February 2019
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[op-ed snap] Managing the stimulus

Note4Students

Mains Paper 2: 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 highlights of the budget 2019.

Mains level: The news-card analyses the income transfer scheme introduced in budget 2019 and its impact over the economy, in a brief manner.


Context

  • According to Budget 2019, the decline in fiscal deficit ratios has stalled and at nearly 6 per cent, India continues to have one of the highest general government (states plus Centre) deficits globally.

Crowding out, leaving more for the private sector

  • A measure of “crowding out” is government borrowing from bond markets as a share of incremental deposits in the banking system.
  • This ratio is now down to 33 per cent as the net bond issuance budgeted for the next financial year is unchanged from levels seen eight years back, a period in which the economy has grown substantially.
  • That is, the government’s excess spending, funded through borrowings, is now appropriating a smaller part of the financial savings and leaving more for the private sector.

Not all a rosy picture

  • In the current financial year, extra-budgetary spending was Rs 1.4 trillion higher than what had been budgeted.
  • Ninety per cent of that amount was from the Food Corporation of India.
  • While higher inventory holding likely explains a large part of this Rs 1.2 trillion increase, one wonders if some unfunded food subsidy may have contributed too.
  • Governments also have this tendency to give aggressive tax collection targets that make the deficit appear low, but then later in the year are forced to make course corrections.

Are the tax targets for the next year too aggressive?

  • They appear to be somewhat stretched but achievable.
  • The economic growth estimate of 11.5 per cent, taking the GDP to Rs 210 trillion, may be slightly optimistic, given how weak inflation has been in the past several months, even if the government’s consumption stimulus shores up activity levels.
  • Budgeted growth in direct tax collections at 15 per cent appears high, but is lower than what has been achieved over the past two years and thus more credible, given the significant widening of the tax base, and some recovery in corporate earnings.

Estimated growth for GST

  • The 18 per cent estimated growth for GST collections seems to assume an improvement in compliance.
  • According to the government, GST collections thus far have been nearly completely voluntary.
  • There has been very little enforcement and follow-up.
  • Post elections, the government may re-start the move towards e-way bill or invoice-matching, and also permit tax officials to question the accuracy of the self-assessments made by entities.

Income transfer scheme for farmers

  • The highlight of the budget was the Rs 750 billion income transfer scheme for farmers.
  • Even though this was widely anticipated, this is a policy innovation whose impact is hard to model.
  • Most income transfer schemes so far have been experiments on small sets of people in particular villages or townships.
  • The impact of a scheme with 117 million farmland owners is likely to be significantly different.

Concerns

  • How will the recipients use these transfers?
  • Will some microfinance companies create loan products where these payments become the instalments, and the recipient gets Rs 25,000 upfront instead of Rs 2,000 thrice a year?
  • Will these funds be used to repay existing loans from money lenders?
  • Will these funds be used to buy Rs 500 of better food every month, send the kids to a private school, invest in sowing the next crop, or used to buy a bicycle?
  • Will they save all or part of it?
  • Each of these choices will very likely be made by some individuals, but the collective impact would depend on how many chose to do what.

Will the income transfer scheme for farmers be inflationary?

  • Theoretically, a sudden rise in demand where supply takes time to respond should create inflation.
  • If for argument’s sake, everyone used these funds to send children to private schools, there could be a shortage of schools and teachers and the price of schooling would rise.
  • But this risk is low: At about a third of a per cent point of GDP, this is small.
  • The diffused nature of this transfer (a small sum to a large number of people), makes it unlikely to cause a demand surge for any particular good or service.
  • Rs 6,000 per year may mean a 30 per cent addition to some households’ income, and 5 per cent to others: This would show up in how they spend these funds as well.
  • If this had been structured as a monthly income scheme, with double the transfer per recipient for half as many beneficiaries, the impact on inflation may have been higher.

Scheme would boost food demand and growth

  • Such a scheme would have most likely boosted food demand: This is nearly 60 per cent of the consumption basket of the target population.
  • If you have ever asked how a country with one of the lowest milk consumption per capita can have an oversupply of milk for several years, the answer is that milk at current prices is unaffordable to many.
  • If the demand for milk, meat, fruits and vegetables, that is, more expensive calories, was boosted, the stalled channel of income transfer from the rich to the poor, which is food prices, would have restarted.
  • This stimulus should boost growth, which has been fading rapidly in the last several months.

Conclusion

  • An income transfer scheme was somewhat inevitable, and such a scheme will likely continue for many years.
  • After a certain stage of economic development, it becomes difficult for average per-capita agricultural incomes to keep pace with the rest of the economy, as land productivity becomes a limiting factor.
  • Moving workers away from agriculture is the only sustainable solution: In the interim, such schemes can provide temporary relief.
  • But given how little we understand about its potential impact, policy-makers need to be agile in making design changes to maximise the gains without having damaging side-effects.
Government Budgets

[op-ed snap] Risks to global growth

Note4students

Mains Paper 2: Economic Development| Inclusive growth and issues arising from it.

From UPSC perspective, the following things are important:

Prelims level: Basic knowledge of the newly released World Economic Situation and Prospects for 2019.

Mains level: The news-card analyses the issues and challenges w.r.t global economic growth, in a brief manner.


Context

  • The newly released World Economic Situation and Prospects for 2019 illustrates how rising economic, social and environmental challenges hamper progress towards the United Nations Sustainable Development Goals.

Headlines do not tell the whole story

  • On the surface, the world economy remains on a steady trajectory.
  • Many developed economies are operating close to their full potential with unemployment rates at historical lows.
  • However, beneath the surface, a worrisome picture of the world economy emerges.
  • There are many risk factors that could inflict significant damage on longer-term development prospects.

Issue

  • Over the past year, trade policy disputes have escalated, and financial vulnerabilities have increased as global liquidity tightens.
  • Global private and public debt is at a record high, well above the level seen in the run-up to the global financial crisis.
  • Interest rates remain very low in most developed economies, while central bank balance sheets are still bloated.
  • With limited monetary and fiscal space, policymakers around the globe will struggle to react effectively to an economic downturn.
  • Given waning support for multilateral approaches, concerted actions like those implemented in response to the 2008-09 crisis, may be difficult to arrange.

Challenges

  1. Seeds of growth not reaching the intended
  • Even if global growth remains robust, its benefits do not reach the places they are needed most.
  • Incomes will stagnate or grow only marginally this year in parts of Africa, Western Asia, Latin America and the Caribbean.
  • Many commodity exporters are still grappling with the effects of the commodity price collapse of 2014-16.
  • The challenges are most acute in Africa, where per capita growth has averaged only 0.3% over the past five years.
  • Given rapid population growth, the fight against poverty will require faster economic growth and dramatic reductions in income inequality.

2. Effects of Climate change

  • Most importantly, the transition towards environmental sustainability is not happening fast enough.
  • The nature of growth is not compatible with holding the increase in the global average temperature to well below 2°C above pre-industrial levels.
  • In fact, the impacts of climate change are becoming more widespread and severe.
  • The frequency and intensity of extreme weather events are increasing, damaging vital infrastructure and causing large-scale displacement.
  • The human and economic costs of such disasters fall overwhelmingly on low-income countries.

Way Forward

  • Many of the challenges are global in nature and require collective and cooperative policy action.
  • Withdrawal into nationalism and unilateral action will only pose further setbacks for the global community, especially for those already in danger of being left behind.
  • Instead, policymakers need to work together to address the weaknesses of the current system and strengthen the multilateral framework.
Issues related to Economic growth

[op-ed snap] A series of unfortunate missteps

Note4students

Mains Paper 2: Polity| Functions and responsibilities of the Union and the States, issues and challenges pertaining to the federal structure, devolution of powers and finances up to local levels and challenges therein.

From UPSC perspective, the following things are important:

Prelims level: Basic knowledge of the federal structure of India.

Mains level: The news-card analyses the federal fallout of the Kerala flood relief funding row, in a brief manner.


Context

  • The differences between the Kerala and Central governments over the denial of external assistance to rebuild the State after the devastating floods of August last year surfaced again last month.

Background

  • The Kerala Governor Justice in his policy speech in the Assembly had said that the Kerala government had requested the Centre to enhance its borrowing limit to mobilise additional resources for rebuilding the flood-hit State.
  • The state government is still awaiting a favourable response from the Central government in this regard.
  • Further, a Kerala Minister who represented Kerala at the Pravasi Bharatiya Divas in Varanasi, complained that he was not allowed to raise the issue there.
  • The bitterness over the flood money still persists.

Competitive federalism: a double-edged sword

  • Competitive federalism, in the context of interaction with foreign countries as promoted by the Prime Minister, has proved to be a double-edged sword.
  • Kerala Chief Minister now stands accused of violating rules regarding the seeking of foreign assistance.
  • He remains unclear on how to make up for the shortfall, of several crores.
  • The Central government is unable to provide the funds while Kerala has been stopped in its tracks from seeking resources from abroad, either from the Kerala diaspora or from friendly foreign governments.

Misunderstandings on both sides

  • The present situation is a result of a series of errors of judgment and misunderstandings on both sides.
  • Mutual political suspicion and a lack of appreciation of the complexities of the international situation have brought about a confrontation.
  • The Chief Minister may have even made diplomatic and tactical mis-judgements.

Diplomatic trajectory

  • India had no qualms about receiving foreign assistance for disaster management till 2004.
  • But when India’s aspiration for permanent membership of the UN Security Council met with strong resistance, New Delhi hit upon the idea of forcing a vote in the General Assembly.
  • The plan was to secure a two-thirds majority and then attempt to embarrass the permanent members into supporting the expansion of the Security Council.
  • The two false presumptions were that India would win the required number of votes and that the Security Council would wilt under pressure from the General Assembly.
  • In fact, many Assembly members were opposed to the veto even for the existing permanent members and had no interest in creating more permanent members with veto.
  • India thought that it could win over the other countries if it was seen to be helping them in emergencies rather than seeking such assistance for itself.

Rules were laid regarding foreign assistance to bring some clarity

  • The tsunami of 2004 and the threat of piracy in the Indian Ocean provided India an opportunity to test its new posture.
  • Everybody was grateful, but it made no difference to India’s claim to permanent membership.
  • However, the present government decided to lay down the rules regarding foreign assistance in order to bring some clarity to the situation.
  • The rules which were framed in 2016 clarified that India would not solicit any assistance but would receive relief assistance, even as cash, from individuals, charitable institutions and foundations.
  • If cash were to be offered bilaterally by foreign governments, the matter would be considered on a case-by-case basis.

The UAE’s offer

  • The Prime Minister was informed by the United Arab Emirates (UAE) authorities that relief assistance was being put together as a special gesture and the Prime Minister reciprocated with a warm reply of gratitude.
  • However, the Kerala Chief Minister’s announced that the UAE would provide ₹700 crore, made on the same day as the Central government’s announcement of a provision of ₹500 crore.
  • It appeared as the UAE was more generous than New Delhi was to Kerala and that the Central government was not empathetic to Kerala’s plight because of political considerations.
  • An embarrassed UAE government then asked its Ambassador in New Delhi to deny that there was any specific offer of ₹700 crore.

Consequences

  • An immediate consequence was a reluctance by other governments to make any offer of bilateral assistance.
  • No one could answer the question whether any offer from other governments would be accepted.
  • When the Thai Ambassador in Delhi was stopped from being at a ceremony to hand over relief goods to an Indian official, the world was convinced that India would not accept resources.
  • The issue was also politicised.

Unwise decision by Kerala government

  • Against this backdrop, Kerala put forward an unwise proposal to despatch its Ministers abroad to collect donations.
  • This was unacceptable in the context of the policy that had crystallised after the floods in Kerala and the Central Government having refused permission for Ministers other than the Chief Minister to travel to countries.
  • Apart from the ignominy of soliciting donations, there was a clear likelihood of receiving very little by way of cash donations.
  • The possibility of loans from the International Monetary Fund and the World Bank became distant as the Centre refused to raise the limits on loans from these global organisations that a State government could take.
  • The emergence of the Sabarimala crisis further eroded the credibility of the State Government and much of the empathy over the flood damage was also lost.

Way Forward

  • Marshalling of resources is the responsibility of the Union government according to the Constitution.
  • The only option before Kerala is to demand more funding from the Centre to make up the shortfall.
  • The situation is a tragedy of errors caused by an inadequate familiarity with decision making and the complexity of international relations.
  • India is a federal state, but unitary in nature when it comes to national security and foreign policy.
  • Individual States may have some advantages in dealing with some countries in their neighbourhood, but they will do well not to transgress the thin line when it comes to managing international relations.
Urban Floods

[pib] India’s communication satellite GSAT-31 launched successfully

Note4students

Mains Paper 3: Science & Technology | Awareness in the fields of IT, Space, Computers, robotics etc.

From UPSC perspective, the following things are important:

Prelims level: Particulars of the GSAT-31

Mains level: Importance of the mission 


News

  • India’s latest communication satellite, GSAT-31 was successfully launched from the Spaceport in French Guiana.
  • The launch vehicle Ariane 5 VA-247 lifted off from Kourou Launch Base, French Guiana carrying India’s GSAT-31 and Saudi Geostationary Satellite 1/Hellas Sat 4 satellites.

GSAT-31

  1. It was launched in an elliptical Geosynchronous Transfer Orbit with a perigee (nearest point to Earth) of 250 km and an apogee (farthest point to Earth) of 35,850 km, inclined at an angle of 3.0 degree to the equator.
  2. With a lift-off mass of 2536 kg, GSAT-31 will augment the Ku-band transponder capacity in Geostationary Orbit.
  3. The satellite will provide continuity to operational services on some of the in-orbit satellites.
  4. GSAT-31 will provide DTH Television Services, connectivity to VSATs for ATM, Stock-exchange, Digital Satellite News Gathering (DSNG) and e-governance applications.
  5. The satellite will also be used for bulk data transfer for a host of emerging telecommunication applications.
  6. It is the India’s 40th communication satellite which is configured on ISRO’s enhanced ‘I-2K Bus’, utilising the maximum “bus capabilities” of this type.
ISRO Missions and Discoveries

[pib] Shehri Samridhi Utsav

Note4students

Mains Paper 1: Social Issues | Urbanization – problems and remedies

From UPSC perspective, the following things are important:

Prelims level:  Deendayal Antyodaya Yojana

Mains level: Read the attached story


News

Shehri Samridhi Utsav

  1. Shehri Samridhi Utsav (SSU) is a pan- India initiative of Ministry of Housing & Urban Affairs (MoHUA).
  2. It aims to extend the outreach of Deendayal Antyodaya Mission – National Urban Livelihoods Mission (DAY-NULM), to the most vulnerable.
  3. It further aims to showcase its initiatives and facilitate access of Self-Help Group (SHG) members to the other government schemes.

Events under SSU

  1. Shehri Samridhi Utsav began with a series of rallies led by women’s’ SHGs, across the length and breadth of the country.
  2. These rallies spread awareness about DAY-NULM in urban poor communities.
  3. Through the Utsav, SHG members across cities are being linked to national government schemes.

Navigate to the page to read minutes of DAY-NULM:

Deen Dayal Upadhyaya Antyodaya Yojana

Urban Transformation – Smart Cities, AMRUT, etc.

[pib] Categorization of Farmers

Note4students

Mains Paper 3: Agriculture | Land reforms in India

From the UPSC perspective, the following things are important:

Prelims level: Land holding categorization in India

Mains level: Improving the condition of Small and Marginal farmers


News

Operational Land Holding in India                  

  • In Agriculture Census 2015-16, the operational holdings are categorised in five size classes as follows:-

 

S. No. Category Size-Class
Marginal Below 1.00 hectare
Small 1.00-2.00 hectare
Semi- Medium 2.00-4.00 hectare
Medium 4.00-10.00 hectare
Large 10.00 hectare and above

 

  • The operational holdings are also classified in three social groups, viz., Scheduled Castes, Scheduled Tribes and Others.
  • The average size holdings is highest in Nagaland (5.06 ha) followed by Punjab (3.62 ha).
  • Countrywide the average size is 1.08 ha.
  • It has been observed that Small farms are more efficient, especially in cultivating labour-intensive crops or tending livestock, but land holdings are too small to generate sufficient household income.

Refer this image for State-wise average size of operational holdings in the country:

Press Information Bureau

Land Reforms

[pib] Labour Ministry notifies rules to allow employment of Women in Mines

Note4students

Mains Paper 3: Economy | Development & Employment

From UPSC perspective, the following things are important:

Prelims level: Mines Act, 1952 and newly added norms

Mains level: Equality of opportunity for Women


News

  • The Central Government has exempted the women employed in any mine above ground and in any mine below ground from the provisions of section 46 of the Mines Act, 1952, subject to following conditions.

In the case of women employed in any mine above ground

  • The owner of a mine may deploy women between the hours of 7 pm and 6 am in the mine above ground including opencast workings;
  • the deployment of women shall be after obtaining the written consent of the concerned woman employee;
  • the women so deployed shall be provided with adequate facilities and safeguards regarding occupational safety, security and health;
  • the deployment of women shall be subject to the framing and implementation of Standard Operating Procedures on the basis of the guidelines issued in this regard by the Chief Inspector of Mines from time to time;
  • the deployment of women shall be in a group of not less than three in a shift.

In the case of women employed in any mine below ground

  • The owner of a mine may deploy women between the hours of 6 am and 7 pm in technical, supervisory and managerial work where continuous presence may not be required;
  • the deployment of women shall be after obtaining the written consent of the concerned woman employee;
  • the women so deployed shall be provided with adequate facilities and safeguards regarding occupational safety, security and health;
  • the deployment of women shall be subject to the framing and implementation of Standard Operating Procedures on the basis of the guidelines issued in this regard by the Chief Inspector of Mines from time to time;
  • the deployment of women shall be in a group of not less than three.

Why such move?

  1. The Mines Act, 1952, restricted the employment of women in underground mines and also in opencast or aboveground workings of the mine during night hours between 7PM and 6AM.
  2. Several women employees groups, industry and students has enrolled with various institutions pursuing mining engineering courses at degree and diploma levels.
  3. They have been representing to the government at different forum that women should be provided equal employment opportunity for working in mines.
Coal and Mining Sector

PM Kisan scheme: Aadhaar optional for first installment; compulsory from second one

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

  • Farmers who wish to avail themselves of benefits under PM-KISAN must have Aadhaar identification to get the money from the second installment, which would be paid by July 2019.
  • However, this would not be compulsory for the first installment expected to be disbursed by March 31.

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. Around 12 crore small and marginal farmer families are expected to benefit from this.

Aadhar will be mandatory

  1. States have been told to prepare a database of beneficiaries — small and marginal landholder farmer families in all villages — including whether they belong to SC/ST, bank account, mobile and Aadhaar details.
  2. For transfer of the first installment, Aadhaar number shall be collected wherever available.
  3. An alternate list of identification documents has also been provided, as options.
  4. However, for transfer of subsequent installments, Aadhaar number shall have to be compulsorily captured.

Land records

  1. States have also been told to update their land records, as that would serve as the basis for determination of landholding for beneficiaries.
  2. However, the secretary also said that the cut-off date for determination of ownership of land (as per land records) under the scheme was already over; the cut-off date was February 1, 2019.
  3. Changes thereafter in land records shall not be considered for eligibility of the benefit to the new land holder for next 5 years.
  4. Transfer of ownership on account of succession would, however, be allowed.

Role of States

  1. States would be given a maximum of 0.25% of funds transferred to beneficiaries in the first instalment to pay for their administrative expenses in the implementation of the scheme.
  2. That amount would drop to 0.125% for all further installments.
Agricultural Marketing Reforms – eNAM, Model APMC Act, Eco Survey Reco, etc.