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December 2018

Tax Reforms

[op-ed snap] The challenge of taxing value-creation in India


Mains Paper 3: Economy| Effects of liberalization on the economy, changes in industrial policy and their effects on industrial growth.

From UPSC perspective, the following things are important:

Prelims level: Not much

Mains level: Taxing Digital services in India


  1. French finance minister Bruno Le Maire announced the introduction of a GAFA tax—named after Google, Apple, Facebook, Amazon—on large technology and internet companies in France from 1 January 2019.
  2. What distinguishes technology companies from traditional businesses is user participation in creating value, which, in turn, translates into revenue.
  3. Although using consumer data to improve businesses is not exclusive to the digital economy, the unique ability of digital businesses lies in their power to analyse big data collected via constant user interaction and data mining.

Why needed?

The rationale behind devising a separate framework to tax online service providers is this:

  • Existing tax norms that are framed envisaging brick and mortar business models are not suitable to regulate online services.
  • This is because the digital economy is characterized by a unique system of value creation resulting from a combination of factors such as sales functions, algorithms and personal information of users.

Indian perspective

  • The need for India to consider the adoption of an accurate methodology to assess value created in India through user contributions so that digital service providers in India can be taxed more effectively.

Present Scenario

  1. The Finance Act, 2016, accommodated a 6% equalisation levy (EL) in lieu of specified digital services provided to residents in India. However, EL can only be imposed on advertising services.
  2. The Finance Act, 2018, the Income Tax Act was amended to expand the meaning of business connection to “significant economic presence”, which includes digital services.
  3. It defines any entity that have significant economic presence in India if it
  • provides data or software in India exceeding a payment threshold (yet to be notified) or
  • engages in systematic and continuous solicitation of business activities to a prescribed number of users digitally.

Issues from Indian Perspective

  1. When it comes to taxing value created by Indian users of foreign digital service providers, it is not clear whether the assessment of attributability is based on value creation per se.
  2. As the basis of attributability to Indian services/activities is not clear, this can raise a serious problem at the time of assessing income tax. For instance, ride-for-hire companies such as Uber use data of users as inputs to develop their surge pricing algorithm.

Equalisation Levy

  • Equalisation Levy was introduced in India in 2016, with the intention of taxing the digital transactions i.e. the income accruing to foreign e-commerce companies from India. It is aimed at taxing business to business transactions.

Applicability of Equalisation Levy

  1. Equalisation Levy is a direct tax, which is withheld at the time of payment by the service recipient.
  2. The two conditions to be met to be liable to equalisation levy:
  • The payment should be made to a non-resident service provider;
  • The annual payment made to one service provider exceeds Rs. 1,00,000 in one financial year.

Issues in General

  1. OECD has been unable to devise a definite method of assessing the value that users generate in a source country.
  2. Due to this anomaly, the GAFA tax and other proposals floated in the EU, UK and France impose an approximate digital tax of 3% on the revenue generated by entities that operate in the digital economy above a certain threshold.
  3. This resulted mostly from the slow ongoing process of quantifying user contribution and political pressure to resist further delay of taxing these entities.
  4. The lack of consensus is exacerbated due to a difference in the interests of developed (residence) countries and developing (source) countries.
  5. The imposition of an EL instead of a more precise assessment of user contribution poses several questions regarding its enforceability.
  6. For example, countries like France have suggested imposing such an interim tax only on high profit big-tech businesses like Google and Amazon, making net valuation the metric for determining threshold
  7. An even bigger challenge is the assessment of value of user contribution in the source country is subjective.
  8. It creates greater friction between the government of the source country and where the entity is established and thereby undermine the efficacy of double taxation agreements.

Way Forward

  • It is imperative, therefore, that policymakers deliberate upon the possibility and feasibility of adopting a methodology to assess value creation objectively to tax digital players more effectively in the source country.

e-Commerce: The New Boom

[op-ed snap] Retrospective policy changes damaging


Mains Paper 3: Economy| Effects of liberalization on the economy, changes in industrial policy and their effects on industrial growth.

From UPSC perspective, the following things are important:

Prelims level: Not much

Mains level: E-commerce regulations in India and associated FDI issues


  • The Centre has barred online retailers from selling products of companies in which they own stakes.
  • The revised policy on FDI in e-commerce which comes into effect from February 1, 2019 has also disallowed the online retail firms to sell its products exclusively on its platform only.

The main features of the clarification include:

  • Vendors that have any stake owned by an e-commerce company cannot sell their products on that e-commerce company’s portal.
  • Any vendor who purchases 25% or more of its inventory from an e-commerce group company will be considered to be controlled by that e-commerce company, and thereby barred from selling on its portal. This provision aims to ensure that vendors in which marketplaces, such as Amazon, have a stake do not sell the bulk of their items to a third-party vendor who then goes on to sell those items on the e-commerce marketplace.
  • In other words, the provision seeks to deny control by the marketplace entity over vendors.
  • E-commerce firm will not be allowed to influence the price of a product sold on its portal by giving incentives to particular vendors.

E-com companies can operate under two different models in India

  1. The first is the marketplace model where the e-commerce firm simply acts as a platform that connects buyers and sellers.  FDI is allowed in e-commerce companies in this model.
  2. The second model is inventory-based where the inventory of goods sold on the portal is owned or controlled by the e-commerce company.
  3.  FDI is not allowed under this model.

What is the context for these changes?

  • What has been happening is that large e-commerce giants while not owning inventory themselves, have been providing a platform for their group companies such as CloudTail and WS Retail respectively.
  • Some see this as skewing the playing field, especially if these vendors enjoyed special incentives from the e-commerce firm, over others.
  • These controlled or owned vendors may then be able to offer discounts to customers that competitors may not be able to match.


  1. The thrust of the DIPP policy is directed at protecting small vendors on e-commerce websites.
  2. It seeks to ensure small players selling on the portals are not discriminated against in favour of vendors in which e-commerce companies have a stake.
  3. The new set up will ensure a level playing field for all vendors looking to sell on the e-commerce portals. Smaller marketplaces that do not have stake in any vendors will also be able to now compete with the big daddies.
  4. The small traders were complaining that deep discounts offered by the likes of Amazon and Flipkart are driving them out of business
  5. The new norms aim to tackle the anti-competitive behaviour by e-commerce entities and to ensure that there is no wrong subsidization and the marketplace remains neutral to all vendors.

Who else will be affected?

  1. The main players to be affected will be group companies and affiliates of the biggest e-commerce platforms, Amazon and Flipkart.
  2. The provision that bars companies — in which e-commerce firms have a stake — from selling on their portals will hurt start-ups as well, since many of these will be barred from selling due to minor equity stakes being held by the e-commerce companies.
  3. Small vendors will not be as affected because most of them do not purchase more than 25% of their inventory from a single source and so they will be allowed to sell their items on the e-commerce platforms.


  1. The revised e-commerce norms will hurt consumers, harm investments made in the sector, reinforce the perception of India as a country of policy uncertainty in the eyes of foreign investors and reduce efficiency in retail.
  2. Several of the provisions reiterate or amplify those contained in earlier policy pronouncements. But the effective ban on private labels and the banning of equity participation by e-commerce platforms or group companies in vendors that sell on these platforms are new.
  3. The banning of procurement by vendors on these platforms hurts the business model not only of e-commerce marketplaces but also of business-to-business (B2B) investments.
  4. If a B2B company that also has a marketplace is barred from utilising the marketplace to sell the produce it aggregates from Indian suppliers, it loses a part of its attraction for those Indian suppliers, and amounts to restricting the B2B operation.
  5. Such bans also abort efficiency gains in production planning, inventory management and delivery time. Since such restrictions do not apply to brick-and-mortar sales, the guidelines are discriminatory against e-commerce.

Way Forward

  • The best way to protect Indian industry in the age of globally mobile capital is to allow shares with differential voting rights, not to carve out sanctuaries of protection within an economic sector.

Agricultural Sector and Marketing Reforms – eNAM, Model APMC Act, Eco Survey Reco, etc.

[Explained] Why do farmers need more than loan waivers


Mains Paper 3: Agriculture | Issues related to direct & indirect farm subsidies & minimum support prices

From UPSC perspective, the following things are important:

Prelims level: Not much

Mains level: Alternatives to farm loan waivers


Farm Loan Waivers: A business usual with elections

  1. After the recent Assembly elections, the new governments in Rajasthan, Madhya Pradesh and Chhattisgarh announced farm loan waivers, a key promise.
  2. Last year, Uttar Pradesh, Maharashtra, Karnataka and Tamil Nadu announced waivers as farmers were in distress.
  3. Andhra Pradesh, Odisha and Haryana are likely to announce sops ahead of elections.

A populist measure yet ineffective

  1. According to SBI Research, around ₹70,000 crore will be spent on farm debt waivers till May 2019.
  2. The clamor for farm loan waivers has been growing, but this “’populist” measure alone cannot be a permanent solution to mounting agrarian distress.
  3. Since the post-reforms policy regime in 1991, agriculture has been facing multiple crises.
  4. The rising pressure of population on land and agriculture, besides sluggishness in the shifting of workforce away from agriculture, has adversely affected small and marginal farmers.

Waiver: Not an electioneering tool

  1. Rising costs drop in income and increasing incidence of indebtedness among small and marginal farmers manifested in a spate of suicides over the years.
  2. Experts believe it is the responsibility of the Union government to waive farm loans, but insist that it is only a “stop-gap” arrangement.
  3. Until policies are not tweaked in favour of farmers to address their risks related to production, weather-disaster, price, credit and market, the loan waiver will become a periodical instrument for temporary relief.
  4. A large number of small and marginal farmers are distressed as the current system of market institution doubly squeezes them, in input as well as output.

Govt stand on Farm Loan Waivers

  1. The NITI Aayog recently pointed out that waiving loan is not a lasting answer to the problem of agrarian distress as this step only helps a small number of farmers.
  2. The number of farmers, especially the small and marginal who avail themselves of institutional loans, are very few.
  3. This is the reason that even after spending huge sums of money on loan waivers not even half the farmers are benefiting.
  4. In some of the States, not even 25% of farmers get loans from institutional sources.
  5. A NITI Aayog study had also highlighted the fact that in some States, about three-fourths of the farm loans were being used for consumption instead of meeting agricultural needs.
  6. The RBI’s study concluded that debt relief helps in reducing household debt but there appears to be no evidence of increase in investment and productivity of beneficiary households.

Policy Measures needed at the moment

  1. As a short-term measure, farmers need to be freed of the tyranny of the middlemen by reforming the rent-seeking, anti-farmer commission agent (arthiya) system.
  2. The inter-locking of the credit and the output markets is a major factor for the crises of indebtedness.
  3. The system of making payments through the commission agent needs to be dismantled to break the credit-crop nexus.
  4. For a permanent solution to agrarian distress, the government should give agro-processing industry a policy push to pull rural people out of agriculture.
  5. The subsidies and tax concessions which have been offered or given to the corporate sector should be given to rural entrepreneurs who are willing to start manufacturing firms that will process local raw materials and employ rural labour.

Way Forward

  1. In the long run, there’s an urgent need for integration of agriculture with industry, and that too with the involvement of the local workforce in such a manner that surpluses should be invested locally.
  2. The transformation is possible if primary producers are integrated with both manufacturing and marketing activities for reaping surpluses generated by them.

International Space Agencies – Missions and Discoveries

China’s BeiDou navigation satellite, rival to US GPS, starts global services


Mains Paper 3: Science & Technology | Awareness in the fields of IT, Space, Computers, robotics, nano-technology, bio-technology

From UPSC perspective, the following things are important:

Prelims level: BeiDou Navigation Satellite System

Mains level: Particulars of the Chinese navigation system


  • China’s BeiDou Navigation Satellite System (BDS), touted as a rival to the widely-used American GPS, has started providing global services.

BeiDou Navigation Satellite System (BDS)

  1. Named after the Chinese term for the ‘Big Dipper’, the BeiDou system started serving China in 2000 and the Asia-Pacific region in 2012.
  2. It will be the fourth global satellite navigation system after the US GPS, Russia’s GLONASS and the European Union’s Galileo.
  3. The positioning accuracy of the system has reached 10 metres globally and five metres in the Asia-Pacific region.
  4. Its velocity accuracy is 0.2 metres per second, while its timing accuracy stands at 20 nanoseconds, he said.
  5. Pakistan has become the first country to use the BeiDou system ending its reliance on the Global Positioning System (GPS).

What makes its special?

  1. The total number of satellite navigation patent applications in China has reached 54,000, ranking first in the world.
  2. More than 14,000 companies and organisations are doing business related to BDS, employing over 500,000 people.
  3. In China, about 6.17 million vehicles, 35,600 postal and express delivery vehicles, as well as 80,000 buses in 36 major cities, use BDS. T
  4. The system is also used in 3,230 inland river navigation facilities and 2,960 marine navigation facilities.

Wildlife Conservation Efforts

India submits sixth national report to Convention of Biological Diversity


Mains Paper 3: Environment | Conservation, environmental pollution and degradation, environmental impact assessment

From UPSC perspective, the following things are important:

Prelims level: CBD NR6, Aichi Targets

Mains level:  India’s commitment towards conserving Biodiversity


  • India submitted its sixth national report (NR6) to the Convention on Biological Diversity (CBD) highlighting the progress it has made in achieving the 12 National Biodiversity Targets (NBT) set under the convention process.

Highlights of the Report

  1. The report was submitted online to the CBD Secretariat during the inaugural session of the 13th National Meeting of the State Biodiversity Boards (SBBs).
  2. The report says that India had already exceeded two targets, it was on track to achieve another eight soon.
  3. The remaining two would be met by the stipulated time of 2020.

India’s Promptness

  1. Globally, biodiversity is facing increasing pressure on account of habitat fragmentation and destruction, invasive alien species, pollution, climate change and over-use of resources.
  2. India is one of the few countries where forest cover is on the rise, with its forests teeming with wildlife.
  3. India was among the first five countries in the world, the first in Asia and the first among the biodiversity-rich mega-diverse countries to have submitted NR6 to the CBD Secretariat.

On track to Aichi Targets

  1. The submission of national reports is a mandatory obligation on parties to international treaties, including the CBD.
  2. India is on track to achieve the biodiversity targets at the national level and is also contributing significantly towards achievement of the global biodiversity targets.
  3. Submission of national reports is a mandatory obligation on parties to international treaties, including CBD, and they were required to submit their NR6 by December 31.
  4. The NR6 provides an update of progress in achievement of 12 National Biodiversity Targets (NBT) developed under the convention process in line with the 20 global Aichi biodiversity targets.

Highlights of NR6

  1. India is striving to meet the targets by the stipulated time of 2020.
  2. The report highlights that while India has exceeded/ overachieved two NBTs, it is on track to achieve eight NBTs and with respect to two remaining NBTs.
  3. According to the report, India has exceeded the terrestrial component of 17 per cent of Aichi target 11, and 20 per cent of corresponding NBT relating to areas under biodiversity management.
  4. As per the NR6 report, India had been investing a huge amount on biodiversity directly or indirectly through several development schemes to the tune of Rs 70,000 crore per annum as against the estimated annual requirement of nearly Rs 1,09,000 crore.
  5. Measures have been adopted for sustainable management of agriculture, fisheries and forests, with a view to provide food and nutritional security to all
  6. Programmes are in place to maintain genetic diversity of cultivated plants, farms livestock and their wild relatives, towards minimising genetic erosion and safeguarding their genetic diversity.
  7. Mechanisms and enabling environment are being created for recognising and protecting the vast heritage of coded and oral traditional knowledge relating to biodiversity.

Wildlife growth in India

  1. India has nearly two-thirds of the population of wild tigers in the world.
  2. The population of lion has risen from 177 in 1968 to over 520 in 2015, and elephants from 12,000 in 1970s to 30,000 in 2015.
  3. One-horned Indian Rhino which was on the brink of extinction during the early 20th century, now number 2,400.
  4. Further, while globally over 0.3 per cent of total recorded species are critically endangered, in India only 0.08 per cent of the species recorded are in this category.


Aichi Targets

  1. The ‘Aichi Targets’ were adopted by the Convention on Biological Diversity (CBD) at its Nagoya conference.
  2. The short term plan provides a set of 20ambitious yet achievable targets, collectively known as the Aichi Targets.
  • Strategic Goal A: Address the underlying causes of biodiversity loss by mainstreaming biodiversity across government and society
  • Strategic Goal B: Reduce the direct pressures on biodiversity and promote sustainable use.
  • Strategic Goal C: To improve the status of biodiversity by safeguarding ecosystems, species and genetic diversity
  • Strategic Goal D: Enhance the benefits to all from biodiversity and ecosystem services
  • Strategic Goal E: Enhance implementation through participatory planning, knowledge management and capacity building
  1. The IUCN Species Programme provides advice to Parties, other governments and partners on the implementation of the Strategic Plan for Biodiversity and it’s Aichi Biodiversity Targets (2011 – 2020), and is also heavily involved in work towards the Target.

Genetically Modified (GM) crops – cotton, mustards, etc.

PM inaugurates Rice Research Institute, to improve production of crop


Mains Paper 3: Agriculture | Major crops cropping patterns in various parts of the country

From the UPSC perspective, the following things are important:

Prelims level: GM technology

Mains level: Various researches related to GM crops and how GM technology can help Indian farmers


  • The International Rice Research Institute South Asia Regional Centre (IRRI SARC) in Varanasi was dedicated to the nation by PM.


  1. With an aim to double farmers’ income the 6th IRRI SARC campus will serve as a hub for rice research and training in South Asia and SAARC region.
  2. The major aim of IRRI is to improve livelihood and nutrition, abolishing poverty, hunger, and malnutrition among those countries which depend on rice-based agri-food systems.
  3. This new Centre is expected to improve crop production, seed quality and the nutritional value of rice.
  4. It will also work with national partners to enhance farmers’ knowledge and income and deliver advanced research, teaching and services in the connection.
  5. It will also teach scientists and agriculture leaders about the latest technologies and innovations for sustainable farming; and laboratories for digital crop monitoring and assessment, and demonstration fields where variety testing is conducted.

Other Features

  1. IRRI SARC facilities will include the Centre of Excellence in Rice Value Addition (CERVA), a suite of modern laboratories where rice grains are assessed for: quality and nutritional value and sensory evaluations for grain taste, texture, and aroma are conducted; on-site facilities.
  2. This centre will catalyze South-South collaboration, strengthen the research expertise and capacity of rice-growing countries in the region, and contribute to the Sustainable Development Goals.

About IRRI

  1. The International Rice Research Institute (IRRI) is an international agricultural research and training organization with headquarters in Los Baños, Laguna in the Philippines.
  2. IRRI is known for its work in developing rice varieties that contributed to the Green Revolution in the 1960s which preempted the famine in Asia.
  3. The Institute, established in 1960 aims to reduce poverty and hunger, improve the health of rice farmers and consumers, and ensure environmental sustainability of rice farming.
  4. It advances its mission through collaborative research, partnerships, and the strengthening of the national agricultural research and extension systems of the countries IRRI works in.
  5. It is also the largest non-profit agricultural research center in Asia.
  6. IRRI’s semi-dwarf varieties, including the famous IR8 saved India from famine in the 1960s.

Coastal Zones Management and Regulations

Govt’s reason for CRZ amendments


Mains Paper 3: Environment | Conservation, environmental pollution and degradation, environmental impact assessment

From UPSC perspective, the following things are important:

Prelims level: Not Much

Mains level: India’s efforts for marine environment conservation and various initiatives related to it


  • The Union Cabinet has cleared the Coastal Regulation Zone (CRZ) notification, 2018.
  • The last time such a notification came was in 2011, though amended several times.
  • The draft notification was widely debated for its adverse impacts on local ecology.

What’s all included in the notification?

  1. The Cabinet decision has de-freezed parameters under the CRZ 2011 notification for CRZ-II (Urban) areas, Floor Space Index (FSI) or the Floor Area Ratio (FAR).
  2. These were based on the 1991 Development Control Regulation (DCR) levels.
  3. In densely populated rural areas near the coast with population density of 2,161 per square km (based on Census 2011), development works are now allowed beyond 50 metres from the high tide line (HTL).
  4. Under the 2011 CRZ notification this was 200 metres.
  5. However, areas with density below 2,161 per square km will have the ‘No Development Zone’ (NDZ) restriction of 200 metres from HTL.

Propositions for enhancing Tourism

  1. In another concession, temporary tourism infrastructure for “basic amenities” like shacks, toilet blocks, change rooms, drinking water facilities etc, will be allowed now in the NDZ of CRZ-III areas but at a distance of 10 metres from HTL.
  2. For islands near the coast and backwater islands, the new notification has fixed NDZ of 20 metres from the coastline.
  3. Government has also decentralized the CRZ clearance procedure, the state government now has the power to clear projects.
  4. Only in the case of ecologically sensitive areas (known as CRZ-I) and those covered in low tide line and 12 Nautical Miles seaward, the  MoEFCC will give clearance.

Benefits of proposed amendments

  1. The new notification has done away with or diluted many stringent restrictions in place at coastal areas.
  2. The notification will lead to enhanced activities in the coastal regions thereby promoting economic growth while also respecting the conservation principles of coastal regions.
  3. It will not only result in significant employment generation but also to a better life and add value to the economy of India.

Way Forward 

  1. Tourism has been one of the greatest creators of livelihood and jobs.
  2. The notification is so designed that it balances the needs in such a way that both are fulfilled.
  3. This will also give boost to people desirous of seeing and enjoying the beauty of the mighty seas.