February 2019
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[op-ed snap] The return of targeted cash transfers

Note4students

Mains Paper 3: Economic Development| Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment.

From UPSC perspective, the following things are important:

Prelims level: Basic knowledge of Minimum income guarantee scheme.

Mains level: The news-card analyses the issues and challenges w.r.t the idea of idea of minimum income guarantee scheme in India, in a brief manner.


Context

  • The general budget announced a scheme, Pradhan Mantri Kisan Samman Nidhi, under which vulnerable landholding farmer families, having cultivable land up to 2 hectares, will be provided direct income support of ₹6,000 a year.
  • The idea of minimum income guarantee (MIG) is not new and has been in discussion for some time among academics in India but attracted attention after it was proposed in the Economic Survey of 2017.

Proposal of transferring some income is built on the twin principles

  • In simple terms the proposal of transferring some income to every citizen is built on the twin principles of universality and a notion of minimum basic income to those living at the poverty line.
  • The principle of universality is at the core of it given the problems of targeting.
  • But some form of income support to those who are unable to participate in labour market has been there in most countries in some form or other including in India, like the National Social Assistance Programme (NSAP) pensions for widows, elderly and disabled.

No country has implemented it yet

  • Although the idea of UBI has been in discussion for decades, no country has implemented it.
  • While a proposal for UBI was rejected by a three-fourth majority in Switzerland, Finland which started a pilot has now discontinued it.
  • But even in Finland, the pilot was not a strict UBI but a social protection scheme aimed at only the unemployed.
  • While there have been some pilots by NGOs in developing countries in Asia and Africa, they have varied in content of transfer and coverage with only few being fully universal.
  • Only the Namibia pilot experiment provided income transfer to people in the poverty line.

Indian context

  • The proposals in the Indian context have mostly been for a targeted income transfer scheme and not UBI.
  • In developed countries, the UBI is supposed to supplement existing social security provisions and a top-up over and above universal provision of health, education and so on.
  • In the Indian context, most arguments in favour of UBI are premised on the inefficiencies of existing social security interventions and seek to replace some of these with direct cash transfers.

Issue

System of cash transfers is not leakage proof

  • It is not just the fascination for targeting the poor which is at the core of these proposals but also a belief that all existing forms of social security transfers are inefficient.
  • While there is certainly some exaggeration in such claims, it is not true that the system of cash transfers is efficient and therefore leakage proof.
  • Several studies on cash transfers have found that cash transfers are not greatly superior in terms of leakages compared to other schemes of in-kind transfer such as the public distribution system (PDS).
  • On the other hand, numerous studies have documented that a move towards universalisation and use of technology enabled Chhattisgarh and Tamil Nadu to reduce leakages in the PDS.
  • But the real message from these experiments is also that universalisation is the key to efficient delivery of services against targeting proposed by these cash transfer schemes.

Cash transfers: not a panacea for all problems

  • The obsession with cash transfers also comes with an understanding that these will take care of all problems.
  • The current sets of proposals claim these as silver bullets for agrarian crisis to malnutrition to educational deficit and also a solution for the job crisis.
  • This is a tall order with different reasons for persistence for some of these.
  • A good example is the public distribution system (PDS) where it is clearly established that in-kind transfers are twice as effective in increasing calorie intake compared to equivalent cash transfer.

Limits the role of state to only providing cash income to the poor

  • The real issue with the approach of a targeted cash transfer scheme is that it envisions the role of the state to only providing cash income to the poor.
  • This kind of ‘Robin Hood’ approach seeks to absolve the state of its responsibility in providing basic services such as health, education, nutrition and livelihood.
  • But it is also iniquitous since it seeks to create demand for services without supplying the services, leaving the poor to depend on private service providers.
  • There is now sufficient evidence which shows that privatisation of basic services such as health and education leads to large scale exclusion of the poor and marginalised.
  • In any case, India is among the countries with lowest expenditure to GDP ratio as far as expenditure on health, education and so on are concerned.

Way Forward

  • The best antidote to poverty is enabling citizens to earn their living by providing jobs.
  • For those who are willing to work, schemes such as the Mahatma Gandhi National Rural Employment Guarantee Scheme should be strengthened to enable then to earn decent incomes.
  • Similarly, the crisis in agriculture is unlikely to be resolved by income transfers.
  • But even with free and universal access to public services and access to livelihood opportunities, there may be a role for cash transfers, particularly for those who are unable to access the labour market or are marginalised due to other reasons.
  • The NSAP seeks to do exactly that by providing pensions to elderly, widows and disabled.
  • But even for these vulnerable and marginalised groups, the Central contribution to pensions has been only ₹200 per month.
  • The government needs to ensure a decent incomes to the poor, then only the intent to eradicate poverty through income transfers can be realised.
Direct Benefits Transfers

[op-ed snap] No budget for farmers

Note4students

Mains Paper 3: Economic Development| Major crops cropping patterns in various parts of the country, different types of irrigation and irrigation systems storage, transport and marketing of agricultural produce and issues and related constraints; e-technology in the aid of farmers

From UPSC perspective, the following things are important:

Prelims level: Nothing as such.

Mains level: The news-card analyses the direct income support scheme for farmers as proposed in budget 2019, in a brief manner.


Context

  • According to some experts, the proposed Rs 6,000 annual direct income support to small and marginal farmers in Budget 2019 is a drop in the ocean.
  • States like Telangana and Odisha have done much better with their Rythu Bandhu and Kalia schemes respectively.

Issue

Major reforms needs to be undertaken

  • It must be seen that this Rs 72,000 crore as direct income support to farmers is nowhere near the annual loss of about Rs 2,65,000 crore that farmers have been suffering in recent years because of the low prices they have received due to restrictive marketing and trade policies.
  • Until major marketing reforms are initiated, there is no hope of doubling farmers’ real incomes by 2022-23.
  • The enhanced interest subvention only leads to diversion of funds from agriculture to non-agriculture uses.
  • There is ample evidence that in some states agri-credit is even more than the value of agri-output.
  • So, this scheme of interest subvention needs to be reviewed.

Expanding the reach of farmers to institutional credit

  • The real need is to expand the reach of farmers to institutional credit.
  • The Kisan Credit Card (KCC) was an innovative policy of the Vajpayee government, but the latest survey of NABARD on financial inclusion (2015-16) shows that only about 10 per cent of farmers are using these cards.
  • One needs to understand the constraints and find solutions to expand and deepen its coverage.

Making the price competitive and remunerative

  • The schemes for cow protection and upgrading their breeds and having a separate outfit for fisheries are steps in the right direction, but they cannot make any difference to the current problems faced by farmers.
  • It will take years before any of these schemes can deliver.
  • Increasing milk production, without its pricing being competitive and remunerative to farmers, may not do much benefit to farmers.

Targeting the idea of income support

  • However, there is a need to know first how much of India’s population is poor.
  • There is no robust figure from the government side in the last five years.
  • Following the Tendulkar poverty line, the previous government had come up with an estimate of about 22 per cent poverty in the country in 2011.
  • It was contested by many and later, the Rangarajan Committee had put it at 30 per cent.
  • The World Bank’s poverty clock puts it at 5.5 per cent.
  • Even if one thinks that roughly one-fifth of India needs income support — say Rs 5,000 per month — the bill will amount to about Rs 3.5 lakh crore.

Way Forward

  • The income support scheme is doable if the food subsidies and MGNREGA are drastically pruned and targeted to this bottom 20 per cent of population.
  • Food subsidies and MGNREGA are costing the government more than 2.2 lakh crore, and a sizeable part of this is either lost in leakages or is not utilised productively.
  • Similarly, fertiliser subsidies can also be made through direct income support to farmers even those with holdings up to the size of four hectares.
  • Gradually, the states can be encouraged to put even power subsidy through direct income transfer and charge the market price for power, recovering at least its cost of supply.
  • These can then be fundamental reforms, switching from the price policy approach to income policy approach, for helping the small and marginal farmers and poor consumers.
  • The current problems of the peasantry are not on the supply, but on the demand side; it is about low prices.
Agricultural Marketing Reforms – eNAM, Model APMC Act, Eco Survey Reco, etc.

[op-ed snap] Distributing the rewards of reform

Note4students

Mains Paper 3: Economic Development| Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment. Government Budgeting.

From UPSC perspective, the following things are important:

Prelims level: Basic knowledge of the reform rewards proposed in Budget 2019.

Mains level: The news-card analyses several rewards of reforms as proposed in the Budget 2019, in a brief manner.


Context

  • The expansive Budget 2019 reflects the fruits of fiscal consolidation, tax reform and streamlined delivery of subsidies.

Background

  • Since Budget 2019 is the last before the general election this year, it was widely expected to be an assessment of the government’s performance.
  • There was a debate on whether the Budget should have announced any substantive measures since they would bind the next government, post-election.
  • Painstaking fiscal consolidation, tax reform, more efficient delivery of subsidies, and a rise in the share of capital expenditure, have created the space to reward tax-payers as well as announce a relief measure for farmers in distress without substantially compromising fiscal consolidation.
  • It is fair that the present government, which imposed the painful reforms and undertook difficult action, should also distribute some rewards of that reform.

Rewards of higher growth

  • It may be asked how payment of ₹20,000-₹75,000 crore can be made to farmers and the tax benefits given with only a marginal impact on the fiscal deficit.
  • But a larger size economy can afford to spend larger absolute amounts with only a small rise in deficit ratios and borrowing requirements.
  • The fact that India is the sixth largest and fastest growing economy in the world has some advantages as well as responsibilities to equitably share the rewards of growth.

Those who bore the cost of reforms, should now benefit from its success

  • Demonetisation, the goods and services tax (GST) and other steps towards formalisation increased the tax base, and it follows that tax rates can themselves be cut.
  • Again it is fair that the aam aadmi, who bore some of the costs of reform, should now benefit from the success of these.
  • It makes good economic sense to move towards a system of a wider base and lower rates.
  • Tax receipts have grown from 10% of GDP — a level at which they had stagnated since the tax cuts after the global financial crisis — to 12%.
  • Although the GST has not yet resulted in a rise in indirect tax ratios above 5.5%, it is likely to do so in the future as it stabilises.
  • The transfers to farmers and tax cuts amount to only 0.4% of GDP this year and are partially funded by a 0.3% rise in tax ratios.
  • The JAM (or Jan Dhan-Aadhaar-Mobile) complex is the other major set of reforms that enable a smaller expenditure to have a larger impact on social welfare.
  • Jan Dhan bank accounts opened through the country and the Aadhaar data base make a cost-effective Direct Benefit Transfer (DBT) possible for farmers.

Rewards of lower inflation

  • A slight rise in fiscal deficits to fund transfers to farmers does not threaten macroeconomic stability when inflation is low and food prices are crashing.
  • In fact they are likely to help stabilise prices so that farmers do not cut production in the next crop cycle.

Deficits has been maintained

  • Moreover, this year, the revenue deficit has been maintained, the primary deficit been reduced, and expenditure on capital account been increased.
  • Better quality of government expenditure as well as the GST tax cuts, reductions in obstacles to inter-State trade, and soft commodity prices will keep inflation low.

Other factors

  • The Budget points out that highways are being built at the rate of 27 km per day, which makes India the fastest builder in the world.
  • Railway safety has improved.
  • Better implementation and reduction in waste brings down costs across the board.
  • The shift in the Budget date to earlier in the year and the focus on spending in the first half have resulted in a better achievement of sectoral spending targets this year.

Government borrowing

  • The size of government borrowing is larger than what the market anticipated, and this has raised G-Sec rates.
  • The rise in gross borrowing is because of higher redemptions but net borrowing is similar to that last year.
  • There was a sharp rise in G-Sec yields that year.
  • As a result, interest payments as a ratio to GDP rose to 3.2 against the budgeted 3.
  • But 3.4% of GDP is not a large fiscal deficit, and market conditions are likely to be more supportive of government borrowing this year.

Effects of global economic conditions

  • The international rate rise has peaked, with the U.S. Fed turning dovish and indicating that there will be no more rise; it is likely to maintain its balance sheet.
  • Emerging market inflows are set to rise, creating demand for G-Secs up to the current cap of 6% of the domestic market.
  • Soft oil prices will encourage foreign investors to return to Indian markets.
  • But since global growth is slowing, inflows are unlikely to be as large as they were in 2017.
  • Therefore, there will be more room for open market operations (OMO) from the Reserve Bank of India that support the debt market.
  • Softening interest rates will also make banks more willing to hold G-Secs.
  • When international demand is slowing, it is important to maintain domestic demand.
  • Therefore, tax cuts, more income to farmers and various schemes to improve demand for housing, which has been under stress, are all appropriate.

Way Forward

  • It is necessary that sharing of growth benefits is done in ways that sustain growth, reduce distortions, and improve capabilities to participate in growth.
  • Well-targeted transfers can be made without destroying fiscal consolidation and creating macroeconomic vulnerabilities.
  • The Budget continues the effort to reduce transaction costs and improve compliance incentives.
  • Stamp duty amendments that seek to tax just one transaction, which will be shared across State governments, on the basis of the domicile of the buying client, will reduce a major market irritant, increase transactions and take the country further toward becoming one effective market.
  • As income tax returns rise, a less than 0.05% will be selected for scrutiny in non-discretionary, machine-based ways without any interface between the tax-payer and the examining officers, thus reducing potential tax-payer harassment.
Issues related to Economic growth

Pradhan Mantri Kisan Samman Nidhi

Note4students

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

From UPSC perspective, the following things are important:

Prelims level: PM-KISAN

Mains level: PM-KISAN and its mandate


News

  • To provide an assured income support to the small and marginal farmers, the Government is launching the Pradhan Mantri Kisan Samman Nidhi (PM-KISAN).

Pradhan Mantri Kisan Samman Nidhi

  1. Under this programme, vulnerable landholding farmer families, having cultivable land upto 2 hectares, will be provided direct income support at the rate of Rs. 6,000 per year.
  2. This income support will be transferred directly into the bank accounts of beneficiary farmers, in three equal installments of Rs. 2,000 each.
  3. This programme will be funded by Government of India.
  4. Around 12 crore small and marginal farmer families are expected to benefit from this.
  5. The programme would be made effective from 1st December 2018 and the first installment for the period upto 31st March 2019 would be paid during this year itself.
  6. It will entail an annual expenditure of Rs.75, 000 crore.

Expected Outcome

  1. It would not only provide assured supplemental income to the most vulnerable farmer families, but would also meet their emergent needs especially before the harvest season.
  2. It would pave the way for the farmers to earn and live a respectable living.
Agricultural Marketing Reforms – eNAM, Model APMC Act, Eco Survey Reco, etc.

Pradhan Mantri Shram-Yogi Maandhan Yojana

Note4students

Mains Paper 2: Governance | Welfare schemes for vulnerable sections of the population by the Centre & States & the performance of these schemes

From UPSC perspective, the following things are important:

Prelims level: Pradhan Mantri Shram- Yogi Maandhan Yojana

Mains level: Pension Scheme for Unorganised sector workers


News

Pradhan Mantri Shram-Yogi Maandhan Yojana

  1. The scheme announced in the Budget 2019 has proposed to launch the scheme for the unorganised sector workers with monthly income upto Rs 15,000.
  2. The Government will deposit equal matching share in the pension account of the worker every month.
  3. It is expected that at least 10 crore labourers and workers in the unorganised sector will avail the benefit of the scheme within next five years making it one of the largest pension schemes of the world.
  4. A sum of Rs 500 crore has been allocated for the Scheme.
  5. The scheme will also be implemented from the current year.

Criteria

  1. This pension yojana shall provide an assured monthly pension of Rs 3,000 from the age of 60 years on a monthly contribution of a small affordable amount during their working age.
  2. An unorganised sector worker joining pension yojana at the age of 29 years will have to contribute only Rs 100 per month till the age of 60 years.
  3. A worker joining the pension yojana at 18 years, will have to contribute as little as Rs 55 per month only.
Labour, Jobs and Employment – Harmonization of labour laws, gender gap, unemployment, etc.

New panel for welfare of nomadic communities

Note4students

Mains Paper 2: Governance | Mechanisms, laws, institutions and Bodies constituted for the protection and betterment of these vulnerable sections.

From UPSC perspective, the following things are important:

Prelims level: Idate and Renke Commission Recommendations

Mains level: Welfare measures for the stigmatized de-notified and nomadic tribes


News

Panel for Nomadic Tribes

  1. A committee will be set up under NITI Aayog to complete the task of identifying de-notified, nomadic and semi-nomadic communities, especially as they move from place to place in search of a livelihood.
  2. These communities are hard to reach, less visible, and therefore, frequently left out.
  3. The committee will follow up on the work of the Renke Commission and the Idate Commission.
  4. A Welfare Development Board will also be set up under the Ministry of Social Justice and Empowerment to design and implement programmes for these hard-to-reach communities.

Why such move?

  1. These communities once branded as criminals under the colonial Criminal Tribes Act of 1871, the communities were ‘denotified’ in 1952.
  2. They continue to face stigma till this day.
  3. To this end, the condition of the denotified, nomadic and semi-nomadic communities merits special attention.
  4. The communities which have not been categorised as SC/ST/OBC do not get access to any welfare schemes.
  5. The earlier commissions — Renke and Idate — had tried to identify and list these communities.
  6. The major recommendations of the commissions have not been implemented till date.
Tribal Development

International conference on 8th century sage held to mark 50 years of India-Bhutan ties

Note4students

Mains Paper 2: IR | India & its neighborhood- relations.

From the UPSC perspective, the following things are important:

Prelims level: Guru Padmasambhava, Thangka Paintings

Mains level: India-Bhutan cultural relations


News

About the Conference

  • Celebrating 50-years of formalization of diplomatic ties between India and Bhutan, a two-day international conference on 8th century Himalayan sage Guru Padmasambhava was held in New Delhi.
  • The conference, organised by the Centre for Escalation of Peace (CEP) and titled ‘Life and Legacy of Guru Padmasambhava’, was held.

Guru Padmasambhava

  1. Guru Padmasambhava was born in India and has visited Bhutan two times.
  2. He spent a large amount of his time in Nalanda there and then he travelled across the Himalayas.
  3. He is known as the second Buddha because he brought Buddhism in Bhutan and other Himalayan countries.
  4. There is an image or painting of the guru in every Bhutanese home or temple.
  5. Thangka paintings, sculptures and photographs portrayed the life and teachings of the Guru.

(Note: Thangka is a Tibetan Buddhist painting on cotton, silk usually depicting a Buddhist deity, scene, or mandala)

History- Important places, persons in news

DIPP rechristened to include internal trade

Note4students

Mains Paper 2: Indian Polity | Statutory, regulatory and various quasi-judicial bodies

From UPSC perspective, the following things are important:

Prelims level: DPIIT

Mains level:  Mandate of the restructured DPIIT


News

Department for Promotion of Industry and Internal Trade

  1. The government has notified changing the name of the Department of Industrial Policy & Promotion (DIPP) to the Department for Promotion of Industry and Internal Trade, and has enhanced its role.
  2. These are in addition to the previous responsibilities of the erstwhile DIPP relating to general industrial policy, administration of the Industries (Development and Regulation) Act, 1951, industrial management, productivity in industry, and matters related to e-commerce.

About DIPP

  1. DIPP was established in the year 1995, and was reconstituted in the year 2000 with the merger of Department of Industrial Development.
  2. The department functions under the Ministry of Commerce and Industry.
  3. It is responsible for formulation and implementation of promotional and developmental measures for growth of the industrial sector, keeping in view the national priorities and socio-economic objectives.
  4. While individual Administrative Ministries look after the production, distribution, development and planning aspects of specific industries allocated to them, DIPP is responsible for the overall industrial policy.
  5. It is also responsible for facilitating and increasing the foreign direct investment (FDI) flows to the country.
  6. It is currently working to frame a new industrial policy, to be the third such policy in India since its independence in 1947.

Four new responsibilities added

The notification has also included four new categories of responsibilities the renamed body will be in charge of, including:

  • Promotion of internal trade (including retail trade)
  • Welfare of traders and their employees
  • Matters relating to facilitating Ease of Doing Business
  • Matters relating to start-ups
Industrial Sector Updates – Industrial Policy, Ease of Doing Business, etc.