Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much.
Mains level: Paper 3- Provisions in the budget to revive the economy-need for the fiscal stimulus, policies of the Government with respect to agriculture.
Context
The stimulus needs to continue and the reforms will help to keep the economy going. If gross savings and investment rates keep on falling it is difficult to revive the economy.
What was expected in the last budget?
- Increase in pubic investment: The first thing, it said, was to increase public investment and not play statistical or token announcement games.
- The upswing in manufacturing growth, from negative to slightly less than 3 per cent (not industrial growth, because that includes mining and electricity), needed consolidation.
- Real outlays in infra did not go up: Real outlays on the infrastructure needed to go up, but they did not.
- So the push to private demand and a virtuous cycle of growth was missed.
- The implicit numbers in the Budget math comprise growth of around 7 per cent, assuming a 5 per cent inflation rate.
Prospects of the Agri-sector
- A good sign in Agri in midterm: For agriculture, in the medium-term, we are alright. Kharif grain production was 6.4 per cent higher than the previous five-year average output.
- Kharif oilseeds output around eleven lakh tonnes above the earlier year.
- This was, however, based on a delayed monsoon which caused problems and anxieties in the second quarter of this year.
- Nightmare of government unloading grain in the market: Foodgrains are doing well and we have huge food stocks.
- But, instead of a blessing, the government turned public operations in grain into a nightmare by announcing that FCI will unload grain at a reserve price less than MSP.
- Rabi acreage recovered and is now 8 per cent more than last year, but the policy of government operations to reduce the market price of grain by its intervention is a nightmare.
- This is bound to affect input growth in the expanded acreage in the winter crops.
Wrong policy in Agriculture
- Terms of trade against agriculture: The terms of trade are going against agriculture, according to CACP (Commission for Agricultural Costs & Prices) estimates, and selling of the grain will make it worse.
- While the fundamentals are alright, to wallop the farmer with a “cut in the reserve price” would harm the farmers.
- The rabi report of CACP will say that the terms of trade have gone down more.
Conclusion
The Government should continue with the stimulus and opt for the reforms in the economy only to keep the economy going. If the gross savings and investment rates keep falling it would be difficult to revive the economy. If savings keep up, the government will have actual space to divert some real resources to infrastructure investment.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much.
Mains level: Paper 2- 6th Schedule, Demand for separate states in North-East.
Context
It is to be seen if the pact will lead to true autonomy, true peace, and true development.
What the pact involved?
- Which groups signed the deal?
- Four factions of the National Democratic Front of Bodoland (NDFB), along with an influential Bodo students’ organization and a Bodo civilian pressure group, signed the peace agreement with the central and Assam governments.
- What are the major concessions given?
- The Bodoland Territorial Area Districts, the name given to Kokrajhar, Baksa, Chirang and Udalguri, the four contiguous districts bordering Bhutan and Arunachal Pradesh, will now be known as Bodoland Territorial Region.
- Acknowledgement of Bodo homeland: The changed nuance from districts to the region is significant as it acknowledges a Bodo homeland within the state of Assam, without separating from Assam.
- Why this acknowledgement matters: This is dialled down from earlier rebel demands for a breakaway state and later suggestions for Union territory status.
- What is the significance of the change from district to the region?
- Satisfying identity aspiration: The renaming is designed to satisfy the identity and aspirations of the Bodo people.
- Not ceding territory solved tricky matter: Renaming also solved the politically tricky matter of ceding territory for the government of Assam.
- Ceding territory would also have fuelled similar demands from the other parts of the state like- Karbi Anglong, Dima Hasao and Cachar, which also have homelands of non-Ahom ethnicities.
- Avoiding similar demand from other states: Indeed, it could have affected the ongoing Naga peace process, leading Naga rebels to demand territorial and administrative autonomy in Naga homelands in Manipur.
Scope of the success of the pact
- Inherent vulnerability: There is already an inherent vulnerability to the Bodo peace deal even without the overhang of ceding territory.
- This is rooted in the birth of the Bodo rebellion, which began in the 1980s on account of administrative and development apathy of the state of Assam.
- Feeling of subsuming in Bodo: A feeling that Bodo, the people, the language, the identity, was subsumed by the Assamese and migrants.
- The relation between NDFB and the Front: The Bodoland People’s Front, is in majority in the District council. Will the front be comfortable with newly peaceable colleagues of NDFB?
Conclusion
The Government of Assam needs to ensure that the pact signed changes the situation on the ground and leads to a development on the ground. The state also needs to allay the fears in the Bengali-speaking minority. Moreover, true autonomy, true peace, and true development are always worth more than the paper on which they are promised.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much.
Mains level: Paper 3- Digital payments in India, growth potential, various security challenges and how to tackle it.
Context
Digital payments in India are witnessing consistent growth at a compound annual growth rate (CAGR) of 12.7%.
Growth potential and challenges involved in digital payments
- Expected growth in mobile wallet payment: The mobile wallet market is expected to continuously grow at a CAGR of 52.2% by volume between 2019-23, according to a recent report by KPMG.
- This digital explosion can be seen in the accelerating rise in the download and use of electronic wallets as well as an unprecedented increase in digital transactions/payments.
- UPI/IMPS use growth: Payment systems such as UPI/IMPS are likely to register average annualised growth of over 100%, according to RBI’s 2021 vision document.
- Challenge of Cybersecurity: Cybersecurity is one of the most critical challenges faced by stakeholders of the digital payment ecosystem.
- Types of risks involved: With more and more users preferring digital payments, the chances of getting exposed to cybersecurity risks such as-
- Online fraud
- Information theft.
- Malware or virus attacks are also increasing.
- Digital payment frauds account for about half of all bank frauds in India.
Steps taken by the RBI
- Guidelines issued: In view of risks, the Reserve Bank of India (RBI) has also issued some guidelines as security and risk mitigation measures for digital payments.
- It has also issued guidelines that limit the liability of customers on unauthorised electronic banking transactions
- Steps taken: The central bank has taken steps for securing card transactions, internet banking, electronic payments, ATM transactions, and prepaid payment instruments (PPIs).
Securing the fintech revolution
- Fraudsters building advanced technologies: The changing nature of cybersecurity attacks such as-
- Web application attack.
- Ransomware.
- Reconnaissance.
- The DDoS attack clearly establishes cyber-risk as a new reality.
- What needs to be done to secure the fintech revolution?
- A robust regulatory framework.
- An effective customer redressal framework.
- Foolproof security measures to enable confidence and trust.
- Incentives for larger participation and benefits similar to cash transactions- are some measures that can help ensure long-term success for digital payments.
- Leveraging technology: Technology can be leveraged for making popular methods of cashless payments secure.
- Biometric authentication-enabled cards can provide a greater layer of security by enabling replacement of the traditional PIN.
- Through biometric authentication, consumers can authenticate transactions by placing their finger on a fingerprint sensor embedded in the card.
- Ensuring security: Safety is ensured as the consumer’s fingerprint is stored only in the secure chip within the card and the same chip is used to match the scanned fingerprint with the stored one.
- The biggest advantage: The biggest advantage is that the bank or merchant cannot access the consumer’s biometric data, which also counters potential privacy concerns.
Conclusion
To reap the advantages of the promising fintech revolution steps must be taken to secure the digital environment.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: FRBM act
Mains level: Read the attached story
Context
- As the years have rolled by, fiscal deficit has become a key factor to watch out for in every Budget presentation.
- It is considered the most important marker of a government’s financial health.
- A government that abides by the FRBM rules enjoys greater credibility among the rating agencies and market participants – both national and international.
FRBM Act
- The FRBM is an act of the parliament that set targets for the Government of India to establish financial discipline, improve the management of public funds, strengthen fiscal prudence and reduce its fiscal deficits.
- It was first introduced in the parliament of India in the year 2000 by Vajpayee Government for providing legal backing to the fiscal discipline to be institutionalized in the country.
- Subsequently, the FRBM Act was passed in the year 2003.
Features of the FRBM Act
- It was mandated by the act that the following must be placed along with the Budget documents annually in the Parliament:
- Macroeconomic Framework Statement
- Medium Term Fiscal Policy Statement and
- Fiscal Policy Strategy Statement
Fiscal Indicators
It was proposed that the four fiscal indicators be projected in the medium-term fiscal policy statement viz.
- Revenue deficit as a percentage of GDP,
- Fiscal deficit as a percentage of GDP,
- Tax revenue as a percentage of GDP and
- Total outstanding liabilities as a percentage of GDP
Why FRBM is back in debate?
- Not letting the fiscal deficit go completely out of control has been one of the standout achievements of the incumbent NDA government.
- However, as India’s economic growth has decelerated, there have been growing pressures on the government to breach the FRBM orthodoxy and spend in excess of fiscal deficit targets to reboot domestic growth.
- Others, however, continue to caution that the “real” fiscal deficit is already far more than the official number, and as such, there is no room for further increasing the expenditure by the government.
Which of these narratives is true?
- Actually, neither. But to understand that one has to first understand what are the different types of deficits and why does it matter to limit them.
Different types of deficits
- Fiscal is the excess of what the amount the government plans to spend over what the government expects to receive.
- Obviously, to make up this gap, the government has to borrow money from the market.But all government expenditure is not of the same kind.
- For instance, if the expenditure is for paying salaries then it is counted as “revenue” expenditure but if it goes into building a road or a factory – that is, something that in turn increases the economy’s capacity to produce more – then it is characterized as “capital” expenditure.
- The fiscal deficit is another key marker and it maps the excess of revenue expenditure over revenue receipts.
- The difference between fiscal deficit and revenue deficit is the government’s capital expenditure.
What FRBM says on deficits?
- As a broad rule, it is considered fiscally imprudent for a government to borrow money for “revenue” purposes.
- As a result, the FRBM Act of 2003 had mandated that, apart from limiting the fiscal deficit to 3% of the nominal GDP, the revenue deficit should be brought down to 0%.
- This would have meant that all the government borrowing (or fiscal deficit) for the year would have funded only capital expenditure by the government.
Why prefer capital expenditure over revenue expenditure?
- In any economy, when the government spends money or cuts taxes it has an impact on the economic activity of the country.
- But this impact (also called the “Multiplier” effect) is quite different for revenue expenditure and capital expenditure.
- In other words, when the government spends Rs 100 on increasing salaries in India, the economy grows by a little less than Rs 100.
- But, when the government uses that money to make a road or a bridge, the economy’s GDP grows by Rs 250.
- The question then is: How to get governments to switch from revenue expenditure to capital expenditure? That’s where the FRBM Act comes in handy.
What is the significance of an FRBM Act?
- The popular understanding of the FRBM Act is that it is meant to “compress” or restrict government expenditure. But that is a flawed understanding.
- The truth is that FRBM Act is not an expenditure compressing mechanism, rather an expenditure switching one.
- In other words, the FRBM Act – by limiting the total fiscal deficit (to 3% of nominal GDP) and asking for revenue deficit to be eliminated altogether – is helping the governments to switch their expenditure from revenue to capital.
- This also means that – again, contrary to popular understanding – adhering to the FRBM Act should not reduce India’s GDP, rather increase it.
Here’s how: When you cut on revenue deficit – that is, reduce your borrowings for funding revenue expenditure – and instead borrow to only spend on building capital, you increase the overall GDP by 2.5 times the amount of money borrowed. So adhering to FRBM Act is a win-win.
What has been India’s record on adhering to FRBM Act?
- Between 2004 and 2008, the Indian government had made giant strides on reducing both revenue deficit and fiscal deficit.
- But this process was reversed thereafter thanks largely to the Global Financial Crisis and a domestic slowdown.
- Since then, there have been several amendments to the Act essentially postponing the targets.
- But the worst development happened in 2018 when the Union government stopped targeting revenue deficit and instead focussed only on fiscal deficit.
Way Forward
- There is a need to revert back to the original FRBM Act if 2003 by recognising and prioritizing the reduction in revenue deficit.
- Doing this will help the government boost the kind of expenditure that actually increases the GDP.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Provisions for the President/Governors' address
Mains level: President/Governors' address
Today, with the first day of the Budget Session of Parliament, Hon’ble President will address a joint sitting of the two Houses.
President’s or Governor’s Address
- Commonly referred to as the President’s or Governor’s Address, they are a constitutional requirement.
- The Constitution gives the President and the Governor the power to address a sitting of the legislature. The special power is with regard to two occasions.
- The first is to address the opening session of a new legislature after a general election. The second is to address the first sitting of the legislature each year.
- A session of a new or a continuing legislature cannot begin without fulfilling this requirement.
- When the Constitution came into force, the President was required to address each session of Parliament.
- So during the provisional Parliament in 1950, the President gave an address for all three sessions. At the suggestion of Speaker G V Mavalankar, the first Constitutional Amendment in 1951 changed this position.
- Besides being a constitutional requirement, the President’s or Governor’s Address is keenly watched as it outlines the government’s policy agenda and stand on issues.
What procedures follow the address?
- After the President or Governor delivers the address, a debate takes place not only on the contents of the address but also the broad issues of governance in the country.
- This then paves the way for discussion on the Budget.
Significance of the address
- The President’s Address in India is mirrored on the British system.
- During the framing of the Constitution, B R Ambedkar drew a similarity between the President and the monarch under the English system.
- He said the President “is the Head of State but not of the executive. He represents the nation but does not rule the nation.
- He is the symbol of the nation. His place in the administration is that of a ceremonial device of a seal by which the nation’s decisions are made known”.
- The Constitution binds the President and the Governor to act on the aid and advice of the Council of Ministers of the Union and state governments respectively, on a majority of issues.
- Therefore, the speech that the President or the Governor reads before the legislature is the viewpoint of the government and is prepared by it.
Are there parallels in other countries?
- Similar provisions exist in other democracies. In the United States, it is referred to as the “State of the Union”.
- The phrase comes from an article in the US Constitution which specifies that the President from time to time give to Congress information of the State of the Union and recommend measures as he shall judge necessary and expedient.
- In the United Kingdom, it is referred to as the Queen’s Speech and is part of the ceremony to mark the formal start of the parliamentary year.
What is the content of the President’s or Governor’s address?
- During the making of the Constitution, an unsuccessful attempt was made to bring some specificity to the content of the President’s Address.
- The President’s speech follows the convention of the British system, where it contains legislative and policy proposals that the government intends to initiate.
- The speech also recaps the government’s accomplishment in the previous years. The contents of the speech are put together by aggregating inputs from various ministries of the government.
Is the text of the speech binding?
- The President or a Governor cannot refuse to perform the constitutional duty of delivering an address to the legislature.
- But there can be situations when they deviate from the text of the speech prepared by the government.
- So far, there have been no instances of President doing so. But there has been an occasion when a Governor skipped a portion of the address to the Assembly.
- In 1969, the Governor of West Bengal skipped two paragraphs of the address prepared by the United Front government.
- The skipped portion described as unconstitutional the dismissal of the first United Front government by the Congress-ruled central government. The issue was then debated in Parliament.
- The Opposition was critical of the Governor’s conduct and moved a motion disapproving it. But the motion was ultimately defeated.
How have members responded to the addresses over the years?
- The conduct of MLAs during the address has sometimes been an issue.
- The Governor’s speech in state legislatures has routinely been interrupted.
- In Parliament, the first instance of interruption of a President’s speech happened in 1963; President Sarvepalli Radhakrishnan was speaking when some MPs interrupted him.
- The Lok Sabha took note of the incident and a reprimand was issued to the MPs.
- Over the years, political parties have resolved to treat the President’s Address sacrosanct and agreed not to interrupt it.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Economic Survey
Mains level: Economic Survey and its significance
With the Indian economy in the doldrums, this year’s Economic Survey will be keenly watched. The Economic Survey for 2019-2020 will be tabled in Parliament today.
What is the Economic Survey?
- The Economic Survey is a report the government presents on the state of the economy in the past one year, the key challenges it anticipates, and their possible solutions.
- One day before the Union budget, the Chief Economic Adviser (CEA) of the country releases the Economic Survey.
- The document is prepared by the Economic Division of the Department of Economic Affairs (DEA) under the guidance of the CEA.
- Once prepared, the Survey is approved by the Finance Minister.
- The first Economic Survey was presented in 1950-51. Until 1964, the document would be presented along with the Budget.
- For the past few years, the Economic Survey has been presented in two volumes.
- For example, in 2018-19, while Volume 1 focussed on research and analysis of the challenges facing the Indian economy, Volume 2 gave a more detailed review of the financial year, covering all the major sectors of the economy.
Why is the Economic Survey significant?
- The Economic Survey is a crucial document as it provides a detailed, official version of the government’s take on the country’s economic condition.
- It can also be used to highlight some key concerns or areas of focus — for example, in 2018, the survey presented by the then CEA Arvind Subramanian was pink in colour, to stress on gender equality.
Is it binding on the government?
- The government is not constitutionally bound to present the Economic Survey or to follow the recommendations that are made in it.
- If the government so chooses, it can reject all suggestions laid out in the document.
- But while the Centre is not obliged to present the Survey at all, it is tabled because of the significance it holds.
What are the expectations from Economic Survey 2020?
- At a time when India’s growth has plummeted to a six-year low, the Economic Survey ahead of the Union Budget is expected to offer key insights into the path ahead for the government to revive growth.
- The conundrum of remaining fixated on deficit targets or making a concerted push towards more expenditure to kickstart growth is one of the key challenges the government is facing.
- The Survey is expected to shed light on the crucial gaps that the Budget will aim to fill in terms of unemployment, private investment, and a slump in consumption.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: PHEIC
Mains level: Global health emergencies
The World Health Organization (WHO) has declared the novel Coronavirus infection a Public Health Emergency of International Concern (PHEIC). In the past decade, WHO has declared public health emergencies for outbreaks including swine flu, polio and Ebola.
What is PHEIC?
Definition: Under the International Health Regulations (IHR), a public health emergency is defined as “an extraordinary event which is determined, as provided in these Regulations: to constitute a public health risk to other States through the international spread of disease; and to potentially require a coordinated international response”.
What criteria does the WHO follow to declare PHEIC?
- PHEIC is declared in the event of some “serious public health events” that may endanger international public health.
- The responsibility of declaring an event as an emergency lies with the Director-General of the WHO and requires the convening of a committee of members.
Implications of a PHEIC being declared
- There are some implications of declaring a PHEIC for the host country, which in the case of the coronavirus is China.
- Declaring a PHEIC may lead to restrictions on travel and trade.
- However, several countries have already issued advisories to their citizens to avoid travelling to China, while others are airlifting their citizens from it.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: IMO, VLSFO
Mains level: SOx pollution control measures
The International Maritime Organization (IMO), the shipping agency of the United Nations issued new rules aiming to reduce sulphur emissions, due to which ships are opting for newer blends of fuels.
What do the new IMO rules say?
- The IMO has banned ships from using fuels with sulphur content above 0.5 per cent, compared with 3.5 per cent previously.
- Sulphur oxides (SOx), which are formed after combustion in engines, are known to cause respiratory symptoms and lung disease, while also leading to acid rain.
- The new regulations, called IMO 2020, have been regarded as the biggest shake up for the oil and shipping industries in decades. It affects more than 50,000 merchant ships worldwide.
- The new limits are monitored and enforced by national authorities of countries that are members of the International Convention for the Prevention of Pollution from Ships (MARPOL) Annex VI.
Cleaner options
- Under the new policy, only ships fitted with sulphur-cleaning devices, known as scrubbers, are allowed to continue burning high-sulphur fuel.
- Alternatively, Ships can opt for cleaner fuels, such as marine gasoil (MGO) and very low-sulfur fuel oil (VLSFO).
- Of the two cleaner fuels, ship-owners were expected to opt for MGO, which is made exclusively from distillates, and has low sulphur content.
- However, many are reportedly choosing VLSFO, which has better calorific properties and other technical advantages.
Issues with the rule
- There are complaints against VLSFO as well, as testing companies have claimed that high sediment formation due to the fuel’s use could damage vessel engines.
- VLSFO, with 0.5 per cent sulphur content, can contain a large percentage of aromatic compounds, thus having a direct impact on black carbon emissions.
- Black carbon, which is produced due to the incomplete combustion of carbon-based fuels, contributes to climate change.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: PCI
Mains level: Terms of reference for PCI
The Union government is likely to announce the setting up of a Plantation Corporation of India in the upcoming budget.
Plantation Corporation of India
- The PCI will subsume all afforestation-related schemes currently underway in India including the Green India Mission, National Afforestation Programme and compensatory afforestation.
- The corporation will use Compensatory Afforestation Fund (CAF) money to undertake the plantations and investment will also come from the global pension fund.
- CAF is a huge corpus of money collected from projects proponents for diverting forest land to be used for non-forestry activity.
Issues with PCI
- Critics have raised concerns over the move’s impact on the federal structure of forest governance in the country.
- While forests are a concurrent subject, land-related issues are the responsibility of the states.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Exercise SAMPRITI
Mains level: India-Bangladesh Strategic Relations
As part of the ongoing Indo-Bangladesh defence cooperation, a joint military training exercise SAMPRITI-IX is being conducted in Meghalaya.
Exercise SAMPRITI
- It is an important bilateral defence cooperation endeavour between India and Bangladesh and will be the ninth edition of the exercise which is hosted alternately by both countries.
- During the joint military exercise SAMPRITI-IX, a Command Post Exercise (CPX) and a Field Training Exercise (FTX) will be conducted.
- For both the CPX and FTX, a scenario where both nations are working together in a Counter-Terrorism environment will be simulated under the UN Charter.
- The FTX curriculum is progressively planned where the participants will initially get familiar with each other’s organizational structure and tactical drills.
- The training will culminate with a final validation exercise in which troops of both armies will jointly practice a Counter Terrorist Operation in a controlled and simulated environment.
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From UPSC perspective, the following things are important :
Prelims level: Fruit Train
Mains level: Logistics support for horticulture products
A ‘fruit train’, said to be the first of its kind in India, was flagged off from Tadipatri Railway Station in Anantapur district of Andhra.
About the fruit train
- This is the first time in India that an entire train is being sent to the gateway port (JNPT) for export.
- This helps save both time and fuel as 150 trucks would have been required to send a consignment of this size by road to JNPT, which is over 900 km away, before the temperature-controlled containers are loaded on ships.
- The bananas are being exported under the brand name ‘Happy Bananas’.
- Farmers from Putlur region in Anantapur and Pulivendula in Kadapa district are exporting ‘Green Cavendish’ bananas to many international markets.
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Context
The policy currently being pursued is intended primarily to incentivise potential investors while social objectives and help in indigenisation are being jettisoned.
Call for more liberalisation and its possible impacts
- What reforms are asked for?
- Reforms such as labour market liberalisation and removal of constraints on the acquisition of land for industrial purposes are demanded.
- What could be their possible impacts?
- The negative impact such reform measures are likely to have on the incomes, living conditions and the economic security of the workers and the agricultural class.
- Counterproductive labour policy: The policy of freedom of hiring and firing of labour will be counterproductive as it would squeeze demand further in a situation of huge demand deficit.
Social sector and demand
- Neglect of human infrastructure: While talks of economic revival focus on infrastructure there is little talk of investment in human infrastructure, particularly in education and
- Conditional expenditure: On the contrary, the expenditure in social sectors is made conditional upon a higher rate of growth.
- The flawed premise of long term impact: Most mainstream economists believe that public expenditure in social sectors can only have a long- term impact on growth. Which is not entirely correct.
- The benefit of investment in human infrastructure:
- Increases demand in short-run: Investment in social sectors results in creating demand in the short run by way of opening avenues for large-scale employment.
- Competitiveness and sustainability: It imparts competitiveness and sustainability to the Indian economy in the medium and long run.
- Example of RTE, teacher employment and demand creation
- The recruitment of 5.7 million additional teachers over a period of, say, five years, can create huge scale demand.
- And, this is only one factor essential for universalising quality school education.
- There is also a large gap between the requirement of infrastructure in the schools and that available and built recently.
- The gap between requirement and availability: According to government data, only 12.5% of the schools covered by the RTE Act were compliant with RTE norms.
- Meeting these norms has the potential of creating employment on a large scale.
- Importance of health and education
- Education has a crucial role to play for an individual in gaining employment and retaining employability.
Conclusion
The gestation period of projects in social sectors is not as long as it is made out to be. It is, therefore, time for reprioritising education and health in the scheme of development strategy and the allocation of budgetary resources.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much.
Mains level: Paper 3- The crowding out effect, effects of the Government borrowing on various variables.
Context
Market borrowings of the government do not always squeeze credit for the private sector in India.
What is ‘crowding out’ effect?
- Increased government spending and borrowing: It refers to how increased government spending, for which it borrows more money, tends to reduce private spending.
- Why does private spending reduce? This happens because when the government takes up the lion’s share of funds available in the banking system, less of it is left for private borrowers.
- Relationship with interest rate: Higher borrowing by the government and subsequent crowding out also impacts interest rates in the economy.
How the Government borrowing works and the role of RBI
- Local borrowing local spending: Typically, the government funds its fiscal deficit by borrowing from the domestic bond market.
- Its expenditure is also local in nature.
- Overdraft from RBI: The Reserve Bank of India (RBI) is the official banker to the government-which spends money by first taking an overdraft from the central bank.
- This overdraft gets repaid through bond market borrowings.
- Why overdraft? The understanding is that any such government spending should ideally not affect the availability of funds to other borrowers in the market.
- Excessive borrowing and effects on the interest rate: Excessive government borrowing from the bond market, many cautions, could lead to a rise in interest rates for the government itself and consequently for everyone else in the economy.
Analysis of the effects of borrowing on other variables
- Analysis of the data reveals the following trends.
- No impact on other variables: Local borrowing and spending by the Indian government does not impact any other macroeconomic variables like-
- The availability and cost of funds for other participants in the economy.
- Inflation.
- Deposit growth, at the current deficit level—that is, with the state and central combined figure above 6% of GDP.
- What impacts the interest rate the most?
- The two most important variables that impacted interest rates were inflation and the repo rate. Which tend to move together.
- What does it indicate? This clearly indicates that RBI is extremely proactive in the way it manages interest rates.
- Effects of funds on inflation: Such borrowings that are funded by the central bank could lead to inflation, the same is true for large external inflows to domestic money markets.
- The foreign borrowings finally get reflected in the country’s foreign exchange reserves, which have a very strong relationship with inflation.
- Effects on interest rates: Technically, any large inflow of a foreign currency sterilized by RBI does have the potential to move the inflation needle up, thus placing upward pressure on interest rates.
- Relationship between borrowing and growth: It is clear that government borrowing and spending actually drives GDP growth.
- Government borrowing should not impact bank lending to companies, as the sums borrowed return to the market almost immediately.
- How RBI controls bond yield?
- RBI ensures that bond yields don’t shoot up because of the excessive borrowing, by taking bonds onto its books to be released back into the market in good times.
The uniqueness of the Indian money market
- Why is it unique? India market is a unique money market, different from the rest of the world, for the following reasons-
- We have investors who are explicitly required to invest in government debt.
- Banks, non-banking financial companies, insurers, provident funds, and pension funds are all forced to invest in government debt as a condition for their licence to operate in India.
- We also find that RBI works towards aiding the government borrowing programme rather effectively, ensuring that interest rates do not change too adversely.
Conclusion
The government should not be excessively worried about the government living beyond its means at this juncture. Government spending being the main driver for the country’s GDP growth, it could be a good way to put the economy on a higher growth trajectory. Perhaps it is time to revisit the entire FRBM framework.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much.
Mains level: Paper 3- Bilateral trade opportunity with Australia and area of cooperation in Technology and innovation
Context
The challenge for India and Australia is to transform people-to-people ties into a trade relationship.
People-to-people the two countries
- Soft power: Soft power rather than hard economics has traditionally been the driving force behind India-Australia relations.
- Cricket is a dominant theme that connects the two countries.
- The Indian diaspora in Australia is a vibrant community that plays a robust role in connecting their country of adoption with their country of origin.
Trade relationship scenario
- $31 bn bilateral trade: The trade between the two countries has been at a modest $31 billion, largely composed of resources like coal and other minerals.
- No progress on FTA: Negotiations on a Free Trade Agreement, which began in 2011, have not moved forward significantly.
- No progress on coal mining projects in Australia: The problems faced by the Adani Group to begin work on a coal mining project in Queensland did not go down too well with investors from India.
- India Economic Strategy 2035 by Australia: One of the most widely commended initiatives has been the Australian government’s release of an India Economic Strategy 2035 Report.
- It observes that no single market over the next 20 years will offer more growth opportunities for Australia than India.
- It lays down a comprehensive road map for strengthening Australia’s trade engagement with India.
Development in digital technology and the role of youth
- Development of new architecture: Meanwhile India-Australia trade has been steadily evolving into a new architecture underpinned by developments in digital technology.
- There is a rise of a younger generation of entrepreneurs and a noticeable shift in the trade basket from resources to services.
- Technology and young entrepreneurship make a formidable combination and should set the agenda for the future of bilateral trade relations.
- About 80% of the Australian small and medium-sized enterprises are managed by young professionals.
- The young can see issues like immigration and outsourcing with far more equanimity than the older generation.
- An important role of young Australians: Young Australians are thus emerging as great champions of India-Australia trade relations.
Scope for engagement in innovation and trade relations
- Tech. expertise of Australia: There is also recognition that Australia is a laboratory of ideas, innovation, technology-led growth and university-industry partnerships.
- Scope for India in innovation and trade: India is a large and demographically young market with a love for innovation and an appetite for new products and services.
- These synergies should add momentum to a growing engagement in trade relations.
India’s weakness and Way forward
- Weakest link and way forward: The weakest link in India’s exports to Australia is in merchandise. India needs to look at three broad areas.
- First-Focus on Market Research: Despite globalisation, markets are country-specific and culturally sensitive.
- Indian companies will need to invest a little more in market research on Australian consumer expectations and lifestyles.
- Second-Brand creation: Australia is a brand-conscious market while India has not created a single consumer brand of international acceptance.
- Only when products are visible across the world’s shopping malls and supermarkets displaying their own brands that India will be recognised as a major player in the global markets.
- Third-Innovation: Innovation is emerging as the single-most-important factor for sustained success in every sphere. Global trade cannot be different.
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From UPSC perspective, the following things are important :
Prelims level: West Asia Peace Plan
Mains level: Palestine & Israel conflicts
With West Asia Peace plan US plans to revive the stalled two-state talks between the Israelis and the Palestinians. Israeli PM Benjamin Netanyahu, who had earlier spoken against the two-state solution, has accepted the Trump plan.
West Asia Peace Plan
The West Asia peace plan unveiled by U.S. President Trump seeks to give the Israelis what they have long wanted — an expansive state with Jerusalem as its “undivided capital” and tight security control over a future Palestinian state.
What’s the plan about?
- The Trump plan seeks to address most of the contentious issues in the conflict such as the border of Israel, status of Palestinian refugees, Jewish settlements on the West Bank, land swap between Israel and Palestine, Israel’s security concerns and the status of the city of Jerusalem.
- However US have proposed to almost all of these issues favour the Israeli positions.
- For example, Israel would be allowed to annex the Jewish settlements on the West Bank as well as the Jordan Valley.
- The Palestinian refugees, who were forced out from their homes during the 1948 Arab-Israeli war that followed the declaration of the state of Israel in the historic Palestine, would not be allowed to return.
- They could move to the future Palestinian state, be integrated into the host countries or settled in other regional countries.
Jerusalem: The undivided Capital
- Jerusalem, perhaps the most contentious issue, would be “the undivided capital” of Israel, with Palestine gaining its capital in the east of the city — beyond the security border Israel has already built.
- In return, Israel would freeze further settlement activities on the West Bank for four years — the time for negotiations.
Land Swap
- According to the Oslo Accords, the West Bank was divided into three areas and only one of them is under the direct control of the Palestinian Authority.
- The plan proposes some land swap for the Israeli annexation of the West Bank Jewish settlements.
- It seeks to enlarge Gaza and connect the strip with the West Bank through a tunnel.
- The Arab towns in the southeast of Israel, which are close to Gaza, could become part of a future Palestinian state.
Curb on Hamas
- During this period, the Palestinian Authority should dismiss its current complaints at the International Criminal Court against Israel and refrain itself from taking further actions.
- It should also crack down on “terrorist” groups such as Hamas and the Islamic Jihad.
Investment Plans
- US has also proposed $50 billion in investment over 10 years should Palestine accept the proposals.
- In the final settlement, Palestine would get control over more land than what it currently controls.
Implications for Palestine
- The Palestine position is backed by most of the world powers is the formation of an independent, sovereign Palestinian state based on the 1967 border.
- It means the whole of the West Bank and the Gaza Strip with East Jerusalem as its capital including the Old City that houses Haram esh-Sharif, also known as Temple Mount, a holy site for both Muslims and Jews.
- Issues like the right of return of the Palestinian refugees are to be settled in final negotiations.
- But US has effectively rejected the Palestinian claims outright and asked them to make more compromises.
- He seeks to give Jerusalem and about 30% of the West Bank to the Israelis and has denied the right of return of the Palestinian refugees.
- And for this, the Palestinians should take action against militant groups, stop supporting Palestinian families of those jailed or killed by Israel and refrain itself from questioning the occupation in international fora.
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From UPSC perspective, the following things are important :
Prelims level: Not Much
Mains level: Superstitions and associated socail injustice
A controversial anti-superstition law in Karnataka was formally notified by the current government.
Provisions of the earlier drafts
- The law, which was initially drafted as the Karnataka Anti Superstition Bill, 2013, was a pet project of former CM Siddaramaiah.
- The model Bill held human dignity as its central tenet and sought eradication of irrational practices found in different communities.
- The first draft made practices like inflicting self-wounds and conversion through bribery illegal.
- Some of the proposals opposed by religious leaders and political parties in the early draft were the ban on practices such as the carrying of priests in palanquins, worshipping the feet of religious leaders.
- It sought to ban Made Snana practised in the Dakshina Kannada region where Dalits roll over the remains of food consumed by upper castes.
The current version
- A Bill with sizable consensus across the political spectrum finally evolved in 2017. A total of 16 practices have been banned under the law.
- The practice of Vaastu, astrology, pradakshina or circumabulation of holy places, yatras, parikramas performed at religious places were kept out of the purview of the law.
- Made Snana was banned under the law with respect to having Dalits roll over leftover food.
- The practice has now been modified to be voluntary and not involving leftover food.
- Practices such as barring menstruating women from entering houses of worship and their homes, coercing people to take part in fire-walks, and beating up people by declaring them evil, are among the irrational practices that have been banned under the 2017 law.
Penalties
- The law stipulates “imprisonment for a term which shall not be less than one year but which may extend to seven years and with fine which shall not be less than five thousand rupees but which may extend to fifty thousand rupees”, as punishment for violations.
- The law is to implemented by the state police with the appointment of vigilance officers under the law at police stations.
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From UPSC perspective, the following things are important :
Prelims level: Highlights of the bill
Mains level: MTP: Ethical and health issues surrounding it
The Union Cabinet has approved the Medical Termination of Pregnancy (Amendment) Bill, 2020 to amend the Medical Termination of Pregnancy Act, 1971.
About the Bill
- The Medical Termination of Pregnancy (Amendment) Bill, 2020 is for expanding access of women to safe and legal abortion services on therapeutic, eugenic, humanitarian or social grounds.
- It aims to increase upper gestation limit for termination of pregnancy under certain conditions and to strengthen access to comprehensive abortion care, under strict conditions, without compromising service and quality of safe abortion.
Salient features of proposed amendments:
- Proposing requirement for opinion of one provider for termination of pregnancy, up to 20 weeks of gestation and introducing the requirement of opinion of two providers for termination of pregnancy of 20-24 weeks of gestation.
- Enhancing the upper gestation limit from 20 to 24 weeks for special categories of women which will be defined in the amendments to the MTP Rules and would include ‘vulnerable women including survivors of rape, victims of incest and other vulnerable women (like differently-abled women, Minors) etc.
- Upper gestation limit not to apply in cases of substantial foetal abnormalities diagnosed by Medical Board. The composition, functions and other details of Medical Board to be prescribed subsequently in Rules under the Act.
- Anonymity of the person: Name and other particulars of a woman whose pregnancy has been terminated shall not be revealed except to a person authorised in any law for the time being in force.
Benefits
- It is a step towards safety and well-being of the women and many women will be benefitted by this.
- Recently several petitions were received by the Courts seeking permission for aborting pregnancies at a gestational age beyond the present permissible limit on grounds of foetal abnormalities or pregnancies due to sexual violence faced by women.
- The proposed increase in gestational age will ensure dignity, autonomy, confidentiality and justice for women who need to terminate pregnancy.
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From UPSC perspective, the following things are important :
Prelims level: Highlights of the bill
Mains level: Medical administartion in India and its loopholes
The Union Cabinet has given its approval for proposal of Official Amendments in the National Commission for Indian System of Medicine Bill, 2019 (NCIM) which is pending in the Rajya Sabha.
About the Commission
- The main objective of establishing NCIM is to promote equity by ensuring adequate supply of quality medical professionals and enforce high ethical standards in all aspects of medical services in Indian System of Medicine.
- The Commission will promote availability of affordable healthcare services in all parts of the country.
- The Commission has been structured to streamline the functions related to academic standards, evaluation, assessment and accreditation of educational institutions pertaining to Indian System of Medicine.
Composition
- The NCISM will consist of 29 members, appointed by the central government.
- A Search Committee will recommend names to the central government for the post of Chairperson, part time members, and presidents of the four autonomous boards set up under the NCISM.
- These posts will have a maximum term of four years.
- The Search Committee will consist of five members including the Cabinet Secretary and three experts nominated by the central government (of which two should have experience in any of the fields of Indian System of Medicine).
Functions
Functions of the NCISM include:
- framing policies for regulating medical institutions and medical professionals of Indian System of Medicine,
- assessing the requirements of healthcare related human resources and infrastructure,
- ensuring compliance by the State Medical Councils of Indian System of Medicine of the regulations made under the Bill, and
- ensuring coordination among the autonomous boards set up under the Bill.
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From UPSC perspective, the following things are important :
Prelims level: Nagoba Jatara
Mains level: Not Much
The month long Nagoba Jatara recently concluded in Adilabad dist. of AP.
Nagoba Jatara
- Nagoba Jatara is a tribal festival held in Keslapur village, Inderavelly Mandal[1] Adilabad district, Telangana, India.
- It is the second biggest tribal carnival and celebrated by Mesaram clan of Gond tribes for 10 days.
- Tribal people from Maharashtra, Chhattisgarh, Orissa and Madhya Pradesh belonging to the Mesram clan offer prayers at the festival.
- It starts in pushya masam. A ceremony of ‘bheting’ is it’s integral part where the new brides are introduced to the clan god during first jatra afer their marriage
- The few hundred Raj Gond and Pardhan Adivasis, men clad in pure white dhoti-kurta and the pagdi headgear and women in the traditional colourful nau-vari Maharashtrian style saree.
- The temple for which a new structure is coming up is dedicated to the serpent god, known as Shri Shek to the aboriginal people, and is the centre of all activities during the week long festivities.
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From UPSC perspective, the following things are important :
Prelims level: Beating Retreat Ceremony
Mains level: Not Much
The Beating Retreat ceremony recently took place at Vijay Chowk. The ceremony, which takes place on January 29 every year, marks the culmination of the four-day Republic Day celebrations.
What is the Beating Retreat function?
- ‘Beating Retreat’ marks a centuries old military tradition, when the troops ceased fighting, sheathed their arms and withdrew from the battlefield and returned to the camps at sunset at the sounding of the Retreat.
- The military tradition began in 17th century England, when King James II ordered his troops to beat drums, lower flags and organise a parade to announce the end of a day of combat.
- The ceremony was then called ‘watch setting’ and took place at sunset after firing a single round from the evening gun.
- The ceremony is currently held by Armed Forces in the UK, US, Canada, New Zealand, Australia, and India, among others.
How did it begin in India?
- Beating the Retreat’ has emerged as an event of national pride when the Colours and Standards are paraded.
- The ceremony traces its origins to the early 1950s when Major Roberts of the Indian Army indigenously developed the unique ceremony of display by the massed bands.
- Section D (Ceremonials) at the Ministry of Defence conducts the event.
- The ceremony consists of musical performances by the bands, who each year play Indian and western tunes.
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