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  • Coronavirus – Economic Issues

    Ease legal constraints on fiscal expenditure

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

    The article discusses the two legal provisions that need to be changed in order to provide a fiscal stimulus of the size that could save the economy from collapse. Other major concern after the package would be the inflationary pressure resulting from government spending.

    The urgency of the fiscal package by the Centre

    • The longer the Centre dithers over a big-bang fiscal package to counter the adverse economic fallout of covid-19, the closer it risks pushing India’s economy to the precipice of disaster.
    • The nationwide lockdown has more or less paralysed commercial activity, our exit path looks dreadfully long-winded, and the distress being seen right now could just be an early sign of what is to come.
    • The suffering of citizens will likely expand once the shutdown’s second-order effects, which operate with a lag, begin to kick in.
    • Estimates of ₹10 trillion needed by way of fiscal relief, once seen as too much by some, could yet turn out to be too little.
    • Either way, preparatory work in terms of legal enablers should be done alongside the arithmetic

    Legal constraints in the way of the stimulus programme

    • There are two major constraints that we need to be relieved of—if only temporarily—for a stimulus programme to take shape.
    • The first is the Fiscal Responsibility and Budget Management (FRBM) Act of 2003.
    • And the second is the amendment done in 2016 of the Reserve Bank of India Act to give legislative cover to a flexible inflation-targeting framework that set our central bank the task of keeping India’s retail price index within a certain band.
    • Both of these were aimed at long-term economic stability but made no allowance for a robust fiscal response to the kind of crisis we now face.
    • It would be best if these were tweaked appropriately by a special session of Parliament.
    • If not, then ordinances should be issued to suspend specific restrictions for a while.

    Projections of fiscal deficit

    • Under the budget presented in February, the Centre’s fiscal deficit for 2020-21 was projected at 3.5% of gross domestic product (GDP).
    • This included a half percentage point deviation from the FRBM glide path allowed by the law’s contingency clause.
    • Total expenditure was placed at a little over ₹30.4 trillion, and receipts at ₹22.4 trillion-plus.
    • With tax revenues and asset-sale realizations expected to fall short, the fiscal gap could widen to about ₹10 trillion even without any extra spending.
    • Drastic cuts in expenditure could save some money, but even if a heavy axe is wielded on expenses, the government’s deficit this year would have to exceed twice the legal limit for a stimulus that saves the economy from collapse.
    • If this turns out to be a year of negative growth, as some fear, effecting a revival will only get harder.
    • For pre-emptive action, the government should use its parliamentary clout to permit a limitless deficit for 2020-21.

    A question based on the limits placed by the FRBM Act and the changes brought by the amendment to the RBI Act which mandated RBI with managing the inflation could be asked by the UPSC.

    Prospects of inflationary pressure and RBI’s mandate

    • An effort to spend our way out of an economic morass could prove inflationary if too much cash ends up chasing too few goods and services.
    • As we have undergone both demand and supply shocks, opinion is divided on whether prices will go haywire.
    • This risk would depend on how much cash gets pumped around at what point in time and the pace at which supplies are restored.
    • In other words, the inflation outlook is highly uncertain.
    • But should prices threaten to rise, it would be counterproductive of the central bank to tamp them down by tightening credit.
    • As of now, RBI’s mandate is to keep inflation at 4%, with a tolerance band of 2% on either side.
    • This target is valid till March 2021, but needs to be reviewed right away to let the central bank focus on growth.
    • The acceptable range could be widened and the time limit to achieve the goal lengthened as a special reprieve.

    Conclusion

    A few tweaks of the law must go alongside calculations of a stimulus package designed to relieve economic distress. The government should act on these quickly to save the day.

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  • Coronavirus – Health and Governance Issues

    Spanish Plan for Phased Easing of Lockdown

    | Governance | Mains Paper 2: Health & Education

    • Spain’s Prime Minister has presented a four-phase lockdown exit strategy for the country.
    • It’s imperative for India to learn from global examples for easing lockdown without doing away with health concerns.

    With the nearing end of nationwide lockdown, various exit strategies are being discussed for a smooth restart.

    Spain’s exit strategy

    • The opening up of the lockdown will begin with phase 0 throughout Spain, except for a few islands that will already be in phase 1 by then.
    • A week later, provinces will enter phase 1, which will last for two weeks and the remaining phases will also last for two weeks each.
    • In total, the de-escalation will take at least six weeks to be complete.

    Phase 0: The preparation phase

    • De-escalations in this phase include opening up of takeaway facilities at restaurants and opening up of some other establishments such as hair salons.
    • From May 2, individuals will be able to go out for a walk or to exercise alone or with people they stay with. In this phase, professional athletes will be able to access individual training sessions.
    • Children aged 14 years or younger have been allowed to go out for walks from April 26.

    Phase 1: The initial phase

    • Begins on May 11. Small businesses will be allowed to open under strict security measures.
    • For instance, gyms can open for people who want to train individually and by appointment.
    • Further, hotels and tourist accommodations will be allowed to open, excluding the common areas and with certain restrictions in place.
    • Places of worship will also be allowed to open, limiting their capacity to one-third. Owners of terrace bars can open their establishments but with 30 per cent capacity.
    • In this phase, some degree of social contact with a limited number of people may also be allowed, subject to what the conditions are then.

    Phase 2: The intermediate phase

    • Begins on May 25.Will include the resumption of hunting and sport fishing, and the opening of cinemas and auditorium theatres at one-third of their capacity.
    • Visits to monuments and cultural facilities, such as exhibition halls and conference rooms, will resume with one-third occupancy.
    • Cultural shows will be allowed with less than 50 people in closed spaces. In the outdoors, shows and events can be held with less than 400 people provided they are seated.
    • All places of worship will have to limit their capacity to 50 per cent.

    Phase 3: The advanced phase

    • Begins on June 8 and provided the situation is under control, general mobility will be made more flexible.
    • Wearing masks will be recommended when people venture outside, especially on public transport. In commercial settings, capacities will be restricted to 50 per cent.
    • Beaches may also open in this phase. The movement of people into other provinces or islands is restricted until the de-escalation process is complete.

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  • Water Management – Institutional Reforms, Conservation Efforts, etc.

    Ganga water improves during lockdown

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

    The Ganga water quality has improved remarkably during the lockdown period. This highlights the importance of synergy for absolute symbiosis between nature and man as the need of the hour.

    Context

    • The novel coronavirus lockdown (COVID-19) pandemic has put millions in the throes of adversity — and yet, there is a reason to celebrate.
    • Over a month into the nationwide lockdown, air and water pollution levels have shrunk and the wildlife is free.
    • Of 36 monitoring units placed in the Ganga, water quality at 27 points was found suitable for bathing and propagation of wildlife and fisheries in the lockdown period

    Status of rivers in India

    • India’s water bodies are in a poor state. The rivers are becoming dumpyard for untreated sewage and industrial waste.
    • In the name of economic growth, most rivers and streams have been turned into sewer canals and are getting difficult to be treated.
    • It is estimated that every day, almost 40 million litres of wastewater enters rivers and other water bodies; only 37 per cent is adequately treated.
    • A Centre Pollution Control Board (CPCB) report showed that critically polluted river stretches in the country have increased from 302 stretches in 2016 to 351 stretches in 2018.
    • The finding was based on Biological Oxygen Demand (BOD).

    Ganga

    • According to CPCB, more than half of wastewater treatment plants in the basin do not comply with the discharge norms.
    • Since 1985, several programmes and schemes have been launched to clean the Ganga. It began with the Ganga Action Plan I, followed by Ganga Action Plan II.

    • In 2015, the biggest-ever initiative, Namami Gange was launched with a budget of over Rs 20,000.
    • Despite numerous programmes and huge funds, the Ganga still runs polluted.

    The causes

    • More than 80 per cent of pollution in the Ganga is due to domestic sewage from surrounding towns and villages. The rest is contributed by industrial waste.
    • During the lockdown, domestic sewage would have increased owing to increased demand for water to maintain hand-washing hygiene. Industrial waste, however, stopped entering the Ganga.
    • Other activities such as tourism, fairs, bathing and cloth washing near the ghats were curtailed. Experts said these observations reflected that domestic sewerage was not the only cause of concern.
    • When sewage is mixed with industrial effluents, it gets difficult for the river to assimilate pollution.
    • One more reason was high number of western disturbances which brought rain and improved the flow in the river leading to dilution.

    COVID-19’s gift to Ganga

    • After the nationwide lockdown was imposed, within 10 days signs of improvement in water quality started surfacing.
    • At Varanasi’s Nagwa Nala, the Dissolved Oxygen (DO) values were found increased to 6.8 milligram/litre against 3.8 mg/l on March 6, showcasing an extraordinary improvement of 79 per cent in DO values.
    • 30 per cent of the total BOD load was due to industries along the river, which amounted to 130-150 tons per day.
    • Since all major polluting industries are closed, the toxic load is off the river.

    Surprisingly better

    • Ganga water at Haridwar and Rishikesh was reported fit for drinking due to 500 per cent decrease in sewage and industrial effluents.
    • A dip in the number of visitors at ghats in Haridwar also helped the river water quality.
    • The Ganga water has become fit for ‘achaman’, which means ritual sipping, after a long time.

    Bringing the ambitions to reality

    There is an urgent need to:

    • Reinvestigate the main source of pollution in Ganga and reorient all river cleaning policies and programmes based on lockdown findings.
    • Industries need to strictly adhere to discharge norms accompanied with strong enforcement of laws and regulations vis-a-vis strong monitoring and vigilance framework.
    • Setting up of effective interventions to clean rivers, reliable, representative and comprehensive data collected at high frequency in a disaggregated manner.
    • There is an urgent need to expand the network of monitoring stations on the Ganga, the Yamuna and tributaries of Ganga in more places.
    • Over-extraction and over-exploitation of Ganga’s waters have rendered long stretches of the river completely dry for much of the year. There is a need to maintain ecological flow to keep it clean for longer run.
    • Education and awareness needs to be carried out strategically.

    Back2Basics: Biochemical Oxygen Demand

    • BOD is the amount of dissolved oxygen needed (i.e. demanded) by aerobic biological organisms to break down organic material present in a given water sample at certain temperature over a specific time period.
    • The BOD value is most commonly expressed in milligrams of oxygen consumed per litre of sample during 5 days of incubation at 20 °C and is often used as a surrogate of the degree of organic pollution of water.
    • BOD is similar in function to chemical oxygen demand (COD), in that both measure the amount of organic compounds in water.
    • However, COD is less specific, since it measures everything that can be chemically oxidized, rather than just levels of biodegradable organic matter.

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  • Minority Issues – SC, ST, Dalits, OBC, Reservations, etc.

    Religious Freedom and India

    | Governance | Mains Paper 1: Communalism, Secularism, Regionalism

    The U.S. Commission on International Religious Freedom (USCIRF) has downgraded India to the lowest ranking, “countries of particular concern” (CPC) in its 2020 report.

    Religious freedom in India has been a contested issue since decades. Recent moves by the govt. since the abrogation of Art. 370 which triggered the riots in Delhi has left a big scar on the secular fabric of India.

    About USCIRF

    • It is a U.S. federal government commission created by the International Religious Freedom Act (IRFA) of 1998.
    • Its principal responsibilities are to review the facts and circumstances of violations of religious freedom internationally.

    Accusing India of religious intolerance

    • USCIRF has placed India alongside China, North Korea, Saudi Arabia and Pakistan.
    • India was categorised as a “Tier 2 country” in last year’s listing.
    • This is the first time since 2004 that India has been placed in the CPC category.
    • The commission also recommended that the U.S. government take stringent action against India under the “International Religious Freedom Act” (IRFA).

    What led India to lower its religious freedom?

    • India took a sharp downward turn in 2019 due to concerns about the Citizenship Amendment Act, the proposed National Register for Citizens, anti-conversion laws and the situation in Jammu and Kashmir.
    • The report accuses India using its strengthened parliamentary majority to institute national-level policies violating religious freedom across India.
    • The panel reported harassment and violence against religious minorities to continue with impunity, and engaged in and tolerated hate speech and incitement to violence against them.

    India’s reaction

    • The Centre reacted sharply to the USCIRF report terming it “biased and tendentious” and rejected its observations.
    • The biased and tendentious comments against India are not new. But on this occasion, its misrepresentation has reached new levels.
    • Major panellists of USCIRF dissented with the recommendation on India as being ‘too harsh’ and that ended up placing the country alongside what they termed as “rogue nations” like China and North Korea.
    • India regards the accusations as inaccurate and unwarranted and questioned the body’s “locus standi” in India’s internal affairs.

    US’s religious activism: Unwelcomed by all

    • The US earlier this month has announced the launch of a 27-nation International Religious Freedom Alliance, which aim to adopt a collective approach in protecting and preserving religious freedom across the world.
    • Among the prominent countries to join the alliance are Brazil, the United Kingdom, Israel, Ukraine, the Netherlands and Greece.
    • The USCIRF has been accused worldwide of being biased towards focusing on the persecution of Christians and of being anti-Muslim & Hinduphobic. It panels various controversial personalities.

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  • Climate Change Negotiations – UNFCCC, COP, Other Conventions and Protocols

    [pib] Petersberg Climate Dialogue

    IOCR | Enviro & Biodiversity | Mains Paper 1: Important Geophysical Phenomena

    India along with 30 countries deliberated on issues of Climate Change in first-ever virtual Petersberg Climate Dialogue.

    Climate change negotiations are somehow put to a halt due to ongoing pandemic. Such small dialogues are keeping alive the spirit of climate action.

    Petersberg Climate Dialogue

    • It has been hosted by Germany since 2010 to provide a forum for informal high-level political discussions, focusing both on international climate negotiations and the advancement of climate action.
    • This year’s virtual Dialogue was co-chaired by Germany and the UK.
    • The dialogue was crucial because of the efforts to contain coronavirus as well as countries preparing to move into the implementation phase of the Paris Agreement 2015 in the post-2020 period.

    India’s Contributions

    • Expressing solidarity with the world as it combats the COVID 19 pandemic the Union Minister highlighted how COVID – 19 has noticed that we can survive on less.
    • India pushed for having climate technology as an open source available to all countries at affordable prices.
    • India stressed on climate finance and urged to plan for 1 trillion USD in grants to the developing world immediately.
    • India focussed on the opportunity that the world has today to accelerate renewable energy deployment and creating new green jobs in the renewable energy and energy efficiency sector.

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

    [pib] HCARD robot to assist frontline COVID-19 healthcare warriors

    PIB | Science Tech | Mains Paper 3: Awareness in various sc and tech fields

    HCARD, a robot, to assist frontline COVID-19 healthcare warriors has been developed by a CSIR lab.

    It is very unlikely to create a prelim question on HCARD. However, developments as such help in exemplifying the scientific developments which helped contain such highly contagious outbreaks.

    What is HCARD?

    • The robotic device HCARD, an acronym for Hospital Care Assistive Robotic Device, can help frontline healthcare workers in maintaining physical distance from those infected by the coronavirus.
    • The device is equipped with various state-of-the-art technologies and works both in automatic as well as manual modes of navigation.
    • This robot can be controlled and monitored by a nursing booth with a control station having such features as navigation, drawer activation for providing medicines and food to patients, sample collection and audio-visual communication.
    • The cost of this device is less than Rs 5 lakh and the weight is less than 80 kilograms.

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  • Coronavirus – Economic Issues

    Recovery from COVID-19 is an opportunity to create economies that are more resilient and fair

    | Economics | Mains Paper 3: Indian Economy

    This article discusses the three principles which could form the basis for recreation of the economy devastated by the Covid-19. The first is adopting the economies of “scope” instead of economies of scale. The second is about governance and focus on bottom-up approach. And third is about empowering the people.

    Impact of Covid-19 on the ideology of globalisation

    • The history of the globalisation has turned out to be very brief.
    • In 2020, the global COVID-19 pandemic has forced millions of Indians to return to their villages.
    • Jetsetters have been locked in their gated communities.
    • Global supply chains have been broken apart.
    • People are scrambling for essentials from local suppliers.
    • The ideology of globalisation has hit realities on the ground.

    Recovery from COVID-19 is an opportunity to create economies that are more resilient and fair. The following three architectural principles must apply.

    1. Replace economies of scale by the economies of scope

    • COVID-19 has settled, for now, the debate between free-trade evangelists and advocates of industrial policy.
    • The vulnerability of global supply chains: A complex global economy in which local producers obtain scale (and lower costs) by supplying products for global markets is vulnerable to shutdowns anywhere.
    • The resilience of local economies: Local economies that have a variety of capabilities within them, albeit on smaller scales, are more resilient.
    • Therefore, local economic webs must be strengthened, in preference to global supply-chains.
    • “Make in India,” which was dismissed by free traders as a reversion to pre-1991 economic policies, has become a necessity.
    • Make in India is necessary to maintain supplies of essentials and to create employment for the hundreds of millions of Indians with fragile incomes who have been badly shaken by the lock-down of the Indian economy.

    2. Local systems solution to global problems

    • Local systems solutions are essential for global systemic problems.
    • Privatisation: Garrett Hardin had coined the expression, “The Tragedy of the Commons”, in 1968.
    • The Tragedy of the Commons is a term for the proposition that a resource that belongs to everybody will not be cared for by anybody.
    • This supported policies to privatise public property, ostensibly for the benefit of everybody and became the dominant school of economics from the 1970s onwards.
    • A different explanation: Elinor Ostrom, who was awarded the Nobel Prize for economics in offered a different explanation for the tragedy of the commons.
    • She argued that common resources are well-managed when those who benefit from such resources the most are in close proximity to them.
    • For her, the tragedy occurred when external groups exerted their power (politically, economically or socially) to gain a personal advantage.
    • Bottom-up approach: She was greatly supportive of the “bottom-up” approach to issues: Government intervention could not be effective unless supported by individuals and communities.
    • The world is facing challenges of ecological sustainability and persistent inequalities, which seem to get worse with the prevailing paradigm of economic growth.
    • These challenges are described in the 17 Sustainable Development Goals (SDGs).
    • They cut across national boundaries.
    • They also span several domains of expertise and institutional mandates.
    • The final, 17th goal states the principle by which all the goals will be achieved — “partnerships”.

    Actions theory Vs. Systems thinking

    • Action theory: The prevalent action theory, used by governments, businesses and philanthropic organisations to solve complex problems, focuses on breaking complex problems into components and then tackling the components in separate silos.
    • Problems caused by the actions theory: This widely prevalent theory of action has contributed greatly to causing the systemic, interconnected problems the SDGs now aim to address.
    • What is systems thinking: Effective action to address multiple challenges together requires “systems thinking” — that is, a systemic vision spanning across the problems.
    • Systems thinking is essential, amongst experts at the top and amongst partners on the ground.
    • Several organisations are promoting collaborative action with systems thinking on the ground in India.
    • Kudumbashree in Kerala has proven the power of community action.
    • The Foundation for Ecological Security, guided by Elinor Ostrom’s ideas, is working in many Indian states.
    • Dainik Bhaskar is promoting “SDG chaupals” in Indian villages.

    3.  Empowering the people

    • The third principle for the new economy is, empower the people, the fundamental requirement for genuine democracy.
    • India’s Constitution seeks self-governance in India’s towns and villages.
    • These are not being implemented by governments and policy experts who do not want to give up power to the people.
    • India lives in its villages, Mahatma Gandhi had said. Most of India still does.
    • And many, who had migrated to cities looking for jobs, are returning, shaken by the pandemic.
    • Gandhi was a systems thinker. For Gandhi, the global village was an abstract concept.
    • This cannot be realised until local villages and towns become harmonious communities, where people live in harmony with each other and with nature around them.

    The corona crisis has laid bare some of the problems associated with globalisation. It has forced a rethink of the economic policies and model adopted by the world. Against this backdrop, a question can be asked by the UPSC that demands the analysis of problems that have surfaced and solutions. For ex. “Covid-19 pandemic has brought into a sharp focus some inherent problems associated with the globalisation. In this context suggest the ways to make the Indian economy resilient to such shocks and fair to all the sections of society”

    Conclusion

    COVID-19 marks the end of the economics’ paradigm of the Washington Consensus. New models of economies, and new rules of global governance, must be bottom-up, not top-down. That’s how the whole world can move from relief, to recovery, and into resilience.

    Back2Basics: What was the Washington Consensus?

    • The Washington Consensus refers to a set of free-market economic policies supported by prominent financial institutions such as the International Monetary Fund, the World Bank, and the U.S. Treasury.
    • A British economist named John Williamson coined the term Washington Consensus in 1989.
    • The ideas were intended to help developing countries that faced economic crises.
    • In summary, The Washington Consensus recommended structural reforms that increased the role of market forces in exchange for immediate financial help.
    • Some examples include free-floating exchange rates and free trade.

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  • Foreign Policy Watch: India-SAARC Nations

    Common problems of South Asia call for collective efforts against Covid-19

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

    The article discusses the various common features shared by the South Asians countries. One of them is the poor public healthcare infrastructure. So, the pandemic offers an opportunity to make the required policy changes. It also offers the opportunity for cooperation among the regional countries in dealing with Covid-19. These issues are discussed in the article.

    South Asian countries: Common features, common problems

    • South Asia, one of the world’s most populous regions, is also affected by the COVID-19 pandemic.
    • Both Karachi and Mumbai, among the world’s most densely populated cities, where we live and work, are being overwhelmed by cases.
    • While the death rate in these places may not be as alarming as in Europe and the U.S., the collateral damage of the lockdown is taking its own toll.
    • Common features of South Asia: While there are many differences amongst the countries of the region, there are also common features which impact the health of its people, some of them a result of our shared cultural and geopolitical history.
    • The collective experience of dealing with COVID-19 may provide important lessons, which transcend national boundaries.

    Poor healthcare system: a common problem

    • South Asian countries have invested very little in health.
    • This is reflected in our abysmally low health parameters.
    • It is interesting that Britain, which formulated our health policies before independence, went on to form one of the world’s strongest public health systems, the National Health Service.
    • Whereas its South Asian colonies chose to stray from that path.
    • This resulted in a dysfunctional public healthcare
    • Governments have also relinquished what ought to have been their primary duty, of health care provision, to the private sector.
    • Having become an industry, the focus of healthcare in the private sector is on profit rather than on people’s needs.
    • High treatment costs in private sector: Whilst privatisation has brought in advanced technology and expertise, the high costs of treatment in the private sector have resulted in impoverishment as most of the population has no insurance or third-party coverage, and pays out of pocket.
    • The sector has also been poorly regulated.
    • The result is that it is responsible for several excesses in its quest for profit.

    Other common features of the region

    • Hunger, malnutrition, poor sanitation and large-scale migration are features of this region.
    • Existing infectious diseases like TB, HIV and malaria have been worsened by emerging ones like dengue, chikungunya, healthcare-associated infections and antimicrobial resistance.
    • The region is also an epicentre of an epidemic of lifestyle diseases.
    • Conflicts and expenditure on defence: Constant internal and external conflicts in South Asia not only consume a large portion of national budgets but also divert the attention of the public and policymakers from healthcare needs.
    • Defence budgets take the largest share of national budgets, and obviously adversely impact social sector spending.
    • Underfunded public health is going to hinder region’s capacity to fight COVID-19.
    • The central role of religion: Religion continues to occupy a central space in the society and politics of the region.
    • Though it offers succour to many, religious dogma can impact health policy and health-seeking behaviour.
    • The refusal of devotees across Pakistan to avoid religious congregations during Ramadan despite the government’s orders has significantly fed the community spread of the virus.

    Opportunity for policy changes to address healthcare problems

    • COVID-19 has forced us to seriously reflect on our healthcare system.
    • This is welcome if it results in policy change.
    • Healthcare professionals and bodies must seize this opportunity to push our respective governments to address it seriously and not just as a pre-election strategy.
    • A long-term commitment to universal health care, with not only a national but also a regional and global focus, is needed.

    A question on this theme could be asked by the UPSC, for instance, “South Asian countries share the common problem of poor public healthcare infrastructure, which increases their vulnerability to the pandemic. But corona pandemic also offers an opportunity to improve the shortcoming in the health infrastructure and cooperation among the SAARC countries. Comment.”

    Regional strategy and cooperation needed

    • The SAARC heads of state have already offered help to one another.
    • A regional strategy has a better chance of controlling the pandemic than isolated national-level efforts.
    • The pooling of resources and sharing data may not only help flatten the curve but perhaps even develop into longer-term efforts towards effective treatment.
    • It is being speculated that our populations are behaving differently; that the BCG vaccine may be a protective influence.
    • Joint research into such areas can be a unifying point for SAARC.

    Conclusion

    It is in our collective interest to look at health security and not just national security. By the accident of their birth, South Asians have endured a lot. They merit better.

     

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  • Coronavirus – Economic Issues

    It will take fiscal boldness now to relieve financial distress

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

    The article discusses the fiscal response of the government to deal with the corona crisis. Fiscal response to the 2008 financial crisis was higher in terms of GDP percentage. Also, a comparison with emerging peer economic indicates that India might be running the tighter fiscal policy in the time of crisis. The article suggests higher spending by going beyond the traditional fiscal space.

    A possible explanation for moderate fiscal response by the government

    • The Indian government has till now come up with an insipid fiscal response to the ongoing economic crisis.
    • Long battle: One view is that the government does not want to fire all its bullets in what threatens to be a long battle. It wants to time its interventions.
    • Weak public finances: The other possible explanation for this fiscal timidity is that India has entered this crisis with weak public finances.

    Comparison with finances at the 2008 financial crisis

    • The combined official fiscal deficit of the Union plus state governments was at its lowest level in many decades.
    • The economic boom of the preceding four years had led to higher tax collections pouring into the treasury.
    • The massive increase in spending announced in the budget of February 2008 was with an eye on the national election scheduled a year later, rather than in anticipation of a coming storm.
    • Then followed the second wave of fiscal expansion after the North Atlantic financial crisis hit Indian shores seven months later.
    • Back then, India’s effective fiscal stimulus over two years was a substantial 4.3% of gross domestic product (GDP).
    • In 2020, the crisis-driven spending plan announced by the government so far is less than 1% of GDP.
    • There could yet be a big fiscal push in the coming days.

    Tighter fiscal policy in crisis compared to other emerging economies

    • Some of the budget estimates released a few days ago by the International Monetary Fund are telling.
    • In 2018, the total fiscal deficit of the Indian government as a proportion of GDP was 2.4 percentage points higher than the average for Asian emerging markets.
    • India is expected to end 2020 with a total fiscal deficit that will be 2.5 percentage points lower than Asia’s average.
    • In other words, India ran a looser fiscal policy compared to the rest of Asia in normal times, but is likely to run a tighter fiscal policy than its regional peers in a crisis year.
    • Something similar can be seen in estimates for public debt.
    • Asian public debt as a proportion of GDP is expected to go up by nine percentage points in 2020.
    • The comparable figure for India is 2.9 percentage points. (These estimates are being cited with full knowledge that forecasting models break down during extreme events.)

    Funding extra expenditure through money creation

    • Lack of traditional fiscal space should not hold the government back in a crisis situation.
    • There are many options outside the consensus macro playbook.
    • Money creation: A commonly cited option right now is funding extra expenditure through money creation rather than borrowing.
    • The size of the Reserve Bank of India (RBI) balance sheet as a percentage of nominal GDP is close to its 35-year average.
    • There is scope for printing more money right now.
    • Lower inflationary pressure: And the inflationary consequences are likely to be muted because of the lower velocity of money amid a demand collapse.
    • Public finances in the future: Getting public finances back on track is a battle that lies in the future.
    • A rapid recovery in economic activity would be the best solution.
    • Otherwise, history tells us that countries have brought down their public debt numbers through some combination of financial repression, austerity, higher taxes and inflation.
    • Some element of capital controls could also be back in play.

    Need for increasing discretionary government spending

    • The collapse in tax revenues as the economy is shut down will automatically lead to a rise in India’s fiscal deficit.
    • However, there is a need for an increase in discretionary government spending as well.
    • Economists have shown that spending multipliers are higher than tax multipliers in India.
    • In other words, the increase in economic output for every unit increase in the fiscal deficit is higher when the government spends rather than changes tax rates.
    • State’s spending Vs. Union spending: Spending by states gives more bang for the buck than equivalent spending by the Union government.

    “Below the line measures” to support the economy

    • Also, there are options other than direct spending to support the economy.
    • Countries such as Germany, the UK, Italy, France and South Korea have complemented traditional fiscal expansions with “below the line” measures such as loans and guarantees to companies.
    • In an excellent recent study, analysts estimate that more than half of Indian corporate balances sheets will be unable to meet expenses with zero revenues.
    • They are careful to point out that their analysis is based on extreme assumptions that there is no fall in their wage bills, no revenues, and no access to fresh credit.

    One of the common suggestions we have been coming across is the spending by the government by printing money. In this article, the second important suggestion is below the line measures. Take note of these measures and options available with the government.

    Way forward

    • The poor need income support for their very survival. That should be at the top of any democratic government’s list of
    • However, protecting Indian companies from a financial collapse also matters, because otherwise, the economy will see a reduction in its capital stock, which will be needed both for a rapid recovery as well as job creation once the worst is over.
    • There are contagion risks in financial markets as well, going by what has happened to some mutual funds that were invested in bonds.

    Conclusion

    These are extraordinary times that require extraordinary measures. The danger from a delayed fiscal programme is that hysteresis may set in, as companies run out of money and supply chains are broken, damaging our economic prospects in the medium term.

     

     

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  • Defence Sector – DPP, Missions, Schemes, Security Forces, etc.

    ‘Trends in World Military Expenditure’ Report, 2019

    IOCR | Security Issues | Mains Paper 3: Various Security Forces, Agencies & Their Mandates

    The annual report ‘Trends in World Military Expenditure, 2019’ was released by the Stockholm International Peace Research Institute (SIPRI), a Swedish think tank.

    Military expenditure across the World

    • The global military expenditure rose to $1917 billion in 2019 with India and China emerging among the top three spenders, according to the report.
    • In 2019, the top five largest spenders — U.S. ($732 bn), China, India, Russia ($65.1 bn) and Saudi Arabia ($61.9 bn) — accounted for 62% of the global expenditure.
    • China’s military expenditure reached $261 billion in 2019, a 5.1% increase compared with 2018, while India’s grew by 6.8% to $71.1 billion.
    • In Asia and Oceania, other than India and China, Japan ($47.6 bn) and South Korea ($43.9 bn) were the largest military spenders.

    What drives India’s military spending?

    • India’s tensions and rivalry with both Pakistan and China are among the major drivers for its increased military spending.
    • While India’s defence spending excluding pensions, which constitute a significant part, has been growing in absolute terms, it has been going down as a percentage of its GDP as noted by the report.

    Significant rise

    • India’s expenditure in 2019 was 6.8% more than that in 2018.
    • It grew by 259% over the 30-year period of 1990–2019, and by 37% over the decade of 2010–19.

    The Defence expenditure in India is increasing every year in absolute terms, implying higher spending while there has been very selective modernisation of the armed forces. Critically analyse.

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