Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much
Mains level: Paper 3- Performance of the current government in the past seven years
The article compares the performance of the present government under Prime Minister Modi with the first seven years of the Manmohan Singh government on various fronts.
Context
The current government completed seven years at the Centre recently. It is time to reflect and look back at its performance on basic economic parameters over the last seven years. It may also be interesting to compare and see how it fared vis-à-vis the first seven years of UPA government (2004-05 to 2010-11) under Manmohan Singh.
Analysing the progress by studying key economic indicator
1) GDP growth
- One of the key economic parameters is GDP growth.
- It is not the most perfect one, as it does not capture specifically the impact on the poor, or on inequality.
- But higher GDP growth is considered central to economic performance as it enlarges the size of the economic pie.
- The average annual rate of growth of GDP under the Modi government so far has been just 4.8 per cent compared to 8.4 per cent during the first seven years of the Manmohan Singh government.
- If this continues as business as usual, the dream of a $5 trillion economy by 2024-25 is not likely to be achieved.
2) Inflation
- The Modi government scores much better on the inflation front with CPI (rural and urban combined) rising at 4.8 per cent per annum.
- It is well within the tolerance limits of RBI’s targeted inflation band and also much lower than 7.8 per cent during the first seven years of the Manmohan Singh government.
3) Forex reserves
- Also, at macro level, foreign exchange reserves provide resilience to the economy against any external shocks.
- On this score too, the Modi government fares quite well with forex reserves rising from $313 billion on May 23, 2014 to $593 billion on May 21, 2021.
4) Food and agriculture
- It engages the largest share of the workforce in the economy and matters most to poorer segments.
- On the agri-front, both governments recorded an annual average growth of 3.5 per cent during their respective first seven years.
- However, on the food and fertiliser subsidy front, the Modi government broke all records in FY21, by spending Rs 6.52 lakh crore and accumulating grain stocks exceeding 100 million tonnes in May end, 2021.
- One area in which the Modi government performed very poorly is agri-exports.
- In 2013-14 agri-exports had crossed $43 billion while during all the seven years of the Modi government agri-exports remained below this mark of $43 billion.
- Sluggish agri-exports with rising output put downward pressure on food prices.
- It helped contain CPI inflation, but subdued farmers’ incomes.
5) Infrastructure development
- The Modi government has done better in power generation by increasing it from 720 billion units per annum to 1,280 billion units per annum.
- Similarly, road construction too has been at least 30 per cent faster under the Modi government.
6) Social sector
- Based on an international definition of extreme poverty (2011 PPP of $ 1.9 per capita per day), the World Bank estimated India’s extreme poverty in 2015 to be about 13.4 per cent, down from 21.6 per cent in FY 2011-12.
- Even the incidence of multidimensional poverty hovered around 28 per cent in 2015-16.
- Three key indicators can be used to assess performance on this front:
- One, average annual person days generated under MGNREGA in the first five years since this programme started under the UPA in 2006-07 to 2010-11, which was 200 crore, and under Modi government it improved to 230 crore.
- Two, average annual number of houses completed under the Indira Awaas Yojana and PM Awaas Yojana-Gramin, which improved from 21 lakhs to 30 lakhs per annum.
- Three, open defecation free (ODF) which was only 38.7 per cent on October 2, 2014 and shot up to 100 per cent by October 2, 2019, as per government records.
Conclusion
The current government has turned out to be more welfare-oriented than reformist in revving up GDP growth. How long this welfare approach is sustainable without enlarging the size of GDP pie is an open question.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much
Mains level: Paper 2- One nation one election
The article deals with the issue frequent elections in the country and highlights the need for debate on the idea of “one nation, one election”.
Need for debate on one nation one election
The idea has been around since at least 1983, when the Election Commission first mooted it. The concept needs to be debated mainly around five issues.
1) Financial costs of conducting elections
- The costs of conducting each assembly or parliamentary election are huge and, in some senses, incalculable.
- Directly budgeted costs are around Rs 300 crore for a state the size of Bihar.
- But there are other financial costs, and incalculable economic costs.
- Before each election, a “revision” of electoral rolls is mandatory.
- The costs of the millions of man-hours used are not charged to the election budget.
- The economic costs of lost teaching weeks, delayed public works, badly delivered or undelivered welfare schemes to the poor have never been calculated.
2) Cost of repeated administrative freezes
- The Model Code of Conduct (MCC) has economic costs too.
- Works may have been announced long before an election is announced, but tenders cannot be finalised, nor work awarded, once the MCC comes into effect.
- Time overruns translate into cost overruns.
- But the huge costs of salaries and other administrative expenditures continue to be incurred.
- Add to this the invisible cost of a missing leadership.
- Important meetings and decisions get postponed, with costs and consequences that are difficult to calculate.
- A NITI Aayog paper says that the country has at least one election each year.
3) Visible and invisible costs of repeatedly deploying security forces
- There are also huge and visible costs of deploying security forces and transporting them, repeatedly.
- A bigger invisible cost is paid by the nation in terms of diverting these forces from sensitive areas.
4) Campaign and finance costs of political parties
- There is little doubt that the fiscal and economic costs of an election are not trivial, and that two elections, held separately, will almost double costs, including those incurred by political parties themselves.
5) Question of regional/smaller parties having a level playing field
- There are fears about the Centre somehow gaining greater power, or regional parties being at a disadvantage during simultaneously held elections.
- However, fixed five-year terms for state legislatures in fact take away the central government’s power to dissolve state assemblies.
- Until 1967 when simultaneous elections were the norm.
- The Constitution and other laws would need to be amended is obvious, but that is hardly an argument against the proposal.
Consider the question “There are huge costs associated with the frequent elections in the country. Is simultaneous elections a solution? What are the issues involved?”
Conclusion
As the elections in four states and one Union territory in March-April are suspected to have contributed to the second wave of Covid infections, a well-reasoned debate on a concept as important as “one nation, one election” is called for.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: GST council decision making
Mains level: Paper 3- Issues with one state one vote system in GST council
The article highlights the issues with the one state one vote system adopted in the GST Council decision making.
Context
The Goods and Services Tax (GST) Council in India is still engaged in a discussion on whether life-saving and hard-to-come-by products should be taxed. Such delay in decision-making can largely be explained by the distorted design and incentive structure of the GST itself.
Imbalance in collection and distribution of taxes
- The taxes collected under GST are accumulated by the Union government and a portion is transferred back to each state under a formula.
- As is the case with most federal countries, there is a large imbalance in the collection and distribution of taxes between states.
- this holds true also for income accrued to, and distributed, from the GST pool.
- Four states — Maharashtra, Tamil Nadu, Karnataka, and Gujarat contribute nearly as much as the remaining 27 states combined.
- Most federal countries exhibit this characteristic where a few large, rich, provinces or states contribute disproportionately.
Variation in dependence of States on transfers from the Union government
- Only about 30 per cent of the overall revenue of the states mentioned above — Maharashtra, Tamil Nadu, Gujarat, and Karnataka — comes from the Union government.
- But for the remaining 27 states, roughly 60 per cent of their revenues are obtained through transfers from the Union government.
- For the smaller Northeastern states, these transfers from the Union government constitute 80-90 per cent of their total revenues.
- In effect, the states that contribute the most to the GST pool are the least dependent on transfers from the Union government while the ones that contribute the least are the most dependent.
Two problems in net-transfers in India
1) One-sided transfers
- In almost every federal union, net-transfers work to reduce differences in development between states over time.
- However, Over the last 25 years or so, net transfers have become increasingly one-sided in India.
- That is, the quantum of net-transfers diminishes, as states become more equal through such transfers.
- But in India, the opposite has occurred.
2) Indirect taxes and cess
- The Union government of the last seven years has greatly exacerbated this problem through two actions.
- First, it has reconstructed the composition of taxation away from the fair and progressive channel of direct taxation towards the inherently regressive and unfair channel of indirect taxes.
- Second, the Union has shifted a large proportion of taxation roughly 18 per cent of its overall revenues into cesses, a special form of taxes that remain outside the GST pool and hence do not have to be shared with the states.
- Since 2014, cess revenues grew 21 per cent every year leading to a doubling in terms of its share of GDP.
Implications of these two problems for fiscal federalism
- The combined effect of these problems is that all states (collectively) get a lower share of overall revenues.
- Individual states face an ever-increasing disparity in the ratio of funds received from the Union as a proportion of taxes collected by the Union from that state.
- This is an affront to fiscal federalism and an assault on “cooperative federalism”.
Issue of ‘one state one vote’ system
- States that are more dependent on transfers from the Union want to maximise GST collections while states that are less dependent can afford to be more sensitive to citizens’ concerns.
- The case of taxes on Covid products is perhaps the starkest instance of such differences.
- Most large states are ready to forego this tax revenue for humanitarian considerations.
- But 19 states representing the remaining 30 per cent of the population seem keen to continue to levy GST on Covid products.
- These are mostly smaller states.
- Given the smaller population of such states, the adverse impact of Covid taxes will be minimal for them.
- But they will reap the benefits of additional revenues from GST on Covid products levied on the much larger populations of the bigger states.
Conclusion
When direct tax policy decisions are legislated by Parliament, which has proportional representation from states according to their size of the population, indirect tax policy decisions should not be subject to one state one vote system.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: BRICS
Mains level: Future agenda of BRICS
As India is gearing up to host this year’s BRICS summit, the grouping is facing fresh challenges, from disputes among member countries to tackling COVID-triggered crises and opportunities.
What is BRICS?
- To be clear, BRICS was not invented by any of its members.
- In 2001, Goldman Sachs’ Jim O’Neill authored a paper called “Building Better Global Economic BRICs”, pointing out that future GDP growth in the world would come from China, India, Russia and Brazil.
- Significantly, the paper didn’t recommend a separate grouping for them, but made the case that the G-7 grouping, made up of the world’s most industrialized, and essentially Western countries, should include them.
- O’Neill also suggested that the G-7 group needed revamping after the introduction of a common currency for Europe, the euro, in 1999.
- In 2003, Goldman Sachs wrote another paper, “Dreaming with BRICs: Path to 2050”, predicting that the global map would significantly change due to these four emerging economies.
- In 2006, leaders of the BRIC countries met on the margins of a G-8 (now called G-7) summit in St. Petersburg, Russia, and BRIC was formalized that year.
Issues in its consolidation
- Common ground for the members was built by ensuring that no bilateral issues were brought up, but the contradictions remained.
- Many economists soon grew tired of “emerging” economies that didn’t reach the goals they had predicted.
- Others saw India’s closer ties with the US after the civil nuclear deal as a sign its bonds with BRICS would weaken.
- Meanwhile, Russia, which had hoped to bolster its own global influence through the group, had been cast out of the G-7 order altogether after its actions in Crimea in 2014.
- China, under Xi Jinping, grew increasingly aggressive, and impatient about the other underperforming economies in the group, as it became the U.S.’s main challenger on the global stage.
Long-term prospects
- China’s decision to launch the trillion-dollar Belt and Road Initiative in 2017 was opposed by India, and even Russia did not join the BRI plan, although it has considerable infrastructure projects with China.
- South Africa’s debt-laden economy and the negative current account have led some to predict an economic collapse in the next decade.
- Brazil’s poor handling during the Covid-19 crisis has ranked it amongst the world’s worst-affected countries, and its recovery is expected to be delayed.
- India’s economic slowdown was a concern even before Covid-19 hit, and government policies like “Aatmanirbhar” were seen as a plan to turn inward.
Issues with BRICS nations
- Concerns about aggressions from Russia in Ukraine and Eastern Europe and China in the South China Sea, the border with India and internally in Hongkong and Xinjiang are clear visible.
- There is creeping authoritarianism in democracies like Brazil and India have made investors question long-term prospects of the group.
- In the market, BRICS has been mocked for being “broken”, while others have suggested it should be expanded to include more emerging economies like Indonesia, Mexico and Turkey, called the “Next-11”.
A roadmap to progress
- BRICS is an idea that has endured two decades, an idea its members remain committed to, and not one has skipped the annual summits held since 2009.
- Along the way, BRICS has created the New Development Bank (NDB) set up with an initial capital of $100 billion.
- There is a BRICS Contingent Reserve Arrangement fund to deal with global liquidity crunches, and a BRICS payment system proposing to be an alternative to the SWIFT payment system.
Reforming the multilaterals
- The BRICS ministerial meeting held this week sent several important signals to that end, issuing two outcome documents.
- It included the first “standalone” joint statement on reforming multilateral institutions, including the UN and the UNSC, IMF and World Bank and the WTO.
- It remains to be seen how far countries like China and Russia, which are already “inside the tent” at the UNSC, will go in advocating for the other BRICS members.
- Another important agreement was the BRICS ministerial decision to support negotiations at the WTO for the waiver of trade-related intellectual property rights (TRIPs) for vaccines and medicines to tackle the Coronavirus.
Way forward
- What appears clear is in the post-Covid world, priorities for all economies will change, and offer up a churning in the world of the kind seen two decades ago, when the idea of a grouping of emerging economies was first floated.
- For BRICS, the next few months could crystallize that idea, or sink it further, leaving others to wonder whether the “Rise of the Rest” as it was once called, is an idea whose time will ever come at all.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much
Mains level: Chinese encroachment of Lankan Sovereignty
Sri Lanka recently passed the controversial Colombo Port City Economic Commission Bill, which governs the China-backed Colombo Port City project worth $1.4 billion, amid wide opposition to the creation of a “Chinese enclave” in the island nation.
Colombo Port City Project
- The Colombo Port City has grabbed headlines in Sri Lanka in recent months even as the relentless third wave of the COVID-19 pandemic sweeps through the country.
- Almost an artificial island, the territory coming up on 2.69 square kilometers of land reclaimed from Colombo’s seafront has stirred controversy since its inception.
- Those backing it see in that patch of land their dream of an international financial hub — a “Singapore or Dubai” in the Indian Ocean.
When was it launched?
- The project was launched in September 2014 by Chinese President Xi Jinping during a visit to the island nation under the Mahinda Rajapaksa administration’s second term.
- After President Mahinda Rajapaksa was ousted in January 2015, the successor “national unity” government of Maithripala Sirisena and Ranil Wickremesinghe went ahead with the project after briefly halting it.
- On returning to power in November 2019, the Rajapaksas vowed to expedite the project. The Sri Lankan government says the project will bring in around 83,000 jobs and $15 billion initially.
Issues with the project
- But skeptics claim that it could well become a “Chinese colony”, with the Bill, which is now an Act.
- The law provides China substantial “immunity” from Sri Lankan laws, besides huge tax exemptions and other incentives for investors.
What is the extent of China’s involvement?
Effectively, China has substantial control over two key infrastructure projects in Sri Lanka for a century.
- The port city project is financed chiefly through Chinese investment amounting to $1.4 billion.
- In return, the company will receive 116 hectares (of the total 269 hectares) on a 99-year lease.
- The city separates from but located adjacent to the Colombo Port, the country’s main harbor — is the third major port-related infrastructure project where China has a significant stake.
- China Merchants Port Holdings has an 85% stake in the Colombo International Container Terminal under a 35-year ‘Build Operate and Transfer’ agreement with the Sri Lanka Port Authority.
- In 2017, the Sirisena-Wickremesinghe administration, unable to repay the Chinese loan with which it was saddled by the previous government, handed over the Hambantota Port to China on a 99-year lease.
Concerns from within Sri Lanka
- Since its launch, the Colombo Port City project has faced opposition from environmentalists and fisherfolk, who feared that the project would affect marine life and livelihoods.
- However, in the absence of wider political and societal support, their resistance did not dent successive governments’ resolve to pursue the project.
- The more recent opposition was specific to the Colombo Port City Economic Commission Bill.
- The resistance came from Opposition parties and civil society groups, including many who do not oppose the project per se, but rather its governance by “an all-powerful commission answerable to no one”.
- Significantly, a section of Buddhist monks, wielding much influence in Sri Lankan politics and the Sinhala society, also opposed the Bill and said that it eroded Sri Lanka’s sovereignty.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: G7, Global Minimum Tax
Mains level: Global Minimum Tax negotiaitions
Finance Ministers from the Group of Seven (G7) rich nations have reached a landmark accord setting a global minimum corporate tax rate, an agreement that could form the basis of a worldwide deal.
Why a global minimum?
- Major economies are aiming to discourage multinationals from shifting profits — and tax revenues — to low-tax countries regardless of where their sales are made.
- Increasingly, income from intangible sources such as drug patents, software and royalties on intellectual property has migrated to these jurisdictions, allowing companies to avoid paying higher taxes in their traditional home countries.
- With its proposal for a minimum 15% tax rate, the Biden administration hopes to reduce such tax base erosion without putting American firms at a financial disadvantage, allowing competition on innovation, infrastructure and other attributes.
Where are the talks at?
- The G7 talks feed into a much broader, existing effort.
- The OECD has been coordinating tax negotiations among 140 countries for years on rules for taxing cross-border digital services and curbing tax base erosion, including a global corporate minimum tax.
- The OECD and G20 countries aim to reach a consensus on both by mid-year, but the talks on a global corporate minimum are technically simpler and less contentious.
- If a broad consensus is reached, it will be extremely hard for any low-tax country to try and block an accord.
How would a global minimum tax work?
- The global minimum tax rate would apply to overseas profits.
- Governments could still set whatever local corporate tax rate they want, but if companies pay lower rates in a particular country, their home governments could “top-up” their taxes to the minimum rate.
- This would eliminate the advantage of shifting profits.
What about that minimum rate?
- Talks are focusing on the U.S. proposal of a minimum global corporation tax rate of 15% – above the level in countries such as Ireland but below the lowest G7 level.
- Any final agreement could have major repercussions for low-tax countries and tax havens.
- The Irish economy has boomed with the influx of billions of dollars in investment from multinationals.
- Dublin, which has resisted EU attempts to harmonize its tax rules, is unlikely to accept a higher minimum rate without a fight.
- However, the battle for low-tax countries is less likely to be about scuppering the overall talks and more about building support for a minimum rate as close as possible to its 12.5% or seeking certain exemptions.
Back2Basics: G7
- The G7 or the Group of Seven is a group of the seven most advanced economies as per the International Monetary Fund (IMF).
- The seven countries are Canada, USA, UK, France, Germany, Japan and Italy. The EU is also represented in the G7.
- These countries, with the seven largest IMF-described advanced economies in the world, represent 58% of the global net wealth ($317 trillion).
- The G7 countries also represent more than 46% of the global gross domestic product (GDP) based on nominal values, and more than 32% of the global GDP based on purchasing power parity.
- The requirements to be a member of the G7 are a high net national wealth and a high HDI (Human Development Index).
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Performance Grading Index
Mains level: NA
The Education Ministry’s Performance Grading Index for 2019-20 was recently released.
Performance Grading Index
- The PGI is a tool to provide insights on the status of school education in States and UTs including key levers that drive their performance and critical areas for improvement.
- It monitors the progress that States and UTs have made in school education with regard to learning outcomes, access and equity, infrastructure and facilities, and governance and management processes.
- Grading will allow all States and UTs to occupy the highest level i.e Grade I, at the same time which is a sign of a fully developed nation.
Its methodology
- This is the third edition of the index and uses 70 indicators to measure progress.
- Of these, the 16 indicators related to learning outcomes remain unchanged through all three editions, as they are based on data from the 2017 National Achievement Survey, which tested students in Classes 3, 5, 8, and 10.
Highlights of the 2019-20 Report
- Punjab, Tamil Nadu, and Kerala have all scored higher than 90%.
- Gujarat dropped from second to the eighth rank in the index, while MP and Chhattisgarh are the only States which have seen actual regression in scores over this period.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Sea Snot, Marmara Sea
Mains level: Algal bloom
There has been growing environmental concern in Turkey over the accumulation of ‘sea snot’, a slimy layer of grey or green sludge in the country’s seas, which can cause considerable damage to the marine ecosystem.
What is ‘Sea Snot’?
- ‘Sea snot’ is marine mucilage that is formed when algae are overloaded with nutrients as a result of water pollution combined with the effects of climate change.
- A ‘sea snot’ outbreak was first recorded in the country in 2007. Back then, it was also spotted in the Aegean Sea near Greece.
- But the current outbreak in the Sea of Marmara is by far the biggest in the country’s history.
- The nutrient overload occurs when algae feast on warm weather caused by global warming. Water pollution adds to the problem.
- Environmental experts have said that the overproduction of phytoplankton caused by climate change and the uncontrolled dumping of household and industrial waste into the seas has led to the present crisis.
Where has it been found?
- Turkey’s Sea of Marmara, which connects the Black Sea to the Aegean Sea, has witnessed the largest outbreak of ‘sea snot’.
- The sludge has also been spotted in the adjoining Black and Aegean seas.
How badly can the crisis affect the marine ecosystem?
- The growth of the mucilage, which floats upon the surface of the sea like brown phlegm, is posing a severe threat to the marine ecosystem of the country.
- Divers have said that it has caused mass deaths among the fish population, and also killed other aquatic organisms such as corals and sponges.
- The mucilage is now covering the surface of the sea and has also spread to 80-100 feet below the surface.
- If unchecked, this can collapse to the bottom and cover the sea floor, causing major damage to the marine ecosystem.
- Over a period of time, it could end up poisoning all aquatic life, including fishes, crabs, oysters, mussels and sea stars.
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