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  • Minority Status in India is State-dependent: Supreme Court

    The minority status of religious and linguistic communities is “State-dependent”, said the Supreme Court.

    What did the Supreme Court say?

    • Every person in India can be a minority in one State or the other.
    • One can be a minority outside his/her State.
    • Similarly, a Kannada-speaking person may be in minority in States other than Karnataka.

    What was the petition about?

    • The court was hearing a petition complaining that followers of Judaism, Bahaism and Hinduism are the real minorities in Ladakh, Mizoram, Lakshadweep, Kashmir, Punjab and the North-East States.
    • However, they cannot establish and administer educational institutions of their choice because of the non-identification of ‘minority’ at the State level.
    • Religious communities such as Hindus here are socially, economically, politically non-dominant and numerically inferior in several States.

    Various states on Minorities

    • The Centre gave the example of how Maharashtra notified ‘Jews’ as a minority community within the State.
    • Again, Karnataka notified Urdu, Telugu, Tamil, Malayalam, Marathi, Tulu, Lambadi, Hindi, Konkani and Gujarati as minority languages within the State.

    Who are the Minorities?

    • Muslims, Sikhs, Christians, Buddhists, Jain and Zoroastrians (Parsis) have been notified as minority communities under Section 2 (c) of the National Commission for Minorities Act, 1992.
    • As per the Census 2011, the percentage of minorities in the country is about 19.3% of the total population of the country.
    • The population of Muslims are 14.2%; Christians 2.3%; Sikhs 1.7%, Buddhists 0.7%, Jain 0.4% and Parsis 0.006%.
    • Minority Concentration Districts (MCD), Minority Concentration Blocks and Minority Concentration Towns, have been identified on the basis of both population data and backwardness parameters of Census 2001 of these areas.

    Defining Minorities

    • The Constitution recognizes Religious minorities in India and Linguistic minorities in India through Article 29 and Article 30.
    • But Minority is not defined in the Constitution.
    • Currently, the Linguistic minorities in India are identified on a state-wise basis thus determined by the state government whereas Religious minorities in India are determined by the Central Government.
    • The Parliament has the legislative powers and the Centre has the executive competence to notify a community as a minority under Section 2(c) of the National Commission for Minorities Act of 1992.

    Article 29: It provides that any section of the citizens residing in any part of India having a distinct language, script, or culture of its own, shall have the rights of minorities in India to conserve the same. Article 29 is applied to both minorities (religious minorities in India and Linguistic minorities in India) and also the majority. It also includes – rights of minorities in India to agitate for the protection of language.

    Article 30: All minorities shall have the rights of minorities in India to establish and administer educational institutions of their choice. Article 30 recognizes only Religious minorities in India and Linguistic minorities in India (not the majority). It includes the rights of minorities in India to impart education to their children in their own language.

    Article 350-B: Originally, the Constitution of India did not make any provision with respect to the Special Officer for Linguistic minorities in India. However, the 7th Constitutional Amendment Act, 1956 inserted Article 350-B in the Constitution. It provides for a Special Officer for Linguistic Minorities appointed by the President of India. It would be the duty of the Special Officer to investigate all matters relating to the safeguards provided for linguistic minorities under the Constitution.

    Try this PYQ:

    Which one of the following categories of Fundamental Rights incorporates protection against untouchability as a form of discrimination?

    (a) Right against Exploitation

    (b) Right to Freedom

    (c) Right to Constitutional Remedies

    (d) Right to Equality

     

    Post your answers here.

     

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  • Centre forms panel for Minimum Support Price (MSP)

    The Centre has finally constituted a committee headed by former Union Agriculture Secretary Sanjay Agrawal here to look into the issues of Minimum Support Price (MSP), as promised to protestant farmers after the repeal of three farm laws.

    Panel on MSP: Terms of reference

    • The panel will consist of representatives of the Central and State governments, farmers, agricultural scientists and agricultural economists.
    • This panel will be constituted:
    1. To promote zero budget-based farming,
    2. To change crop patterns keeping in mind the changing needs of the country
    3. To make MSP more effective and transparent
    • It also says that the committee will discuss methods to strengthen the Agricultural Marketing System as per the changing requirements of the country
    • It would ensure higher value to the farmers through remunerative prices of their produce by taking advantage of the domestic output and export.
    • On natural farming, the committee will make suggestions for programs and schemes for value chain development, protocol validation, and research for future needs.
    • It would support area expansion under the Indian Natural Farming System through publicity and through the involvement and contribution of farmer organizations.

    What is MSP?

    • The MSP assures the farmers of a fixed price for their crops, well above their production costs.
    • MSP, by contrast, is devoid of any legal backing. Access to it, unlike subsidized grains through the PDS, isn’t an entitlement for farmers.
    • They cannot demand it as a matter of right. It is only a government policy that is part of administrative decision-making.
    • The Centre currently fixes MSPs for 23 farm commodities based on the Commission for Agricultural Costs and Prices (CACP) recommendations.

    Fixing of MSPs

    • The CACP considered various factors while recommending the MSP for a commodity, including the cost of cultivation.
    • It also takes into account the supply and demand situation for the commodity; market price trends (domestic and global) and parity vis-à-vis other crops; and implications for consumers (inflation), environment (soil and water use) and terms of trade between agriculture and non-agriculture sectors.

    What changed with the 2018 budget?

    • The Budget for 2018-19 announced that MSPs would henceforth be fixed at 1.5 times of the production costs for crops as a “pre-determined principle”.
    • Simply put, the CACP’s job now was only to estimate production costs for a season and recommend the MSPs by applying the 1.5-times formula.

    How was this production cost arrived at?

    • The CACP projects three kinds of production cost for every crop, both at the state and all-India average levels.
    • ‘A2’ covers all paid-out costs directly incurred by the farmer — in cash and kind — on seeds, fertilizers, pesticides, hired labor, leased-in land, fuel, irrigation, etc.
    • ‘A2+FL’ includes A2 plus an imputed value of unpaid family labor.
    • ‘C2’ is a more comprehensive cost that factors in rentals and interest forgone on owned land and fixed capital assets, on top of A2+FL.

    How much produce can the government procure at MSP?

    • The MSP value of the total production of the 23 crops worked out to around Rs 10.78 lakh crore in 2019-20.
    • Not all this produce, however, is marketed. Farmers retain part of it for self-consumption, the seed for the next season’s sowing, and also for feeding their animals.
    • The marketed surplus ratio for different crops is estimated to range differently for various crops.
    • It ranges from below 50% for ragi and 65-70% for bajra (pearl millet) and jawar (sorghum) to 75% for wheat, 80% for paddy, 85% for sugarcane, 90% for most pulses, and 95%-plus for cotton, soybean, etc.
    • Taking an average of 75% would yield a number of just over Rs 8 lakh crore.
    • This is the MSP value of production that is the marketable surplus — which farmers actually sell.

    Nature of MSP

    • There is currently no statutory backing for these prices, nor any law mandating their enforcement.

    Farmers demand legalization

    • Legal entitlement: There is a demand that MSP based on a C2+50% formula should be made a legal entitlement for all agricultural produce.
    • Private traders’ responsibility: Some says that most of the cost should be borne by private traders, noting that both middlemen and corporate giants are buying commodities at low rates from farmers.
    • Mandatory purchase at MSP: A left-affiliated farm union has suggested a law that simply stipulates that no one — neither the Government nor private players — will be allowed to buy at a rate lower than MSP.
    • Surplus payment by the govt.: Other unions have said that if private buyers fail to purchase their crops, the Government must be prepared to buy out the entire surplus at MSP rates.
    • Expansion of C2: Farm unions are demanding that C2 must also include capital assets and the rentals and interest forgone on owned land as recommended by the National Commission for Farmers.

    Government’s position

    • The PM has announced the formation of a committee to make MSP more transparent, as well as to change crop patterns — often determined by MSP and procurement.
    • The panel will have representatives from farm groups as well as from the State and Central Governments, along with agricultural scientists and economists.

    Issues with legal backing

    • Demand-supply dynamics: Economic theory, as well as experience, indicates that the price level that is not supported by demand and supply cannot be sustained through legal means.
    • States responsibility: The Centre has suggested that the States are free to guarantee MSP rates if they wish, but also offers two failed examples of such a policy:

    [I] Sugar FRP

    • In the sugar sector, private mills are mandated to buy cane from farmers at prices set by the Government.
    • Faced with low sugar prices, high surplus stock, and low liquidity, mills failed to make full payments to farmers, resulting in an accumulation of thousands of crores worth of dues pending for years.

    [II] Withdrawal of traders

    • The other example is a 2018 amendment to the Maharashtra law penalizing traders with hefty fines and jail terms if they bought crops at rates lower than MSP.
    • As open market prices were lower than the (legalized) MSP levels declared by the State, the buyers withdrew from the market and farmers had to suffer.

    Will a legal backing for MSP solve all the ills that plague the Agriculture sector?

    • Only one side of the coin: Actually, no. Remunerative price or MSP is only one part of the problems farmers face.  Farmers face many other issues other than price, which itself is not guaranteed given the influence of politicians and cartels in mandis.
    • Information deficit: They lack information on which crop to grow, when to sow, apply plant nutrients and which pest is attacking their crop.
    • Lack of technology: Farmers are also short of post-harvest technologies to ensure a better shelf life for their produce.
    • Irrigation and storage problem: They do not get adequate facilities to irrigate their lands, with nearly 50 percent of the land being rain-fed and lacking ample warehouses to store their produce at the village level, besides proper roads to connect them to the mandis.
    • Threat of new loopholes: Legal backing for the MSP could also lead to the danger of the trade keeping away from places where the law is implemented vigorously.

    Fiscal cost of making the MSP legally binding

    • The MSP value of the total output of all the 23 notified crops worked out to about Rs 11.9 lakh crore in 2020-21.
    • Taking an average of 75% yields a number – the MSP value of production actually sold by farmers – just under Rs 9 lakh crore.
    • The government is further, as it is, procuring many crops. The MSP value of the 89.42 mt of paddy and 43.34 mt of wheat alone bought during 2020-21 was around Rs 253,275 crore.
    • All in all, then, the MSP is already being enforced, directly or through fiat, on roughly Rs 3.8 lakh crore worth of produce.
    • Providing a legal guarantee for the entire marketable surplus of the 23 MSP crops would mean covering another Rs 5 lakh crore or so.

    Conclusion

    • A growing consensus among economists for guaranteeing minimum “incomes”, as against “prices”, to farmers.
    • That would essentially entail making more direct cash transfers either on a flat per-acre (as in the Telangana government’s Rythu Bandhu scheme) or per-farm household (the Centre’s PM-Kisan) basis.
    • The resource requirement of such interventions will be so huge that no government will be left with resources to help farmers through other means like investment in public infrastructure, irrigation, and other incentives.
    • The danger of over-reliance on MSP is already visible in the state of Punjab. Agriculture has reached an almost static stage there.
    • The state is unable to diversify away from crops like paddy, which is destroying its natural resources and environment, marring long-term prospects of farming.

     

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  • 18th July 2022 | Prelims Daily with Previous Year Questions

    18th July 2022 | Prelims Daily with Previous Year Questions

    [WpProQuiz 1063]

    [WpProQuiz_toplist 1063]

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  • India’s Defence Exports have grown up 7x: PM

    Our defence exports have increased seven times in the last eight years, informed the Prime Minister. We had achieved defence exports worth ₹13,000 crore and of this 70% was from the private sector.

    Why in news?

    • The Indian Defence sector, the second largest armed force is at the cusp of revolution.

    India’s Defence Exports

    • India has put out a range of military hardware on sale which includes various missile systems, Light Combat Aircraft (LCA), helicopters, warship and patrol vessels, artillery guns, tanks, radars etc.
    • From 2016-17 to 2018-19, the country’s defence exports have increased from ₹1,521 crore to ₹10,745 crore, a staggering 700% growth.

    Steps taken by the Centre to boost defence production

    • Licensing relaxation: Measures announced to boost exports since 2014 include simplified defence industrial licensing, relaxation of export controls and grant of no-objection certificates.
    • Lines of Credit: Specific incentives were introduced under the foreign trade policy and the Ministry of External Affairs has facilitated Lines of Credit for countries to import defence product.
    • Policy boost: The Defence Ministry has also issued a draft Defence Production & Export Promotion Policy 2020.
    • Indigenization lists: On the domestic front, to boost indigenous manufacturing, the Government had issued two “positive indigenization lists” consisting of 209 items that cannot be imported.
    • Budgetary allocation: In addition, a percentage of the capital outlay of the defence budget has been reserved for procurement from domestic industry.
    • Defence Industrial Corridors: The government has also announced 2 dedicated Corridors in the States of TN and UP to act as clusters of defence manufacturing that leverage existing infrastructure, and human capital.
    • Long-term vision: The vision of the government is to achieve a turnover of $25 bn including export of $5 bn in Aerospace and Defence goods and services by 2025.
    • Push for self-reliance: The govt has identified the Defence and Aerospace sector as a focus area for the ‘Aatmanirbhar Bharat’ or Self-Reliant India initiative.

    Issues retarding defence exports

    • Excess reliance on Public Sector: India has four companies (Indian ordnance factories, Hindustan Aeronautics Limited (HAL), Bharat Electronics Limited (BEL) and Bharat Dynamics Limited (BDL)) among the top 100 biggest arms producers of the world.
    • Policy delays: In the past few years, the government has approved over 200 defence acquisition worth Rs 4 trillion, but most are still in relatively early stages of processing.
    • Lack of Critical Technologies: Poor design capability in critical technologies, inadequate investment in R&D and the inability to manufacture major subsystems and components hamper the indigenous manufacturing.
    • Long gestation: The creation of a manufacturing base is capital and technology-intensive and has a long gestation period. By that time newer technologies make products outdated.
    • ‘Unease’ in doing business: An issue related to stringent labour laws, compliance burden and lack of skills, affects the development of indigenous manufacturing in defence.
    • Multiple jurisdictions: Overlapping jurisdiction of the Ministry of Defence and Ministry of Industrial Promotion impair India’s capability of defence manufacturing.
    • Lack of quality: The higher indigenization in few cases is largely attributed to the low-end technology.
    • FDI Policy: The earlier FDI limit of 49% was not enough to enthuse global manufacturing houses to set up bases in India.
    • R&D Lacunae: A lip service to technology funding by making token allocations is an adequate commentary on our lack of seriousness in the area of Research and Development.
    • Lack of skills: There is a lack of engineering and research capability in our institutions. It again leads us back to the need for a stronger industry-academia interface.

    Way forward

    • Reducing import dependence: India was the world’s second-largest arms importer from 2014-18, ceding the long-held tag as the largest importer to Saudi Arabia, says 2019 SIPRI report.
    • Security Imperative: Indigenization in defence is critical to national security also. It keeps intact the technological expertise and encourages spin-off technologies and innovation that often stem from it.
    • Economic boost: Indigenization in defence can help create a large industry which also includes small manufacturers.
    • Employment generation: Defence manufacturing will lead to the generation of satellite industries that in turn will pave the way for a generation of employment opportunities.

     

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  • What are Fast Radio Bursts (FRB)?

    A strange radio signal (called Fast Radio Bursts) has been detected in a galaxy several billion light-years from Earth, a recent study claimed.

    What is an FRB?

    • The first FRB was discovered in 2007, since when scientists have been working towards finding the source of their origin.
    • Essentially, FRBs are bright bursts of radio waves (radio waves can be produced by astronomical objects with changing magnetic fields).
    • Its durations lie in the millisecond scale, because of which it is difficult to detect them and determine their position in the sky.

    Who discovered it?

    • The X-ray portion of the simultaneous bursts was detected by several satellites, including NASA’s Wind mission.
    • Further, a NASA-funded project called Survey for Transient Astronomical Radio Emission 2 (STARE2) also detected the radio burst.

    Why are they significant?

    • First noticed in 2018 by the Canadian observatory the waves have created ripples across the globe for one reason — they arrive in a pattern.
    • This gave birth to theories that they could be from an alien civilization.
    • Initially, it was believed that the collision of black holes or neutron stars triggers them.
    • But the discovery of repeating FRBs debunked the theory of colliding objects.

     

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  • [Burning Issue] Global Trade in Rupees

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    Context

    • The Reserve Bank of India has announced an arrangement for the country’s traders to settle imports and exports in rupees.
    • This move is aimed at promoting growth of global trade with emphasis on exports from India and to support the increasing interest of the global trading community in the Indian Rupee.

    Background: Russia-Ukraine War

    • India is a trade deficit country, meaning it imports more than it exports.
    • This forces the country to maintain large forex reserves since world trade still occurs in US dollars.
    • This is not the first time that the RBI has allowed international trade in rupees – the sanctions on Iran a few years ago resulted in the two countries trading in rupees instead of dollars.
    • The Russia-Ukraine war and the subsequent sanctions have provided RBI with another opportunity to push for trading in rupees.

    US Dollar: The Global Currency

    • The U.S. dollar has been the world’s dominant currency since the end of World War II.
    • Roughly half of the international trade, international loans, and global debt securities are denominated in USD.
    • The USD became the official reserve currency of the world in 1944. The decision was made by a delegation from 44 Allied countries called the Bretton Woods Agreement.
    • Despite the challenges faced by the US economy due to fiscal and external deficits of the 1980s, the dollar’s share of global reserves remained steady and reserves even grew as time progressed.
    • The dominance of the dollar is backed by strong and highly credible institutions, deep markets and the fact that it is freely convertible.
    • Almost 40% of the world’s debt is issued in dollars. As a result, foreign banks need a lot of dollars to conduct business. This became evident during the 2008 financial crisis.

     What is the Rupee Settlement System?

    • Banks acting as authorized dealers for such transactions would have to take prior approval from the regulator to facilitate this.
    • All exports and imports under the invoicing arrangement may be denominated and invoiced in Rupee.
    • Exchange rate between the currencies of the two trading partner countries may be market determined.
    • Exporters and importers can now use a Special Vostro Account linked to the correspondent bank of the partner country for receipts and payments denominated in rupees.
    • These accounts can be used for payments for projects and investments, import or export advance flow management, and investment in Treasury Bills subject to Foreign Exchange Management Act, 1999 (FEMA).
    • Also, the bank guarantee, setting-off export receivables, advance against exports, use of surplus balance, approval process, documentation, etc., related aspects would be covered under FEMA rules.
    Nostro and Vostro Accounts: Nostro and vostro are terms used to describe the same bank account; the terms are used when one bank has another bank’s money on deposit.They are used to differentiate between the two sets of accounting records kept by each bank.Nostro comes from the Latin word for “ours,” as in “our money that is on deposit at your bank.”Vostro means “yours,” as in “your money that is on deposit at our bank.”

    Why such a move?

    • Trade facilitation: This will also facilitate trade with countries like Russia which are facing sanctions.
    • FOREX savings: India imports more than it exports so the country will also save foreign currency under the new arrangement.
    • Rupee appreciation: The rupee is at a historic low against the dollar. It will also help stabilize rupee.
    • Mitigating war impact: Payments had become a pain point for exporters immediately after the Russia-Ukraine war broke out, especially after Russia was cut off from the SWIFT payment gateway.
    • Convertibility easing: We see this as a first step towards 100% convertibility of rupee.
    • Energy security: It will also help buy discounted crude oil from Russia, which now accounts for 10% of all imported crude.
    • Export promotion: As such, the new mechanism will help India promote its exports.

    Which countries would prefer this system?

    • War mongering Russia: For now, it looks like trade settlements in rupee will be limited to countries like Russia and Iran who are facing sanctions from the West
    • Bankrupt Sri Lanka: SL is going through economic turmoil and India has been consistently extending lines of credit to SL.
    • Immediate neighbors: Other countries may include immediate neighbors of India.

    Rupees over Dollars: Why countries would prefer Rupees?

    • At a very simplistic level, this is like two Indians deciding to use an alternative mode of exchange that they have come up with, instead of using rupees.
    • In other terms, this is similar to the barter system.
    • The main reason for countries to want to trade with India in rupees is this:
    1. USD has been going through a phase of strength against most currencies in the world
    2. Strong USD performance has essentially made imports expensive for most countries
    3. Sri Lanka, which is going through one of its worst economic crises in decades, is a glaring example of a country in which the economy has come to a halt due to a drastic fall in forex reserves
    • While the Sri Lankan Rupee has declined over 83 percent against the US Dollar, its fall against the Indian Rupee has been lower at 70 percent.
    • So instead of paying 83 percent more to make purchases in USD, Sri Lanka can pay in Indian Rupees and save some money.

    Challenges

    • Trade surplus countries’ preference: The question that RBI and the Indian government will have to answer is this – why would countries with a trade surplus with India want to trade in rupees?
    • Negative trade balance: China had a $73-billion trade surplus with India in 2021-22 – that is, Indian imports from China exceeded its exports to China by $73 billion.
    • Idle money lying useless: If China were to trade with India in rupees, it would have Indian rupees worth $73 billion (about ₹5.77 lakh crore) sitting idle in its Rupee Vostro accounts in an Indian bank.
    • Few countries interested: Countries whose exports to India are more than imports, will not be too enthusiastic to trade in rupees, especially if the difference is huge as in the case of China.

    Way forward

    • In a multipolar world where Free Trade Agreements (FTAs) are frequent, undermining the dollar’s dominance seems prominent.
    • This has been the dream of governments that have looked uneasily at US global primacy, and formed coalitions.
    • It is predicted that the sanctions against Russia has foreshadowed the decline of the dollar as the reserve currency.

    Conclusion

    • No doubt! This move wouldn’t kill the dollar.
    • A currency’s dominance depends on demand of the currency and India would need to export stuff to create that demand.
    • If all the nations in the world stop using dollars only then it would fall.

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  • Poverty reduction lessons from China

    Context

    The United Nations latest report, “Population Prospects” forecasts that India will surpass China’s population by 2023, reaching 1.5 billion by 2030 and 1.66 billion by 2050.

    Poverty eradication: Lessons from China

    • China’s story since 1978 is unique – the country has achieved the fastest decline in poverty.
    • Its experiences hold some important lessons for India, especially because in 1978, when China embarked on its economic reforms, its per capita income at $156.4 was way below that of India at $205.7.
    • Today, China is more than six times ahead of India in terms of per capita income – China’s per capita income in 2021 was $12,556, while that of India was $1,933 in 2020.
    • China started its economic reforms in 1978 with a primary focus on agriculture.
    • Contribution of agriculture: It broke away from the commune system and liberated agri-markets from myriad controls.
    • Increase in agri-GDP: As a result, during 1978-84, China’s agri-GDP grew by 7.1 per cent per annum and farmers’ real incomes grew by 14 per cent per annum with the liberalisation of agri-prices.
    • Creation of demand: Enhanced incomes of rural people created a huge demand for industrial products, and also gave political legitimacy for pushing further the reform agenda.
    • The aim of China’s manufacturing through Town and Village Enterprises (TVEs) was basically to meet the surging demand from the hinterlands.
    • Population factor: China introduced the one-child per family policy in September 1980, which lasted till early 2016.
    • It is this strict control on population growth, coupled with booming growth in overall GDP over these years, that led to a rapid increase in per capita incomes.
    • Chinese population growth today is just 0.1 per cent per annum compared to India’s 1.1 per cent per annum.

    Growth story of Indian agriculture

    • Over a 40-year period, 1978-2018, China’s agriculture has grown at 4.5 per cent per annum while India’s agri-GDP growth ever since reforms began in 1991 has hovered at around 3 per cent per annum.
    • Market and price liberalisation in agriculture still remains a major issue, and at the drop of any hint of food price rise, the government clamps down exports, imposes stock limits on traders, suspends futures markets, and pushes other measures that strangle markets.
    • Implicit taxation of farmers: The net result of all this is reflected in the “implicit taxation” of farmers to favour the vocal lobby of consumers, especially the urban middle class.

    Way forward

    •  Population control: The only way is through effective education, especially that of the girl child, open discussion and dialogue about family planning methods and conversations about the benefits of small family size in society.
    • Effective education: As per the National Family Health Survey-5 (2019-21), of all the girls and women above the age of 6 years, only 16.6 per cent were educated for 12 years or more.
    • Based on unit-level data of NFHS5 (2019-21), it is found that women’s education is the most critical determinant of the status of malnutrition amongst children below the age of five.
    • Unless a focused and aggressive campaign is launched to educate the girl child and provide her with more than 12 years of good quality education, India’s performance in terms of the prosperity of its masses, and the human development index may not improve significantly for many more years to come
    • If  government can take up this cause in sync with state governments, this will significantly boost the labour participation rate of women, which is currently at a meagre 25 per cent, and lead to “double engine” growth.
    • Nutrition interventions: The NFHS-5 data shows that more than 35 per cent of our children below the age of five are stunted, which means their earning capacity will remain hampered throughout life. They will remain stuck in a low-level income trap.

    Conclusion

    From a policy perspective, if there is any subsidy that deserves priority, it should be for the education of the girl child. This policy focus can surely bring a rich harvest, politically and economically, for many years to come.

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  • Municipal finances

    Context

    Recently, the Indian Institute for Human Settlements (IIHS) analysed data from 80 urban local bodies (ULBs) across 24 States between 2012-13 and 2016-17 to understand ULB finance and spending, and found some key trends.

    Health of municipal finances

    • The 74th Constitution Amendment Act was passed in 1992 mandating the setting up and devolution of powers to urban local bodies (ULBs) as the lowest unit of governance in cities and towns.
    • Constitutional provisions were made for ULBs’ fiscal empowerment.
    • Challenges in fiscal empowerment: Three decades since, growing fiscal deficits, constraints in tax base expansion, and weakening of institutional mechanisms that enable resource mobilisation remain challenges.
    • Revenue losses after implementation of the Goods and Services Tax (GST) and the pandemic have exacerbated the situation.

    Analysing the trends in municipal finances

    Recently, the Indian Institute for Human Settlements (IIHS) analysed data from 80 ULBs across 24 States between 2012-13 and 2016-17 to understand ULB finance and spending, and found some key trends.

    1] Own sources of revenue less than half of total revenue

    •  Key sources of revenue: The ULBs’ key revenue sources are taxes, fees, fines and charges, and transfers from Central and State governments, which are known as inter-governmental transfers (IGTs).
    • Important indicator of financial health: The share of own revenue (including revenue from taxes on property and advertisements, and non-tax revenue from user charges and fees from building permissions and trade licencing) to total revenue is an important indicator of ULBs’ fiscal health and autonomy.
    • The study found that the ULBs’s own revenue was 47% of their total revenue.
    • Of this, tax revenue was the largest component: around 29% of the total.
    • Property tax, the single largest contributor to ULBs’ own revenue, accounted for only about 0.15% of the GDP.
    • Figures for developing countries: The corresponding figures for developing and developed countries were significantly higher (about 0.6% and 1%, respectively) indicating that this is not being harnessed to potential in India.

    2] High dependence on IGTs

    • Most ULBs were highly dependent on external grants — between 2012-13 and 2016-17, IGTs accounted for about 40% of the ULBs’ total revenue.
    •  Transfers from the Central government are as stipulated by the Central Finance Commissions and through grants towards specific reforms, while State government transfers are as grants-in-aid and devolution of State’s collection of local taxes.

    3] Tax revenue is largest revenue for larger cities, while smaller cities are more dependent on grants

    • here are considerable differences in the composition of revenue sources across cities of different sizes.
    • Class I-A cities (population of over 50 lakh) primarily depend on their own tax revenue, while Class I-B cities and Class I-C cities (population of 10 lakh-50 lakh and 1 lakh-10 lakh, respectively) rely more on IGTs.
    • Own revenue mobilisation in Class I-A cities increased substantially.
    • It was primarily driven by increases in non-tax revenue

    4] Increasing operations and maintenance (O&M) expenses

    • Operations and maintenance (O&M) expenses are on the increase but still inadequate.
    • While the expenses were on the rise, studies (such as ICRIER, 2019 and Bandyopadhyay, 2014) indicate that they remained inadequate.
    • For instance, O&M expenses incurred in 2016-17 covered only around a fifth of the requirement forecast by the High-Powered Expert Committee for estimating the investment requirements for urban infrastructure services.
    • O&M expenses should ideally be covered through user charges, but total non-tax revenues, of which user charges are a part, are insufficient to meet current O&M expenses.
    • The non-tax revenues were short of the O&M expenditure by around 20%, and this shortfall contributed to the increasing revenue deficit in ULBs.

    Way forward

    • Improving own revenue: It is essential that ULBs leverage their own revenue-raising powers to be fiscally sustainable and empowered and have better amenities and quality of service delivery.
    • Stability in IGT: Stable and predictable IGTs are particularly important since ULBs’ own revenue collection is inadequate.
    • O&M expenses: Increasing cost recovery levels through improved user charge regimes would not only improve services but also contribute to the financial vitality of ULBs.
    • Measures need to be made to also cover O&M expenses of a ULB for better infrastructure and service.
    • Tapping into property taxes, other land-based resources and user charges are all ways to improve the revenue of a ULB.

    Conclusion

    The health of municipal finances is a critical element of municipal governance which will determine whether India realises her economic and developmental promise.

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  • How to increase production of coal

    Context

    With inflation at unprecedented levels in many countries, concerns over energy security have gained centre stage.

    National Coal Index to factor in the increased price of imported coal

    • This index was created to provide a benchmark for revenue-sharing contracts being executed after the auctions for commercial mining of coal.
    • The NCI had to be introduced as the wholesale price index (WPI) for coal has no component of imported coal.
    • For the last six months, the WPI for Coal has been stable at around 131.
    • Over the same period, the NCI has jumped from about 165 to about 238 reflecting the sharp increase in international coal prices.

    Needs to increase domestic coal production

    • High prices of coal and coal-based generation will only encourage imported coal and expose the country to price risks from international energy prices.
    • The domestic coal industry has responded to increasing internation prices with an increase of over 30 per cent in coal production from April to June this year.
    • Anticipating these problems, a big effort toward permitting commercial mining has been made to get the private sector to produce more coal.
    • Gradual transition: Looking at coal from a singular focus on GHG emissions will give a myopic view of energy requirements for a growing economy like India.
    • The path to achieving 500 GW of renewables needs to be gradual, ensuring an orderly transition as coal is unavoidable in the near future.
    • Reducing coal imports and increasing domestic production of coal needs focused attention

    Suggestions to increase domestic production of coal

    1] Sensitising the financial community

    • The financial community has to be sensitised to the need of increasing domestic coal production to meet the growing energy demand.
    • The draft National Electricity Policy released in May 2021, recognised the need to increase coal-based generation.
    •  This policy has not yet been finalised.
    • It should clearly articulate the importance of domestic coal-based generation.
    • Holistic approach in ESG criteria: Apart from the government, the industry should also take up this issue with the financial community in adopting a more holistic approach toward environmental, social, and governance (ESG) criteria.

    2] The regulator needs to facilitate  greater role of private sector

    • There is the need for a regulator to address the issues arising from a greater role of the private sector.
    • The current arrangements were put in place at a time when the public sector dominated.
    • There are several issues where new private commercial miners would need help.
    • Single point of contact: A single point of contact for the industry in the form of a dedicated regulator would give great comfort to private players and would help to overcome problems that could arise in due course.

    3] Diversifying the production base

    • Increasing domestic production of coal and diversifying the production base are both needed.
    • This must be complemented with efforts to improve the quality of the coal produced.

    4] Remove financial burden due to cross subsidies

    • The undue financial burden on the coal sector due to various cross subsidies needs attention.
    • The regime needs to be reformed.

    Conclusion

    Action on the issues discussed above will only help to deepen and strengthen these reforms which are needed to overcome the challenges that have resurfaced over the past few months.

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  • 18th July 2022| Daily Answer Writing Enhancement(AWE)

    Topics for Today’s questions:

    GS-1         Post-independent India

    GS-2         Effect of policies and politics of the world on India’s interests

    GS-3        Indian Economy, Infrastructure

    GS-4        Attitude : content, structure and function; Social influence and persuasion

    Question 1)

     

    Q.1 Introduced with much hope, land reforms measures in India after independence failed to make much difference. Critically comment. (10 Marks)

     

    Question 2)

    Q.2 The political and military aftermath of Russia’s war on Ukraine could potentially tilt the current global balance and take us back to a Euro-centric world order. Comment. (10 Marks)

    Question 3)

    Q.3 Importance of increasing domestic coal production was highlighted by the surge in the prices of impoted coal. In context of this, suggest the measures to reduce the exposure to price volatility. (10 Marks)

    Question 4)  

    Q.4 Discuss how persuasion acts as a functional pillar in attitudinal change and attitude formation with requisite examples. (10 Marks)

     

    HOW TO ATTEMPT ANSWERS IN DAILY ANSWER WRITING ENHANCEMENT(AWE)?

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    8. We encourage you to write answers on the same day. However, if you are uploading an answer late then tag the mentor like @Staff so that the mentor is notified about your answer.

    *In case your answer is not reviewed, reply to your answer saying *NOT CHECKED*. 

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