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GS Paper: GS3

  • Perseids Meteor Shower

    The Perseids meteor shower is going to be active from August 17-26.

    Try this question from CSP 2014:

    Q.What is a coma, in the content of astronomy?

    (a) Bright half of material on the comet

    (b) Long tail of dust

    (c) Two asteroids orbiting each other

    (d) Two planets orbiting each other

    What is the Perseids meteor shower?

    • The Perseids meteor shower peaks every year in mid-August. It was first observed over 2,000 years ago.
    • The Perseids occur as the Earth runs into pieces of cosmic debris left behind by the comet Swift-Tuttle.
    • The cloud of debris is about 27 km wide, and at the peak of the display, between 160 and 200 meteors streak through the Earth’s atmosphere every hour as the pieces of debris.
    • They travel at the speed of some 2.14 lakh km per hour; burn up a little less than 100 km above the Earth’s surface.

    What are Meteor Showers?

    • Meteors are bits of rock and ice that are ejected from comets as they manoeuvre around their orbits around the sun.
    • As meteors fall towards the Earth, the resistance makes the space rocks extremely hot and, as meteorites pass through the atmosphere, they leave behind streaks of glowing gas that are visible to the observers and not the rock itself.
    • Meteor showers, on the other hand, are witnessed when Earth passes through the trail of debris left behind by a comet or an asteroid.
    • When a meteor reaches the Earth, it is called a meteorite and a series of meteorites, when encountered at once, is termed as a meteor shower.
    • According to NASA, over 30 meteor showers occur annually and are observable from the Earth.

    Where do the Perseids come from?

    • The comet Swift-Tuttle, which was discovered in 1862 by Lewis Swift and Horace Tuttle, takes 133 years to complete one rotation around the sun.
    • The last time it reached its closest approach to the sun was in 1992 and will do so again in 2125.
    • Every time comets come close to the sun, they leave behind dust that is essentially the debris trail, which the Earth passes through every year as it orbits around the Sun.

    Back2Basics:

     

  • RBI revises guidelines for opening Current Accounts

    The article explains the salience of the RBI’s recent restriction on the opening of current accounts by the companies.

    Context

    • RBI has put restrictions on who can open a current account with which bank.

    What are the restrictions and why it matters

    • A company that has borrowed from a bank cannot open a current account with another bank.
    • It can open a current account with its lending banks under some circumstances.
    • Otherwise such company is encouraged to use the cash credit and overdraft facilities under which it has borrowed.

    Let’s understand why it matters

    • Firms borrow from PSU banks, but open current accounts with private or foreign banks.
    • When transactions move to current account of banks other than the lending bank, it loses visibility on end use of the funds.
    • Basically the PSU bank has no idea where the money has gone.
    • For example, when a firm gets money from its customers, instead of parking it with the lending bank it puts it in the current account with another bank.
    • The lending bank has no way of knowing if the loan is going bad wilfully or otherwise.

    Why private banks may oppose the move

    • Easy revenue source has got blocked.
    • They can, of course, start lending to firms to retain this business but that would mean taking risk.
    • It would be far safer to be with retail customers who have neither power nor lawyers to defend them against sharp banking practices.

    Why it matters to bank customers

    • Vanishing money raises the cost of funds to the bank and results in higher lending rates and lower deposit rates for us.
    • For taxpayers, it means regular use of our funds to recapitalize the banking system that periodically goes bankrupt due to loans gone bad.
    • So, an overall tightening of the system is great news.

    Conclusion

    For too long have the citizens been punished with greater scrutiny, tighter rules, higher costs and fewer benefits as compared to the suits. We should let the banks hand-wring, but celebrate the closure of each loophole as it happens.

    Back2Basics: What is the current account?

    • A current account is like a savings bank account, but with many facilities for swift and multiple transactions, overdraft facilities and it carries no interest.
    • Banks like to sell these accounts as they enjoy huge floats, or money that just sits with the bank waiting to be used by the depositing firms.

  • [pib] Krishi Megh: A Cloud-based Data Recovery Centre

    Union Minister of Agriculture & Farmers’ Welfare has launched the Krishi Megh Data Recovery Centre.

    Do not get confused with the name ‘Krishi Megh’. One might mistakenly relate it to some weather forecasting tool of the Indian Meteorological Department.

    Krishi Megh

    • The Krishi Megh has been set up at National Academy of Agricultural Research Management (NAARM), Hyderabad.
    • It has been set up under the National Agricultural Higher Education Project (NAHEP), funded by both the government and World Bank.
    • It has been built to mitigate the risk, enhance the quality, availability and accessibility of e-governance, research, extension and education in the field of agriculture in India.
    • Currently, the main data centre of the Indian Council of Agricultural Research (ICAR) is at the Indian Agricultural Statistics Research Institute (IASRI) in New Delhi.

    Back2Basics: Cloud Storage

    • It is a cloud computing model that stores data on the Internet through a cloud computing provider who manages and operates data storage as a service.
    • It is delivered on demand with just-in-time capacity and costs, and eliminates buying and managing your own data storage infrastructure.
    • It gives agility, global scale and durability, with “anytime, anywhere” data access.

  • Making up for shortfalls in GST collection

    The article deals with the issue of shortfall in the GST compensation cess and the challenge Central government faces to pay the promised compensation to the states.

    Background of the cess

    • GST subsumed several taxes, including those which were the preserve of the States.
    • Therefore it required an amendment to the Constitution of India.
    • The amendment affected the Seventh Schedule, so it required ratification by the legislatures of half the States.
    • Before the GST, States exporting goods to other States collected a tax.
    • But the GST is a destination-based tax, i.e., the State where the goods are sold receive the tax.
    • This implies that manufacturing States would lose out while consuming States would benefit.
    • So, in order to convince manufacturing States to agree to GST, a compensation formula was created.
    • Under which States were promised compensation for loss of revenue for a period up to five years.
    • The Act for compensation to states assumed that the GST revenue of each State would grow at 14% every year, from the amount collected in 2015-16.
    • This scheme is valid for five years, i.e., till June 2022.

    Compensation cess fund

    • A compensation cess fund was created from which States would be paid for any shortfall.
    • An additional cess would be imposed on certain items and this cess would be used to pay compensation.
    • The Act states that the cess collected and “such other amounts as may be recommended by the [GST] Council” would be credited to the fund.
    • In the first two years of this scheme, the cess collected exceeded the shortfall of States.
    • In the third year, 2019-20, the fund fell significantly short of the requirement.

    The problem and its source

    •  A key source of the problem is that the 2017 Act guaranteed a tax growth rate of 14%, which is unachievable this year.
    • The 14% target was too ambitious to start with.
    • Given the government’s inflation target at 4%, this implied a real GDP growth plus tax buoyancy of 9%.
    • But, the Central government is constitutionally bound to compensate States for loss of revenue for five years.

    Solution to the problem

    1) The Constitution could be amended to reduce the period of guarantee to three years thus ending June 2020.

    • But most States would be reluctant to agree to this proposal.
    • It could also be seen as going back on the promise made to States.

    2) The Central government could fund this shortfall from its own revenue.

    •  The Centre’s finances are stretched due to shortfall in its own tax collection combined with extra expenditure to manage the health and economic crisis.

    3) The Centre could borrow on behalf of the cess fund.

    • The tenure of the cess could be extended beyond five years until the cess collected is sufficient to pay off this debt and interest on it.

    4) the Centre could convince States that the 14% growth target was always unrealistic.

    • If the Centre can negotiate with States through the GST Council to reset the assured tax level, it could then bring in a Bill in Parliament to amend the 2017 Act.

    Consider the question “What were the reasons for making provisions under GST for paying the states compensation for tax revenue shortfall? What are the implications of the provision for the Central government?”

    Conclusion

    The Constitution makes it obligatory for the Centre to make up for shortfall by the States. The cess collected will not be sufficient for this purpose. The GST Council, which is a constitutional body with representation of the Centre and all the States, should find a practical solution.

    B2BASICS

    Source: https://www.thehindu.com/opinion/op-ed/making-up-for-shortfalls-in-gst-collection/article32319744.ece

  • Increasing dependence on indirect taxes and issues with it

    India, with a tax-GDP ratio of 10.9 per cent in 2019 needs an overhaul of its tax system. This article analyses India’s growing dependence on indirect taxes and its implications for the poor.

    Important changes in direct taxes

    • The wealth tax was abolished in 2016.
    • Wealth tax was replaced by a 2 per cent surcharge on super-rich individuals with taxable income of over Rs 10 crore.
    • But the government rolled back the increase in surcharge in 2019.
    • Corporate taxes were slashed from 30 per cent to 22 per cent to attract foreign investors and induce Indian companies to invest.
    •  Cuts in corporate tax that have resulted in a revenue loss of Rs 1.5 lakh crore have contributed to making the state poor.

    Increasing indirect taxes and cess

    • The share of indirect taxes has increased by up to 50 per cent of the gross tax revenue in FY2019 from 43 per cent in FY2011.
    • The combined share of customs and excise duties and value-added tax reached an all-time high of 10.5 per cent of GDP.
    • This high was following a three-year-long steady increase in customs or excise duty on commonly used goods, such as petroleum products, metals and sugar, automobiles and consumer durables.
    • This is also when the service tax was hiked steadily to 18 per cent under GST from 12.4 per cent in 2014.
    • Swachh Bharat cess and Krishi Kalyan cesses were imposed in addition to GST.
    • The permanent nature of these cesses has been widely opposed by the states and criticised by the CAG.
    • CAG has pointed out the lack of transparency and incomplete reporting in accounts on the utilisation of amounts collected under cesses.
    • All of this is troubling because indirect taxes often penalise the poor and the middle class more than the rich.

    Case for the wealth tax

    • High tax rates on the wealthy in Europe have played a key role in ensuring a strong social security net for the poor.
    • This successful example should encourage India to consider the rationale for a wealth tax.
    • Higher taxes on the super-rich could be used for cash transfers and a fiscal stimulus, that, in India, at 1 per cent of GDP each, have been negligible so far.
    • A wealth tax, a COVID-19 cess on the super-rich and a surcharge on the super-rich for their income from listed equity shares are critical for mitigating the current situation.

    Issues with such policy

    • Cuts in corporate taxes, increased indirect tax revenues, decreased capital expenditure and practically no change in revenue expenditure on health and education show that India’s taxation policy is more business-friendly than pro-poor.
    • This is happening at a time when a supply-side oriented approach to the economy is counter-cyclical.
    • Faced with increased expenditure amid pandemic Centre increased the duty on fuel by a record Rs 10 per litre on petrol when global crude prices have been falling.
    • This speaks of the government’s increased dependency on indirect tax-based revenues.

    Examine the implications of India’s growing dependence on indirect tax revenue? Suggest the measures to reduce such dependence.

    Conclusion

    COVID-19 may be a blessing in disguise if it allows India to reform its tax system in order to make it work towards inclusive growth and sustainable development rather than targeting only investment-led economic growth.

    bACK 2 BASICS
    GO THROUGH THE ARTICLE BELOW FOR MORE INFORMATION ON TAXATION:

    Taxation in India: Classification, Types, Direct tax, Indirect tax

  • What is Balance of Payments?

    India’s balance of payments this year is going to be “very very strong” on the back of significant improvement in exports and a fall in imports said the Commerce and Industry Ministry.

    Try this PYQ:

    Q.In the context of India, which of the following factors is/are contributor/contributors to reducing the risk of a currency crisis? (CSP 2019)

    1. The foreign currency earnings of India’s IT sector
    2. Increasing the government expenditure
    3. Remittances from Indians abroad

    Select the correct answer using the code given below.

    (a) 1 only

    (b) 1 and 3 only

    (c) 2 only

    (d) 1, 2 and 3

    Balance of Payment

    • BOP is the oldest and the most important statistical statement for any country.
    • In a nutshell BOP of a country is “a systematic record of all economic transactions between the residents of one country with the residents of the other country in a financial year”.
    • Economic Transactions include all the foreign receipts and payments made by a country during a given financial year.
    • Foreign receipts include all the earnings and borrowings by a country from the other countries.

    Read the complete thread, here, at:

    India’s Balance of Payments: Current Account, Capital Account, Goods and Services Account

  • What is the Negative Imports List for Defence?

    The Defence Ministry announced a list of 101 items that it will stop importing.

    Try this question for mains:

    Q.Being one of the top importers of defence equipment India is well placed to enhance its domestic manufacturing capacity of defence equipment. Yet, India lacks it after repeated attempts to achieve it. Examine the reasons for this and suggest measures to overcome this anomaly.

    Negative Imports List

    • The negative list essentially means that the Armed Forces—Army, Navy and Air Force—will only procure all of these 101 items from domestic manufacturers.
    • The manufacturers could be private sector players or Defence Public Sector Undertakings (DPSUs).

    Why such a decision?

    • Reduce imports: As per the Stockholm International Peace Research Institute, which tracks defence exports and imports globally, India has been the second-largest importer between 2014 and 2019 with US$ 16.75 billion worth of imports.
    • Boost domestic industry: By denying the possibility of importing the items on the negative list, the domestic industry is given the opportunity to step up and manufacture them for the needs of the forces.
    • Boost exports: The government has been hoping that the defence manufacturing sector can play a leading role in boosting the economy, not just for the domestic market, but to become an exporter as well.

    Items included in the negative list

    The items mentioned in the negative imports list include:

    • water jet fast attack craft to survey vessels, pollution control vessels, light transport aircraft, GSAT-6 terminals, radars, unmanned aerial vehicles, to certain rifles, artillery guns, bulletproof jackets, missile destroyers, etc.

    Impact of the move

    • The items in the list are of proven technologies and do not involve any critical or cutting-edge technology for a next-generation weapon system or platform.
    • Little benefits for domestic players in short-run: Against each of these items are mentioned a year when import embargo would kick in, leading to apprehensions that demands will be placed with foreign vendors until then, leaving very little for domestic producers.
    • The biggest challenge for the government and the armed forces will be to keep this commitment to domestic producers in the event of an operational requirement.

  • Submarine Cable Connectivity to Andaman and Nicobar Islands

    PM has launched the submarine Optical Fibre Cable (OFC) connecting Andaman & Nicobar Islands to the mainland.

    Try this PYQ:

    Q. Consider the following statements regarding optical fibres:

    1. A layer called the cladding, which has a refractive index more than that of the core, surrounds the core of the optical fibre.
    2. Light is propagated in an optical fibre by refraction and internal reflection.

    Which of the above statements is/are correct?(CSP 2010)

    (a) 1 only

    (b) 2 only

    (c) Both 1 and 2

    (d) Neither 1 nor 2

    What is a submarine communications cable?

    • A submarine communications cable is a cable laid on the seabed between land-based stations to transmit telecommunication signals across stretches of ocean and sea.
    • The optical fibre elements are typically individually coated with plastic layers and contained in a protective tube suitable for the environment where the cable will be deployed.
    • Compared to satellites, using internet connection through submarine cables is more reliable, cost-efficient and of large capacity.

    About the project

    • About 2,300 km of submarine optical fibre cable (OFC) has been laid at a cost of about Rs 1,224 crore to provide better connectivity in the UT.
    • The project envisages better connectivity from Chennai to Port Blair and seven other Islands — Swaraj Deep (Havelock), Long Island, Rangat, Hutbay (Little Andaman), Kamorta, Car Nicobar and Campbell Bay (Great Nicobar).
    • The project is funded by the government through the Universal Service Obligation Fund under the ministry of communications.
    • The foundation stone for the project was laid by PM Modi in December 2018 at Port Blair.

    Expected outcomes

    • The OFC will enable the delivery of faster and more reliable mobile and landline telecom services to Andaman & Nicobar Islands, at par with other parts of India.
    • The submarine optical fibre cable link will deliver bandwidth of 2 x 200 Gigabits per second (Gbps) between Chennai and Port Blair, and 2 x 100 Gbps between Port Blair and the other islands.
    • 4G mobile services, which were constrained due to limited backhaul bandwidth provided via satellite, will also see a major boost.

    Benefits of the project

    • Better connectivity in the region will facilitate the delivery of e-governance services such as telemedicine and tele-education.
    • E-commerce: Small enterprises will benefit from opportunities in e-commerce, while educational institutions will utilise the enhanced availability of bandwidth for e-learning and knowledge sharing.
    • Business Process Outsourcing services and other medium and large enterprises too also benefit from better connectivity.
    • Low cost internet:The internet bills in Andaman and Nicobar will also come down substantially.

  • The new consumer

    The focus of this article is on the behavioural changes in the consumer post Covid. It also suggest the ways to deal with these changes.

    Context

    • The consumer during and post-COVID is showing remarkable flexibility, bringing about a paradigm shift in her consumption pattern.

    Issue of generating demand

    • Some state governments are busy demanding the opening up of the economy.
    • However, the issue is that the economy does not merely need opening up, but it requires urgent generation of basic demand.
    • That is why consumer behaviour needs to be closely watched.
    • Since the lockdown, the priorities of consumers have seen a drastic shift.

    Factors to consider to increase demand

    • 1) The decrease in the purchasing power to buy products needs to be addressed.
    • The government must look at ways like a reduction in taxes which will help the common man.
    • 2) The current scenario has also made all of us go back to the basic needs.
    • Luxury products hold little value. But renting will increase.
    • 3) The emphasis will be on saving for a rainy day, whether in the case of banks or households
    • 4) Aviation, tourism and hospitality sectors have been hit and continue to remain so even after the restrictions are lifted.
    • 5)  e-commerce has shown exponential growth and will continue to do so.
    • 6) With “Vocal for Local” gaining momentum, there’s a huge increase in local apps, local kirana stores, local artisans and brands.
    • 7) Schools and colleges have taken a hit as e-learning and online courses are being preferred.
    • 8) The entertainment industry has been drastically hit. The media and entertainment industry needs to pay heed to this and curate content accordingly.
    • 9) With a lot of people laying emphasis on their health and immunity, there’s been a substantial rise in the consumption of organic, ayurvedic, and immunity-boosting products.
    • Apart from the obvious products, financial and medical insurance will play an important role.
    • 10) Real estate will suffer as no long-term, high investment purchases will be favoured, but renting will increase.

    Role of the government

    • 1) People need to be provided with their daily needs — basic essentials such as food, water, housing, and electricity.
    • The government is already taking care of that, but money also needs to be given.
    • 2) Jobs need to be provided through development of infrastructure projects.
    • 3) Farmers need to have insurance for their crops and the infrastructure to sell at the right price.
    • 4) Migrant workers with their livelihoods being disrupted are looking for support,and many are focusing on agriculture as a means of income.

    Way forward

    • The government should focus on generating demand for products, and create jobs by improving infrastructure.
    • The government must incentivise spending by offering tax benefits on the amount spent.
    • Government must forget about fiscal prudence this year.
    • Consumers in rural areas are buying more than before.Companies should focus on tapping the rural demand

    Consider the question “Demand has been the driver of India’s growth. But the pandemic has dampened it with devastating effect. Agaist this backdrop suggest the measures to be taken by the government to revive the demand.”

    Conclusion

    With focus on these emerging trends and changing behaviour of the consumers, the government must take steps to bring the economy fast on the tracks.

  • Agriculture Infrastructure Fund (AIF) Scheme

    PM has launched a new financing scheme under the ₹1 lakh crore AIF.

    Note the following things about AIF:

    1) It is a Central Sector Scheme

    2) Duration of the scheme

    3)Target beneficiaries

    Agriculture Infrastructure Fund (AIF)

    • It is a Central Sector Scheme meant for setting up storage and processing facilities, which will help farmers, get higher prices for their crops.
    • It will support farmers, PACS, FPOs, Agri-entrepreneurs, etc. in building community farming assets and post-harvest agriculture infrastructure.
    • These assets will enable farmers to get greater value for their produce as they will be able to store and sell at higher prices, reduce wastage and increase processing and value addition.

    What exactly is the AIF?

    • The AIF is a medium – long term debt financing facility for investment in viable projects for post-harvest management infrastructure and community farming assets through interest subvention and credit guarantee.
    • The duration of the scheme shall be from FY2020 to FY2029 (10 years).
    • Under the scheme, Rs. 1 Lakh Crore will be provided by banks and financial institutions as loans with interest subvention of 3% per annum.
    • It will provide credit guarantee coverage under Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) for loans up to Rs. 2 Crore.

    Target beneficiaries

    The beneficiaries will include farmers:

    • PACS, Marketing Cooperative Societies, FPOs, SHGs, Joint Liability Groups (JLG), Multipurpose Cooperative Societies, Agri-entrepreneurs, Startups, and Central/State agency or Local Body sponsored Public-Private Partnership Projects