal finance reform conditions under AMRUT.

    3) Distinguishing between million-plus urban agglomerations, and other cities

    • The XV FC has adopted an approach of distinguishing between million-plus urban agglomerations, and other cities.
    • This is well-founded, based on the pattern of urbanisation in India, where 53 million-plus urban agglomerations comprising 250-plus municipalities account for approximately 44 per cent of the total urban population.
    • The remaining 4,250-plus municipalities comprise 56 per cent of the total urban population.
    • Of the remaining 56 per cent, there is a “long tail” of approximately 3,900 municipalities with 33 per cent of the total urban population.
    • The XV FC has now provided for 100 per cent outcome-based funding of approximately Rs 9,000 crore to 50 million-plus urban agglomerations (excluding Union Territories) with specific emphasis on air quality, water supply and sanitation and basic grants to the rest of the cities, with 50 per cent of the end-use tied to water supply and sanitation.
    • For the first time, there is also an acknowledgement of the metropolitan area as a unified theatre of action to solve complex challenges of air quality, water and sanitation, with implicit emphasis on inter-agency coordination.

    4) Common digital platform for municipal accounts

    • The report recommends a common digital platform for municipal accounts, a consolidated view of municipal finances and sectoral outlays at the state level, and digital footprint of individual transactions at source, the FC has broken new ground and demonstrated farsightedness.

    Role of the state governments

    • The ultimate responsibility for municipal finance reforms remains with state governments.
    • Constitutional bodies such as the finance commission can, at best, prepare the ground and provide incentives and disincentives.
    • We need municipal legislation to reflect progressive and enabling financial governance of our cities through five reform agendas:
    • 1) Fiscal decentralisation including strengthening state finance commissions.
    • 2) Revenue optimisation to enhance own revenues.
    • 3) Fiscal responsibility and budget management to accelerate municipal borrowings.
    • 4) Institutional capacities towards an adequately skilled workforce.
    • 5) Transparency and citizen participation (for democratic accountability at the neighbourhood level).
    • The first step needs to be predictable fiscal transfers from state governments to municipalities and other civic agencies on a formula-based approach as against the present practice of ad hoc, discretionary grants.
    • State finance commissions would need to emulate the XV FC and its predecessors, and emerge as credible institutions.
    • State governments need to ensure that state finance commissions are constituted on time, resourced right, and their recommendations taken seriously.

    Consider the questions “Financial governance of our cities faces several challenges. Discuss the reforms that could transform the financial governance of municipalities”

    Conclusion

    The state government must act on these reform agenda and ensure the transformation of financial governance of their municipalities.

  • Centre’s scrutiny of UP’s conversion ban ordinance

    The ordinance on unlawful religious conversions, promulgated by the UP government last year, has not been sent to the Centre for examination, according to a reply from the Union Home Ministry.

    What is the news?

    • The Ministry of Home Affairs (MHA) examines bills passed by State assemblies that are repugnant with Central laws before they get the President’s assent to become a law.
    • This is done in accordance with Article 213 of the Constitution which provides for an ordinance making power of the Governor of a state.

    What does Article 213 say?

    • Governor of an Indian state draws ordinance making power from Article 21.
    • This Article empowers the Governor to promulgate Ordinance, during the recess of the legislature, if circumstances exist which render it necessary for him to take immediate action.
    • To issue an Ordinance, the Governor must be satisfied with the circumstances that make it necessary for him to take immediate action.
    • All Ordinances promulgated by the Governor in the State have the same effect and force as an Act of Legislature of the State.
    • The Ordinance must be laid before the State Legislature when it reassembles and it must be upheld by the State legislature, failure to which the Ordinance would be invalid.

    Governor CANNOT promulgate an ordinance if:

    1. The Ordinance has the provisions which of embodied in a bill would require President’s sanction.
    2. The Ordinance has the provisions which the governor would reserve as a Bill containing them for the President’s sanction.
    3. If an act of the State Legislature has the same provisions that would be invalid without the assent of the President.

    Try this PYQ:

    Q.Which of the following are the discretionary powers given to the Governor of a State?

    1. Sending a report to the President of India for imposing the President’s rule
    2. Appointing the Ministers
    3. Reserving certain bills passed by the State Legislature for consideration of the President of India
    4. Making the rules to conduct the business of the State Government

    Select the correct answer using the code given below:

    (a) 1 and 2 only

    (b) 1 and 3 only

    (c) 2, 3 and 4 only

    (d) 1, 2, 3 and 4

    Centre’s scrutiny of ordinances

    • MHA sends State bills for inter-ministerial consultation before they get the President’s nod.
    • This is done only when it has repugnancy with central laws, deviates from national or central policy and when it can be challenged for legal and constitutional validity.

    Controversy with UP’s ordinance

    • The controversial ordinance was promulgated in November 2020 and so far more than 90 people, most of them minorities, have been booked.
    • The law makes religious conversion a non-bailable offence, inviting penalties of up to 10 years in prison.
    • It is on the ground if guilty is found to be effected for marriage or through misrepresentation, force, undue influence, coercion, allurement or other alleged fraudulent means.
    • According to the Ordinance, in case of conversion done by a woman for the sole purpose of marriage, the marriage would be declared null and void.

    Back2Basics: Ordinance

    • Article 123 of the Constitution of India gives the power and authority to the President of India to issue an ordinance only when both the Houses of Parliament are not in session.
    • In addition, it states that any ordinance can have the same force and effect as a statute of Parliament only if it is laid before both the houses of the Parliament.
    • Further, Ordinance so made will hold good only for the duration of six weeks from the reassembly of Parliament.
    • Article 213 mandates near-identical terms with respect to the ordinances on the subject of State authority.
    • It is understood that the authority to issue ordinances shall be used only to meet the emergent demands arising out of extraordinary situations.