[op-ed snap] Another look at fiscal transfers

Note4students

Mains Paper 2: Polity | Functions & responsibilities of the Union & the States, issues & challenges pertaining to the federal structure

From UPSC perspective, the following things are important:

Prelims level: State Finance Commission (SFC)

Mains level: Role of finance commissions in fiscal federalism and changes proposed


NEWS

CONTEXT

Concept of federalism

  • Federalism is an old concept.
  • It is well known that the efficiency of a government depends on, among other factors, its structure.
  • In large countries, it has been felt that only a federal structure can efficiently meet the requirements of people from different regions.

The reason behind the existence of the present form of federalism

  • In our country during the independence struggle, provincial autonomy was regarded as an integral part of the freedom movement.
  • However, after Independence, several compulsions, which included defence and internal security, led to a scheme of federalism in which the Centre assumed greater importance.
  • Also in the immediate period following Independence, when the Centre and all States were ruled by the same party and when many of the powerful provincial leaders migrated to the Centre, the process of centralisation gathered further momentum.
  • Economic planning at a nation-wide level helped this centralising process.

What is Fiscal Federalism?

  • Fiscal federalism is the economic counterpart to political federalism.
  • Fiscal federalism is concerned with the assignment on the one hand of functions to different levels of government, and with appropriate fiscal instruments for carrying out these functions on the other.
  • The Central government must provide national public goods that render services to the entire population.
  • A typical example cited is defence.
  • Sub-national governments are expected to provide goods and services whose consumption is limited to their own jurisdictions.

Determinations of Raising of Taxes by different units of government

  • An equally important question in fiscal federalism is the determination of the specific fiscal instruments that would enable the different levels of government to carry out their functions.
  • This is the ‘tax-assignment problem’ .
  • In determining the taxes that are best suited for use at different levels of government, one basic consideration is in relation to the mobility of economic agents, goods and resources.
  • It is generally argued that the de-centralised levels of government should avoid non-benefit taxes and taxes on mobile units.
  • This implies that the Central government should have the responsibility to levy non-benefit taxes and taxes on mobile units or resources.

Problems in assigning different  taxing responsibilities  to different levels of government

  • Different Constitutions interpret differently what is mobile and what is purely a benefit tax.
  • For example, in the United States and Canada, both Federal and State governments have concurrent powers to levy income tax.
  • On the contrary, in India, income tax is levied only by the Central government though shared with the States.
  • Recognising the possibility of imbalance between resources and responsibilities, many countries have a system of inter-governmental transfers.

The provision in Indian Constitution regarding the division of taxes

  • The Indian Constitution lays down the functions as well as taxing powers of the Centre and States.
  • It is against this background that the issues relating to the correction of vertical and horizontal imbalances have been addressed by every Finance Commission, taking into account the prevailing set of circumstances.
  • However, Central transfers to States are not confined to the recommendations of the Finance Commissions.
  • There are other channels such as those through the Planning Commission until recently as well the discretionary grants of the Central government.

Recent changes in the division of tax proceeds

  • The Fourteenth Finance Commission has broken new ground in terms of allocation of resources.
  • One of its major recommendations has been to increase the share of tax devolution to 42% of the divisible pool.
  • This is a substantial increase by almost 10 percentage points.
  • The commission has argued that this does not necessarily affect the overall transfers but only enhances the share of unconditional transfers.
  • Over years, the performance of the Central government is judged not only on the basis of actions taken which fall strictly in its jurisdiction but also on initiatives undertaken in the areas which fall in the Concurrent and even State lists.
  • Today, the Central government is held responsible for everything that happens, including, for example, agrarian distress.
  • The Planning Commission was replaced by the NITI Aayog, which was simply a think-tank with no powers of resource allocation.

Way Forward

  • The Constitution should be amended and the proportion of shareable taxes that should go to the States fixed at the desired level.
  • The shareable tax pool must also include cesses and surcharges as these have sharply increased in recent years.
  • Fixing the ratio at 42% of shareable taxes, including cesses and surcharges, seems appropriate.
  • Another possible route is to follow the practice in the U.S. and Canada: of allowing the States to levy tax on personal income, with some limitations.
  • Also once this power is given to the States, the transfers from the Centre need adjustment.
  • There are issues relating to horizontal distribution. An appropriate balancing of criteria is needed particularly in the context of the rise in unconditional transfers.
Finance Commission – Issues related to devolution of resources

[op-ed snap] A sour taste

Note4students

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

From UPSC perspective, the following things are important:

Prelims level: Not much

Mains level: The crisis of delay in payment in sugar sector and how to deal with it.


NEWS

CONTEXT

Cane farmers everywhere are still awaiting full payments for their produce this season.

Background

  • There have been widespread protests.
  • The sugar commissioner  warned of stern action against defaulting mills.
  • Sugar mills in Maharashtra have paid only Rs 14,881.01 crore out of the Rs 20,653.02 crore that they owe to farmers.
  • The problem of arrears is even worse in Uttar Pradesh, where the unpaid cane dues of mills have crossed Rs 10,000 crore.
  • Maharashtra’s sugar commissioner’s office had threatened
    • To attach and auction properties of defaulting mills
    • To register criminal cases against their chairmen and directors.

Reasons for delay in payment

  • The inability to pay has to do with the economics of the industry.
  • A mill in UP is to buy cane at the state government’s “advised” price of Rs 325 per quintal.
  • The bare production cost of sugar at that rate is roughly Rs 34 per kg.
  • As against this, the ex-factory price of sugar is now Rs 31 per kg.
  • Many factories are actually selling below even this “minimum” price fixed by the Centre.
  • If the industry is going to lose a minimum of Rs 3 on every kilo of sugar sold, the total loss of 31 million tonnes.
  • That’s clearly not sustainable for mills.

Government’s Interventionist Policy

  • Governments, both at the Centre and in the states, have only made things worse.
  • It has done so by fixing cane prices out of sync with sugar realisations or setting monthly sale quotas
  • For March, mills have been given a target to sell 24.5 lakh tonnes (lt) of sugar, which is way above the 21.09 lt and 19.52 lt of actual sales undertaken in the same month in 2018 and 2017, respectively.
  • The underlying objective behind forcing mills to sell more sugar  has been to generate more liquidity to enable them to make cane payments.
  • But that has only ended up depressing prices further.

Way Forward

  • Cane prices have to be linked to average realisations of mills, both from sugar and primary by-products (molasses and baggase).
  • Farmers have the freedom to sell to any mill that may want to pay more.
  • If the government wants cane farmers to be paid more, it should credit that amount directly to their bank accounts and not force losses on the industry.
Sugar Industry – FRP, SAP, Rangarajan Committee, EBP, MIEQ, etc.

[op-ed snap]Parallel tracks on trade ties

Note4Students

Mains Paper 2: International relations| Effect of policies and politics of developed and developing countries on India’s interests, Indian Diaspora.

From UPSC perspective, the following things are important:

Prelims level: Basic knowledge of India-US trade relations.

Mains level: The news-card analyses the India-US trade relation in recent times, in a brief manner and impact of GSP review.


NEWS

CONTEXT

Recently US took decision to rescind the benefits Indian exports enjoy under the Generalised System of Preferences (GSP) programme.

Is India Responsible for this?

  • It begins with the change in foreign direct investment (FDI) rules in India.
  • The tightened norms that came into effect on February 1 place several restrictions on e-commerce companies, including Walmart-owned Flipkart and Amazon.
  • The unexpected changes came after Walmart, the world’s largest retailer, paid over $16 billion to acquire Flipkart last May.
  • Trump notified Congress of his intention to slap punitive action on India by ending preferential treatment for the country’s exports.
  • Walmart’s reputation for killing small retail businesses influenced New Delhi’s decision to tighten the FDI rules.
  • Economic diplomacy can still defuse the situation and prevent the removal of the GSP benefits .

Background of trade tensions between the two countries

  • The simmering tensions go back to April 2018 when the United States Trade Representative (USTR) launched a review of New Delhi’s eligibility for the GSP programme.
  • New Delhi, in response to Washington’s 25% tariff hikes on steel and 10% levies on aluminium, immediately accused it of unfair trade practices, and, seeking to signal a muscular approach.
  • Bilateral talks since then have failed to ease tensions and India now stares at losing the GSP benefits.
  •  U.S. medical and dairy industries complained that New Delhi is not providing them “equitable and reasonable access to its market.
  •  Data localisation policies deepened the rift.

Tensions Due to Price control over drugs and medical devices

  • New Delhi’s use of price control measures against imported drugs and medical devices has grown noticeably.
  • US. manufacturers complain that in doing so, New Delhi has meted out differential treatment to them vis-à-vis domestic players.
  • The U.S. medical device industry wants price controls on cardiac stents and knee implants withdrawn and would like products to be treated on parity with domestic medical devices.
  • New Delhi has preferred to act against unreasonable price mark-ups through price controls when exactly the same  can be achieved through other types of policy alternatives.
  • The USTR is right in pointing out that price capping counts as a trade barrier.
  • New Delhi can easily address the concerns by replacing price controls with trade margin rationalisation measures.

Impact of losing GPS status

  • India is the largest beneficiary of the GSP.
  • The GSP is aimed at promoting economic development by allowing duty-free entry of products from designated beneficiary countries.
  • The immediate loss for India is preferential access at zero or minimal tariffs to the U.S. in case of about 1,900 products, or about half of all Indian products.
  • New Delhi has downplayed the impact of the proposed withdrawal of benefits, saying exports worth $190 million only are likely to be affected and that the tariff advantage was 4% or more on only 2,165 of a total of 18,770 tariff lines.
  • The loss to the economy would be much larger than what the Department of Commerce is projecting.
  • The actual loss will not be limited to the immediate tariff advantage.
  • Indian exporters are competing for market share in the U.S. with other low-income countries in industries where margins are wafer thin.
  • Even minor price hikes can drive significant drops in export volumes.
  • In which case, losing GSP access will be costlier than the projections.
  • Among price-sensitive products eligible for higher GSP benefits that risk losing out to competition from other countries are processed food, leather products, plastic products, building materials, tiles, hand tools, engineering goods, cycles and made-ups such as pillow/cushion sleeves and woven women’s apparel.

 

 

Foreign Policy Watch: India-United States

GRAPES-3 Experiment

Note4students

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: GRAPES-3 Experiment

Mains level: Particulars and importance of the Experiment


News

  • For the first time in the world, researchers at the GRAPES-3 muon telescope facility in Ooty have measured the electrical potential, size and height of a thundercloud that passed overhead on December 1, 2014.

GRAPES-3 Experiment

  • GRAPES-3 (Gamma Ray Astronomy PeV EnergieS phase-3) is designed to study cosmic rays with an array of air shower detectors and a large area muon detector.
  • It aims to probe acceleration of cosmic rays in the following four astrophysical settings.
  • It is located at Ooty in India and started as a collaboration of the Tata Institute of Fundamental Research, Mumbai, India and the Osaka City University, Osaka, Japan.

Measuring the potential of a Thunderstorm

  • Using a computer simulation and the observed Muon intensity variations, the group worked out the relationship with the electric potential of the cloud.
  • They calculated that the potential of the cloud they were studying was approximately 1.3 Giga Volts.
  • At 1.3 GV this cloud had 10 times higher potential than the previous record in a cloud.
  • No one has ever measured potential, size and height of a thundercloud simultaneously.

Utility of this study

  • Learning about the properties of thunderclouds can be useful in navigation of aircraft and preventing short circuits.

Cloud structure are better assessed

  • Clouds have negative charges along their lower side and positive charges on top and can be several kilometres thick.
  • If balloons are used to measure the potential difference between the top and bottom, they will take hours to traverse the distance.
  • Unfortunately, thunderstorms last only for about 15-20 minutes, and this method fails.

Back2Basics

What are Muons? How are they detected?

  • Muons and other particles are produced when cosmic rays bombard air particles surrounding the earth.
  • The muons produced can have positive or negative charge.
  • When a positively charged muon falls through a cloud, it loses energy.
  • If its energy falls below 1 giga electron volt (GeV), which is the threshold of detection of the GRAPES-3 muon telescope, it goes undetected.
  • On the contrary, a negatively charged muon gains energy when falling through the cloud and gets detected.
  • Since there are more positive than negative muons produced in nature, the two effects don’t cancel out, and a net change in intensity is detected.
International Space Agencies – Missions and Discoveries

Ind AS (Indian Accounting Standard)

Note4students

Mains Paper 3: Economy | Mobilization of resources

From the UPSC perspective, the following things are important:

Prelims level: Ind AS

Mains level:  Accounting Standards of RBI


News

  • The Reserve Bank of India (RBI) has deferred the implementation of the new accounting norms, Ind AS, indefinitely, as necessary amendments to the relevant law are yet to be made.
  • The move will bring huge relief to the banks which are yet to recognise stressed assets and make necessary provisions as that would require higher capital.

Ind AS

  • Indian Accounting Standard is the Accounting standard adopted by companies in India and issued under the supervision of Accounting Standards Board (ASB) which was constituted as a body in the year 1977.
  • ASB is a committee under Institute of Chartered Accountants of India (ICAI) which consists of representatives from government department, academicians, other professional bodies viz. ICAI, representatives from ASSOCHAM, CII, FICCI, etc.
  • Ind AS governs the accounting and recording of financial transactions as well as the presentation of statements such as profit and loss account and balance sheet of a company.

Why IndAS?

  • For long, there has been a heated debate about Indian companies moving to the globally accepted International Financial Reporting Standards (IFRS) for their accounts.
  • But firms have resisted this shift, stating that this will lead too many changes in the capture and reporting of their numbers.
  • Ind AS has been evolved as a compromise formula that tries to harmonize Indian accounting rules with the IFRS.

Causes for delay

  • The implementation of IndAS for public sector banks requires an amendment to the Banking Regulation Act, 1949.
  • The schedule in Banking Regulation Act relating to financial statement disclosures needs to be changed to the IndAS format.
  • The other thing is the balance sheet format, for which some changes in the Act are required.
RBI Notifications

CH47 Chinook heavy-lift Choppers

Note4students

From UPSC perspective, the following things are important:

Prelims level: CH-47 Chinook

Mains level: Enhancing fleet arsenal of IAF


News

  • IAF has inducted four CH47 Chinook heavy-lift choppers .
  • India has paid close to $ 1.5 billion for 15 of these helicopters which would be also used for deploying troops and machinery at high altitude locations.

CH-47 Chinook

  • The Boeing CH-47 Chinook is an American twin-engined, tandem rotor, heavy-lift helicopter.
  • It is among the heaviest lifting Western helicopters.
  • Its name, Chinook, is from the Native American Chinook people of modern-day Washington state.

Salient features of the Chinook

  • A multi-mission heavy-left transport helicopter, Chinook will be used to move troops, artillery, ammunition, barrier materials, supplies and equipment on the battlefield.
  • It is highly maneuverable, which makes it suitable for operating in tough, dense terrain.
  • Its 24X7, all-weather operational capabilities are crucial for India Air Force, which operates in some of the most hostile terrains in the world.
  • Apart from military operations, they can also be used for medical evacuation, disaster relief, search and recovery, fire-fighting and civil development.
  • It is capable of transporting fully-equipped infantry soldiers for specialised operations. It has fully integrated digital cockpit management system.
  • The Chinook has the capacity to carry a maximum payload capacity of 11 tonnes and 45 troops.
Indian Air Force Updates

Galapagos Islands

Note4students

From UPSC perspective, the following things are important:

Prelims level: Galapagos Islands

Mains level: Not Much


News

  • Tonnes of plastic waste wash up on the shores of the Galapagos Islands where microparticles end up in the stomachs of species found only in the Pacific archipelago 1,000 km west of mainland Ecuador.

Galapagos Islands

  • The Galapagos Islands an archipelago of volcanic islands part of the Republic of Ecuador, distributed on either side of the Equator in the Pacific Ocean surrounding the centre of the Western Hemisphere.
  • The island inspired Charles Darwin’s Theory of evolution and was his field of study.
  • The Islands and their surrounding waters form the Galapagos Province of Ecuador, the Galapagos National Park, and the Galapagos Marine Reserve.
  • UNESCO recognised the islands as a World Heritage Site and as a biosphere reserve.

Menace of Microplastics

  • Sun rays and the ocean’s saltwater break down bottles, bags, lids, containers and fishing nets.
  • The tiny plastic pieces become part of the food chain.
  • Those microparticles, often from waste discarded in big cities from other countries and even continents, are perhaps one of the greatest threats to the iguanas, tortoises, birds and fish of the Galapagos.
  • More than 90 percent of the waste gathered doesn’t come from Galapagos activities, but rather from South America, Central America and even a great deal of waste with Asian branding.
Waste Management – SWM Rules, EWM Rules, etc

Rising sea levels to affect water table along Chennai’s shoreline

Note4students

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: Impacts of rising sea level on coastal India


News

  • The fragile water table in the coastal areas of Chennai is under threat of severe seawater intrusion due to anticipated rise in sea levels in the next few decades.
  • There is a rise in sea level by 2mm every year based on a report by the Indian Network for Climate Change Assessment (INCCA) under the MoEFCC.

About INCCA

  • The INCCA is a proposed network of scientists in India to be set up to publish peer-reviewed findings on climate change in India.
  • It was announced on 7 October 2009.
  • It would operate as a sort of Indian ‘IPCC’.

Aquifers to become saline by 2100

  • The study has forecast the impact of sea level rise on the coastal aquifer in the coming years, till 2100.
  • The increasing sea level would also force the water table along the coastline to move upwards.
  • But it would slowly replace the freshwater at the bottom of the aquifer.
  • Given the rate of increase in sea level, the water table would witness an incursion of sea water to the extent of 2-3mm every year.
  • The volume of fresh water would gradually reduce in the coastal areas due to climate change-induced sea level rise.

Why this sudden threat?

  • Rapid urbanisation and indiscriminate drawal have already led to salt water intrusion in areas from the Adyar river to Palavakkam.
  • Residents are heavily dependent on other resources, including private water tankers.
  • The water table along ECR is fragile as it is surrounded by the sea, the Adyar river, the Buckingham canal and the backwaters of Muttukadu.

Way Forward

  • It is imperative to change the land-use pattern along the shoreline to tackle the impact of climate change.
  • Only minimal groundwater extraction through open wells must be allowed and water pumped in localities along the shoreline must be replenished through rainwater harvesting.
  • Large residential complexes must adopt other measures like permeable pavements.
Climate Change Impact on India and World – International Reports, Key Observations, etc.

Urban areas cooler than non-urban regions during heat waves

Note4students

Mains Paper 1: Social Issues | Urbanization, their problems & remedies

From the UPSC perspective, the following things are important:

Prelims level: Urban Heat Island Effect

Mains level: Impact of Heat waves


News

  • A study of 89 urban areas in India has found that though there is an absolute increase in temperature during heat waves in both urban and non-urban areas, the urban areas are relatively cooler than the surrounding non-urban areas.

Urban areas Heat lesser

  • At 1.94°C, the absolute increase in temperature during the day in non-urban areas during a heat wave was significantly higher than in urban areas (0.14°C).
  • According to the analysis, urban areas were found to be relatively cooler than the surrounding non-urban areas during heat waves.
  • At 44.5°C, the non-urban areas were warmer than urban areas (43.7°C).
  • However, during the night, all urban areas were hotter than the surrounding non-urban areas.
  • This result was quite unexpected.

Why?

  • The urban areas witness less temperature increase during heat waves compared with non-urban areas due to significantly higher tree cover and more number of water bodies.
  • In contrast, a majority of non-urban areas are located in agriculture-dominated regions.
  • In non-urban areas, the vegetation cover in the form of crops and soil moisture from cropland irrigation decline sharply after crops are harvested and well before the onset of heat waves during summer.
  • The urban areas, on the other hand, have perennial vegetation in the form of tree cover and lawns, and more number of water bodies, which help in keeping the urban areas relatively cooler than non-urban areas.

Back2Basics

Urban Heat Island Effect

An urban heat island (UHI) is an urban area or metropolitan area that is significantly warmer than its surrounding rural areas due to human activities. This effect is known as Urban Heat Island effect.

Causes of UHI Effect

  • Heavy vehicular and industrial pollution in urban areas.
  • Discharge of greenhouse gases (GHGs) in substantial amounts, which trap the outgoing infrared radiations.
  • Tall buildings and other infrastructure which obstruct the flow of wind, consequently obstructing the transfer of heat.
  • Lack of vegetation which can act as both heat and carbon sink.
  • Majority of urban surfaces are composed of metal, glass, concrete or asphalt. These materials have high heat retaining capacity during the day and emit this heat out during the night.
  • The inability of water to penetrate the above materials, makes the urban landscape behave as a desert landscape.
Climate Change Impact on India and World – International Reports, Key Observations, etc.