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  • Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

    Explained: India’s GDP fall, in perspective

    | Economics | Mains Paper 3: Indian Economy

    India’s Gross Domestic Product (GDP) contracted by 7.3% in 2020-21.

    Tap to read more about:

    National Income Determination, GDP, GNP, NDP, NNP, Personal Income

    GDP contraction

    There are two ways to view this contraction:

    1. One is to look at this as an outlier — after all, India, like most other countries, is facing a once-in-a-century pandemic — and wish it away.
    2. The other way would be to look at this contraction in the context of what has been happening to the Indian economy since the regime change.

    Impact of the new regime

    Let’s look at the most important ones.

    (1) Gross Domestic Product

    • Contrary to perception advanced by the Union government, the GDP growth rate has been a point of growing weakness for the last 5 of these 7 years.
    • The GDP growth rate steadily fell from over 8% in FY17 to about 4% in FY20, just before Covid-19 hit the country.
    • The economy was already struggling with massive bad loans which were further deteriorated by demonetization and the GST regime.

    (2) GDP per capita

    • Often, it helps to look at GDP per capita, which is total GDP divided by the total population, to better understand how well-placed an average person is in an economy.
    • At a level of Rs 99,700, India’s GDP per capita is now what it used to be in 2016-17 — the year when the slide started.
    • As a result, India has been losing out to other countries. A case in point is how even Bangladesh has overtaken India in per-capita-GDP terms.

    (3) Unemployment rate

    • This is the metric on which India has possibly performed the worst.
    • First came the news that India’s unemployment rate, even according to the government’s own surveys, was at a 45-year high in 2017-18 — the year after demonetization and GST.
    • Then in 2019 came the news that between 2012 and 2018, the total number of employed people fell by 9 million — the first such instance of total employment declining in independent India’s history.
    • As against the norm of an unemployment rate of 2%-3%, India started routinely witnessing unemployment rates close to 6%-7% in the years leading up to Covid-19.
    • The pandemic, of course, made matters considerably worse.
    • What makes India’s unemployment even more worrisome is the fact that this is happening even when the labor force participation rate — which maps the proportion of people who even look for a job — has been falling.

    (4) Inflation rate

    • After staying close to the $110-a-barrel mark throughout 2011 to 2014, oil prices (India basket) fell rapidly to just $85 in 2015 and further to below (or around) $50 in 2017 and 2018.
    • On the one hand, the sudden and sharp fall in oil prices allowed the government to completely tame the high retail inflation in the country, while on the other, it allowed the government to collect additional taxes on fuel.
    • But since the last quarter of 2019, India has been facing persistently high retail inflation.
    • Even the demand destruction due to lockdowns induced by Covid-19 in 2020 could not extinguish the inflationary surge.

    (5) Fiscal deficit

    • The fiscal deficit is essentially a marker of the health of government finances and tracks the amount of money that a government has to borrow from the market to meet its expenses.
    • Typically, there are two downsides of excessive borrowing:
    1. One, government borrowings reduce the investible funds available for the private businesses to borrow (this is called “crowding out the private sector”); this also drives up the price (that is, the interest rate) for such loans.
    2. Two, additional borrowings increase the overall debt that the government has to repay. Higher debt levels imply a higher proportion of government taxes going to pay back past loans. For the same reason, higher levels of debt also imply a higher level of taxes.

    On paper, India’s fiscal deficit levels were just a tad more than the norms set, but, in reality, even before Covid-19, it was an open secret that the fiscal deficit was far more than what the government publicly stated.

    (6) Rupee vs dollar

    • The exchange rate of the domestic currency with the US dollar is a robust metric to capture the relative strength of the economy.
    • A US dollar was worth Rs 59 when the government took charge in 2014.
    • Seven years later, it is closer to Rs 73. The relative weakness of the rupee reflects the reduced purchasing power of the Indian currency.

    What’s the outlook on growth?

    • The biggest engine for growth in India is the expenditure by common people in their private capacity.
    • This “demand” for goods accounts for 55% of all GDP.
    • The private consumption expenditure has fallen to levels last seen in 2016-17.

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  • Civil Services Reforms

    WB Bureaucrat Transfer Issue

    States | Governance | Mains Paper 2: Civil Service

    West Bengal CM has announced that the outgoing Chief Secretary would be appointed Chief Advisor to the Chief Minister.

    Story so far

    • A senior IAS officer has been the subject of a tussle between the Centre and the state government over the last few days.
    • He was due to begin an extension of three months after retiring as Chief Secretary, but the Centre instead asked him to report and join the Government of India.
    • He did not do so.

    How officers get an extension?

    • Rule 16(1) of DCRB (Death-cum-Retirement Benefit) Rules says that “a member of the Service may be given an extension of service for a period not exceeding three months in the public interest, with the prior approval of the Central Government”.
    • For an officer posted as Chief Secretary of a state, this extension can be for six months.

    Central Deputation

    • In normal practice, the Centre asks every year for an “offer list” of officers of the All India Services willing to go on central deputation.
    • Rule 6(1) of the IAS Cadre Rules says an officer may with the concurrence of the State Governments concerned and the Central Government, be deputed for service under the Central Government or another State Government…”
    • It says “in case of any disagreement, the matter shall be decided by the Central Government and the State Government or State Governments concerned shall give effect to the decision of the Central Government.”

    Issues with such deputation

    • Because of the Rule, states have to bear the brunt of arbitrary actions taken by the Centre, while the Rule makes it difficult for the Centre to enforce its will on a state that refuses to back down.

    What next

    • The Centre cannot take action against civil service officials who are posted under the state government unless the latter agrees.
    • Rule 7 of the All India Services (Discipline and Appeal) Rules, 1969, states that the authority to institute proceedings and to impose penalty will be the state government.
    • For any action to be taken against an officer of the All India Services, the state and the Centre both need to agree.

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  • Health Sector – UHC, National Health Policy, Family Planning, Health Insurance, etc.

    China to allow couples for third child

    | Indian Society | Mains Paper 1: Population & Associated Issues

    China will for the first time allow couples to have a third child in a further relaxation of family planning rules five years after a “two-child policy” largely failed to boost birth rates.

    Do you think that the One-Child Policy would be effective for population control in India?

    What was the One-Child Policy?

    • China embarked upon its one-child policy in 1980 when the Communist Party was concerned that the country’s growing population, which at the time was approaching one billion, would impede economic progress.
    • The policy was implemented more effectively in urban areas.
    • It was enforced through several means, including incentivizing families financially to have one child, making contraceptives widely available, and imposing sanctions against those who violated the policy.

    How well did the policy fare?

    • Chinese authorities have long hailed the policy as a success, claiming that it helped the country avert severe food and water shortages by preventing up to 40 crore people from being born.
    • However, the policy was also a source of discontent, as the state used brutal tactics such as forced abortions and sterilizations.
    • It also met criticism and remained controversial for violating human rights, and for being unfair to poorer Chinese since the richer ones could afford to pay economic sanctions if they violated the policy.
    • Additionally, China’s rulers have been accused of enforcing reproductive limits as a tool for social control.
    • The Uighur Muslim ethnic minority, for example, has been forced to have fewer children to restrict the growth of their population.

    Demographic changes due to the policy

    • Due to the policy, while the birth rate fell, the sex ratio became skewed towards males.
    • This happened because of a traditional preference for male children in the country, due to which abortion of female fetuses rose and so did the number of girls who were placed in orphanages or abandoned.
    • Experts have also blamed the policy for making China’s population age faster than other countries, impacting the country’s growth potential.
    • It is also suggested that because of the long-lingering impact of the policy, China would be unable to reap the full benefits of its economic growth and will need other ways to support it.

    Skeptics of the new move

    • Experts say relaxing limits on reproductive rights alone cannot go a long way in averting an unwanted demographic shift.
    • The main factors behind fewer children being born, they say, are rising costs of living, education, and supporting aging parents.
    • The problem is made worse by the country’s pervasive culture of long working hours.
    • There has also been a cultural shift during the decades in which the one-child policy remained in force, with many couples believing that one child is enough, and some expressing no interest in having children.

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  • Innovations in Sciences, IT, Computers, Robotics and Nanotechnology

    [pib] “AmbiTAG”- India’s first indigenous temperature data logger

    PIB | Science Tech | Mains Paper 3: Indigenization Of Technology

    IIT Ropar in (Punjab) has developed a first-of-its-kind IoT device – AmbiTag that records real-time ambient temperature during the transportation of perishable products, vaccines, and even body organs and blood.

    AmbiTag

    • Shaped like a USB device, AmbiTag continuously records the temperature of its immediate surroundings “from -40 to +80 degrees in any time zone for a full 90 days on a single charge.
    • Most of the similar devices available in the international market record data only for a duration of 30- 60 days.
    • It generates an alert when the temperature goes beyond a pre-set limit. The recorded data can be retrieved by connecting the USB with any computer.
    • So far, such devices are being imported by India in a massive quantity from other countries such as Singapore, Hong Kong, Ireland, and China.
    • The device has been developed under Technology Innovation Hub – AWaDH (Agriculture and Water Technology Development Hub) and its Startup ScratchNest.

    Its applications

    • The device helps know whether that particular item transported from anywhere in the world is still usable or perished because of temperature variation.
    • This information is particularly critical for vaccines including the Covid-19 vaccine, organs, and blood transportation.
    • Besides perishable items including vegetables, meat, and dairy products it can also monitor the temperature of animal semen during transit.

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  • Israel and Palestine could take a leaf out of India’s book

    op-ed snap | International Relations | Mains Paper 2: Effect Of Policies & Politics Of World On India’S Interests

    The article suggest the Indian model for peaceful coexistence as a possible solution to Israel-Palestine conflict.

    Brief history of the conflict

    • Britain renounced its Mandate over Palestine in 1948.
    • This paved the way for the United Nations to divide Palestine between the Jews and Arabs, giving them about 55% and 45% of the land, respectively.
    • The Jews, meanwhile, had declared the establishment of the state of Israel for which they had been working for long.
    • The Palestinians, who lacked the resources to conceive of a state, failed to form a state of their own in the land allotted to them.
    • Instead, a coalition of Arab countries invaded the nascent state of Israel to nip it in the bud.
    • Israel defeated the Arab armies.
    • Israel also destroyed about 600 Palestinian villages and expelled about 80% of Arabs from its territory.
    • In 1967, in the Six-Day War, Israel captured not just more Palestinian land but also Egypt’s Sinai Peninsula and Syria’s Golan Heights.
    • During the Yom Kippur War of 1973, the Arabs came to realise that Israel is here to stay.

    Need for realisation on both the sides

    • The Arab states failed to impress the realisation of permanency of Israel upon their Palestinian brethren, a sizeable number of whom remain committed to seeking a solution through counter-violence. 
    • Vicious cycle of violence is not going to end unless there is realism on both sides.
    • The Hamas should know that Israel will not give up on holding on to land it has held for years.
    • Israel should understand that total subjugation, expulsion or even decimation of Palestinians will not make it any safer.
    • A solution based on the common humanity of all stakeholders, one that is not riven by racial and religious schisms, needs to be explored.

    Viability of Indian model

    • The Indian model of democracy and secularism, which accommodates religious, ethnic, linguistic and other diversities, could be a viable model for the peaceful coexistence of formerly antagonistic groups.
    •  India evolved a unique model of accommodating the victors and the vanquished, without ever resorting to the latter’s decimation.
    • A modus vivendi has to evolve on the basis of hard realities, the first of which is that neither the Jews nor the Palestinians are going to vanish.
    • If the two-state solution is nowhere in the offing, a single state after the Indian model, i.e., a secular, democratic and pluralistic state, may be the only feasible option.
    • The Palestinian refugees have a right to return.
    • That the altered demographics would impinge on the religio-racial character of Israel is not an argument which behoves a modern democratic state.
    • It is true that a nation state belongs to the group which constituted itself into a nation.
    • A nation is an imagined community.
    • As imagination expands, the foundations of the nation become deeper.

    Consider the question “In the absence of two-state solution to the Israel-Palestine conflict, what lessons India could offer to the two parties for peaceful coexistence?”

    Conclusion

    Israel might not offer the right model of conflict resolution for India, but India presents a model of peaceful coexistence for Israel.

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  • Foreign Policy Watch: India-Pakistan

    How Pakistan Plays the world

    op-ed snap | International Relations | Mains Paper 2: Bilateral, Regional and Global Groupings and agreements involving India

    The article explains evolution of Pakistan’s approach towards forming alliances and maintaining strategic autonomy against the backdrop of U.S. withdrawal from Afghanistan.

    New dynamic Pakistan has to face

    • As the US withdraws its troops from Afghanistan, Pakistan is eager to build a relationship with Washington that is not tied to US stakes in Afghanistan.
    • Pakistan does not want to be totally alienated from U.S. in the new geopolitical jousting between the US and China.
    • How Pakistan copes with the new dynamic between the US and China as well as manages the deepening crisis in Afghanistan would be of great interest to India.

    Striking the balance between autonomy and alliance

    • Autonomy is about the basic impulse for enhancing the degree of one’s freedom.
    • Alliances are about coping with real or perceived threats to one’s security.
    • Both are natural trends in international politics.
    • Joining an alliance does not mean ceding one’s sovereignty.
    • Within every alliance, there is a perennial tension between seeking more commitments from the partner in return for limiting one’s own.

    Explaining Pakistan’s approach to alliances

    • Pakistan’s insecurities in relation to India meant it was eager for alliances.
    •  And as the Anglo-Americans scouted for partners in the crusade against global communism, Pakistan signed a bilateral security treaty with the US and joined the South East Asia Treaty Organisation and Central Treaty Organisation in the mid-1950s.
    • Rather than target Pakistan’s alliance with a West that was intensely hostile to Beijing in the 1950s, Chinese premier Zhou Enlai saw room to exploit Pakistan’s insecurities on India.
    • While Pakistan’s ties with the US went up and down, its relationship with China has seen steady expansion.
    • Pakistan’s relations with the US flourished  after the Soviet Union sent its troops into Afghanistan at the end of 1979.
    • The US and Pakistan reconnected in 2001 as Washington sought physical access and intelligence support to sustain its intervention in Afghanistan following the attacks on September 11.
    • Now the US wants Pakistan to persuade the Taliban to accept a peaceful transition to a new political order in Afghanistan.

    Pakistan’s ability to adapt to shifting geopolitical trends

    • Pakistan worries that its leverage in U.S. will diminish once the US turns its back on Afghanistan and towards the Indo-Pacific.
    • Pakistan does not want to get in the Indo-Pacific crossfire between the US and China.
    • It would also like to dent India’s growing importance in America’s Indo-Pacific strategy.
    • India should not underestimate Pakistan’s agency in adapting to the shifting global currents.
    • Pakistan has been good at using its great power alliances to its own benefit.

    Three problems that complicates Pakistan’s strategic autonomy

    • 1) Relative economic decline: Pakistan’s expected aggregate GDP at around $300 billion in 2021 is 10 times smaller than India’s.
    • 2) Obsession with Kashmir: Pakistan’s enduring obsessions with separating Kashmir from India, and extending its political sway over Afghanistan; both look elusive despite massive political investments by the Pakistan army.
    • Unsurprisingly, there is a recognition that Pakistan needs reorientation — from geopolitics to geoeconomics and permanent war with neighbours to peace of some sorts.
    • 3) Using religion as political instrument: Turning Islam into a political instrument and empowering religious extremism seemed clever a few decades ago.
    • However, today those forces have acquired a life of their own and severely constrain the capacity of the Pakistani state to build internal coherence and widen international options.

    Conclusion

    It will be unwise to rule out Pakistan’s positive reinvention; no country has a bigger stake in it than India. For now, though, Pakistan offers a cautionary tale on the dangers of squandering a nation’s strategic advantages — including a critical geopolitical location that it had inherited and the powerful partnerships that came its way.

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  • Social Media: Prospect and Challenges

    New IT Rules is not the way forward

    op-ed snap | Science Tech | Mains Paper 3: Social Media Networks & Internal Security

    The article deals with the issues involved in the traceability requirement of the originator of information on social media platform as per new IT Rules.

    Traceability clause and issues involved

    • Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021 imposes certain obligation on significant social media intermediaries.
    • Rule 4(2) puts an obligations to ensure traceability of the originator of information on their platforms.
    • Consequently, WhatsApp has filed a petition in the Delhi High Court.
    • WhatsApp contends that the mandate for traceability violates the privacy rights of Indian citizens, by rendering WhatsApp unable to provide encrypted services.

    Government’s response

    • The Government primarily relies on the argument that: privacy is not an absolute right, and that the traceability obligation is proportionate, and sufficiently restricted.
    • Notably, the new Rules mandate traceability only in the case of significant social media intermediaries i.e. those that meet a user threshold of 50 lakh users, which WhatsApp does.
    • Traceability is also subject to an order being passed by a court or government agency and only in the absence of any alternatives.
    • While it is indeed true that privacy is not an absolute right, the Supreme Court of India in the two K.S. Puttaswamy decisions of 2017 and 2018 has laid conditions for restricting this right.
    • In Puttaswamy cases, the Supreme Court clarified that any restriction on this right must be necessary, proportionate and include safeguards against abuse.

    Issues with traceability

    • Not proportionate: A general obligation to enable traceability as a systemic feature across certain types of digital services is neither suitable nor proportionate.
    • No safeguard against abuse: The Rules lack effective safeguards in that they fail to provide any system of independent oversight over tracing requests made by the executive.
    • This allows government agencies the ability to seek any messaging user’s identity, virtually at will.
    • Presumption of criminality:  Weakening encryption — which a traceability mandate would do — would compromise the privacy and security of all individuals at all times, despite no illegal activity on their part, and would create a presumption of criminality.

    Way forward

    • Explore the alternatives: The Government already has numerous alternative means of securing relevant information to investigate online offences including by accessing unencrypted data such as metadata, and other digital trails from intermediaries.
    • Already has ability to access encrypted data: The surveillance powers of the Government are in any case vast and overreaching, recognised even by the Justice B.N. Srikrishna Committee report of 2018.
    • Importantly, the Government already has the ability to access encrypted data under the IT Act.
    • Notably, Section 69(3) of the Information Technology Act and Rules 17 and 13 of the Information Technology Rules, 2009 require intermediaries to assist with decryption where they have the technical ability to do so, and where law enforcement has no alternatives.
    • Judicial scrutiny of Section 79 of IT Act: The ability of the government to issue obligations under the guise of “due diligence” requirements under Section 79 of the IT Act must be subject to judicial scrutiny.
    • Legislative changes needed: The long-term solution would be for legislative change along multiple avenues, including in the form of revising and reforming the now antiquated IT Act, 2000.

    Consider the question “What are the issues involved in the traceability of the originator of the information on social media platforms as mandated by the new IT Rules 2021? Suggest the way forward.”

    Conclusion

    While, undoubtedly, there are numerous problems in the digital ecosystem that are often exacerbated or indeed created by the way intermediaries function, ill-considered regulation of the sort represented by the new intermediary rules is not the way forward.

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  • Agmark, Hallmark, ISI, BIS, BEE and Other Ratings

    [pib] Research Design & Standards Organization

    PIB | Governance | Mains Paper 2: Government Scheme/Policies

    RDSO (Research Design & Standards Organization) of Indian Railways has become the FIRST Institution to be declared SDO under the “One Nation One Standard ” mission of BIS ( Bureau of Indian Standards).

    About RDSO

    • Research Designs & Standards Organization (RDSO), Lucknow, \ is the sole R&D Wing of the Ministry of Railways.
    • It is one of India’s leading Standard formulating Body undertaking standardization work for the railway sector.

    Answer this PYQ in the comment box:

    Q.Consider the following statements:

    1. The Standard Mark of the Bureau of Indian Standards (BIS) is mandatory for automotive tyres and tubes.
    2. AGMARK is a quality Certification Mark issued by the Food and Agriculture Organisation (FAO).

    Which of the statements given above is/are correct?

    (a) 1 only

    (b) 2 only

    (c) Both 1 and 2

    (d) Neither 1 nor 2

    What is One Nation One Standard mission?

    • The purpose of setting standards and enforcing them is not to bring back “inspection raj” but to ensure that quality products are made available to consumers.
    • The Bureau of Indian Standards (BIS), the only national body that frames standards, has come out with more than 20,000 standards for various products and services so far.
    • Besides this, there are about 50-odd agencies that have framed about 400 standards in the country.
    • There are multiple standards in the country for a single product/service. The new mission is to converge such standards with the BIS.

    Objectives of the mission:

    • No one should feel the need to go abroad to get a quality certification.
    • Lab testing in India should be of world standards. Modern equipment and the latest technologies would be used there.

    Why such a move?

    • Having uniform national standards will help in making it mandatory for more products.
    • The government proposes to set Indian standards in line with the global benchmarks, just like other countries enforce their standards on imported products.
    • The Centre, through this move, wants foreign goods coming into India to comply with Indian standards.

    Back2Basics: Bureau of Indian Standards (BIS)

    • BIS is the National Standards Body of India working under the aegis of the Ministry of Consumer Affairs, Food & Public Distribution.
    • It is established by the Bureau of Indian Standards Act, 1986 which came into effect on 23 December 1986.
    • The organization was formerly the Indian Standards Institution (ISI), set up under the Resolution of the Department of Industries and Supplies in September 1946.
    • The ISI was registered under the Societies Registration Act, 1860.
    • A new Bureau of Indian standard (BIS) Act 2016 has been brought into force with effect from 12 October 2017.
    • The Act establishes the Bureau of Indian Standards (BIS) as the National Standards Body of India.

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  • Why people are Protesting in Lakshadweep

    | Enviro & Biodiversity | Mains Paper 3: Conservation, Environmental Pollution & Degradation, Eia

    The article highlights the issues with development model sought to be pursued in Lakshadweep.

    Background of Island Development Authority’

    • A specially constituted Island Development Authority (IDA) for the island territories of India, chaired by no less than the former Prime Minister, Rajiv Gandhi.
    • IDA had in 1988, approved a framework for the development of India’s island territories.
    • IDA sought an environmentally sound strategy for both island groups hinges on better exploitation of marine resources coupled with much greater care in the use of land resources.
    • Deliberations of the IDA wanted that Lakshadweep, with its land ownership constitutionally protected, be opened to international tourism.

    Issues with following Maldives model for development of Lakshadweep

    •  Recently, the Administrator, Lakshadweep, introduced a slew of draft legislation that will have a wide-ranging impact on the islands.
    • One such legislation is the Lakshadweep Development Authority Regulation 2021 with intentions to develop Lakshadweep like neighbouring Maldives, “a renowned international tourist destination”.
    • Rejecting the Maldives model, the plan for Lakshadweep required that the industry had to be people-centric and enrich the fragile coral ecology.
    • Today, long lines and refrigeration have aided the expansion of the fishing sector but income disparities have grown.
    • Indiscriminate trawling endangers the coral, as experienced in the Maldives and now banned there.
    • The Government recognises the need to develop policies for enhancing employment opportunities, environment-friendly management of fisheries, sanitation, waste disposal and widening access to drinking water, with the youth, having acquired a modern education, preferring salaried jobs over pursuing traditional occupations.

    Conclusion

    What Lakshadweep needs is a clear policy must include conservation and natural resource management arrived at after wide consultation, eminently possible within the existing infrastructure of the Union Territory, and also taking into account climatic compulsions.

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  • Government Budgets

    Resource crunch in states after Covid second wave

    op-ed snap | Economics | Mains Paper 3: Indian Economy

    The article gives the overview of the impact of second Covid wave on the fiscal health of the States.

    Impact of first Covid wave on fiscal health of states

    • The analysis of the fiscal data for all states with the exception of Goa, Manipur, Meghalaya and Sikkim reveal a grim picture.
    • The aggregate revenue deficit for 24 state governments soared to Rs 4 trillion as per the revised estimates (RE) for 2020-21, up from a modest budgeted amount of Rs 353 billion.
    • And, despite a 16 per cent cut in capital spending, the fiscal deficit of these states deteriorated to Rs 8.7 trillion in 2020-21 (RE), up from the budgeted estimate of Rs 6.0 trillion.

    How states had projected ambitious decline in revenue deficit

    • The budgets for the ongoing fiscal year,  had projected an ambitious, decline in the aggregate revenue deficit to Rs 1.2 trillion, lower than the pre-Covid-19 level of Rs 1.3 trillion in 2019-20.
    • This has benefitted from the considerable expansion in their revenue receipts this year, forecasted at 24.7 per cent, compared to a moderate 12.4 per cent increase in their aggregate revenue expenditure.
    • This anticipated shrinking of the revenue deficit has allowed states to plan for a substantial expansion in their capital expenditure and net lending pegged at 34.1 per cent.
    • This anticipated shrinking also allowed the States to attempt a modest correction in their budgeted fiscal deficit, bringing it down to Rs 7.6 trillion in 2021-22 from Rs 8.7 trillion in 2020-21 (RE).

    Fiscal concerns over second Covid wave

    • The second wave of Covid-19 infections and its spread to rural areas has fanned fiscal concerns.
    •  The curtailed consumption of discretionary items and contact-intensive services will dampen the growth of states’ own tax revenues this year.
    • Moreover, lower mobility during the regional lockdowns will constrain tax revenues that states earn on fuels.
    • The data for the generation of GST e-way bills confirms that the staggered imposition of the localised lockdowns has had an adverse impact on economic activity since April.
    • This will result in a sequential slowdown in GST collections that will be reported in the subsequent two months.
    • Nevertheless, the GST collections is likely to nearly double to Rs 1.7 trillion in the first quarter of this year, up from Rs 0.9 trillion over the same period last year, boosted by the record-high collections in April,
    • That reflected healthy economic activity in March.

    The shortfall and way forward

    •  States’ own tax collections is estimated to trail their budget estimates as they were drawn up before the second wave.
    • For this year,  state GST collections would be at Rs 6.1 trillion, falling below their projected revenues of Rs 8.7 trillion.
    • This indicates a GST compensation requirement of Rs 2.65 trillion — only 38 per cent of which may be met through the expected GST compensation cess collections.
    • Following the meeting of the GST Council, the Finance Minister has indicated that a back-to-back loan of Rs 1.58 trillion will be provided to the states.
    • If the tranches of this loan start flowing to the states soon, it will alleviate their anticipated revenue crunch over the next two months.
    • Already, there has been a sharp rise in the size of the upcoming State Development Loan auction to Rs. 19,550 crore, relative to the modest average size of around Rs. 7,400 crore seen so far in the first eight auctions held in FY2022.

    Conclusion

    In any case, the capital spending budgeted by certain state governments this year appears to be optimistic. Moreover, localised restrictions imposed during the last two months are expected to have constrained activity.

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