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  • 11th November 2020| Daily Answer Writing Enhancement

    Important Announcement:  Topics to be covered on 12th November

    GS-1 Indian National Movement.

    GS-4 Case Studies.

    Question 1)

    With the double whammy of Monsoon and the pandemic, the conditions of the urban poor are more deplorable than that of their rural counterparts. Comment. 10 marks

    Question 2)

    Strong public sector capacities in healthcare are imperative to achieve medical preparedness for disasters. In light of this, examine the disaster preparedness of the public healthcare system in India and suggest ways to achieve it. 10 marks

    Question 3)

    There have been increasing instance of the judicial review of the decision of the central bank. What are the challenges in judicial review the central bank’s actions? 10 marks

    Question 4)  

    In Beed district of Maharashtra, 50 per cent of the women have been reported for hysterectomies. These women are as young as 25. The majorities of these women are cane cutters and migrate to the sugar belt of western Maharashtra during the cane cutting season; with the drought intensifying, the number of migrants multiplies. The contractor is keen to have women without wombs in his group of cane cutters, as they incur financial loses when any of the labourer goes for maternity leave. Moreover, menstruating women demand rest and toilets facilities. However, it is an unofficial dictum and contractors say that women are doing it voluntarily. It has also been observed that the child sex ratio in this district is an abysmal 807. For hysterectomies and abortion, the numbers of illegal clinics continue to proliferate in the district. Identify the ethical issues in above situation. As a DM magistrate of the concerned district, identify the course of action. What innovative steps you will take to solve this problem? 10 marks

    Reviews will be provided in a week. (In the order of submission- First come first serve basis). In case the answer is submitted late the review period may get extended to two weeks.

    *In case your answer is not reviewed in a week, reply to your answer saying *NOT CHECKED*. If Parth Sir’s tag is available then tag him.

    For the philosophy of AWE and payment, check  here: Click2Join

  • India’s catch-up evolution in techno-policy landscape

    This newscard is an excerpt of the original article published in the DownToEarth.

    Central theme: India needs to work out problems in old policies and develop new ones that ensure a rapid tectonic shift in India’s technological future.

    Past lessons:

    (1) From Agriculture

    • The Father of the Green Revolution, Norman E Borlaug, was credited with the development of semi-dwarf, disease-resistant and high-yield variety of wheat that he introduced in India, Pakistan and Mexico.
    • Led by Mexico, and soon followed by India, many countries adopted what is now commonly known as the ‘Green Revolution’.
    • Even after suffering two famines and recovering from the colonial catastrophe, India transformed itself into a self-sufficient nation in terms of rice and wheat over the next two decades.

    Sustaining GR with farm mechanization

    • Nearing the end of this decade, farm mechanization in India stands at 40-45 per cent, which is low compared to the USA (95 per cent), Brazil (75 per cent) and China (57 per cent).
    • Renewal of focus on farm mechanization was afforded only in the 12th five-year plan through a sub-mission on agricultural mechanization.
    • Regional disparities aside, India has broken the inertia in adopting farm machinery when compared to previous decades that is largely owed to the current push by the Union government.

    Still stranded with Land reforms

    • Yet, the response came late as compared to other countries with similar levels of development and was off by decades when compared to advanced economies.
    • Indian policymakers are still catching-up when implementing agriculture reforms, including land record digitization that should have been done and dusted by now.

    (2) Agriculture to Industries

    • After adopting resistant-variety cotton, India became the largest producer and second-largest exporter of cotton.
    • But it lags significantly behind in exporting cotton fabric at 5-6 per cent of the global share as China leads at 51 per cent.
    • Even with technical textiles, India’s production share is at four per cent and we suffer from an overall trade deficit.

    Why do we lag?

    • The earlier policies have not been revamped to reorient them into improving the technologically laggard and decentralized small-scale industries.
    • The overall direction is guided by budgetary announcements and segregated schemes that often leads to ambiguity in policy.
    • The new textile policy that is expected to provide for the economy of scale through textile parks is yet to be rolled out and the dedicated National Technical Textile Mission has only been recently announced.
    • Both policies should have been in place a decade ago.

    (3) Automobile sector

    • India’s automobile sector is yet another example of playing policy catch-up.
    • None of the Indian companies has any substantial market share in electric vehicle (EV) production, and retail sale of EVs in India has not registered any significant growth.
    • The biggest hurdle to the growth of EVs in India, among others, is policy ambiguity in relation to conventional internal combustion (IC) engine vehicles that hamper strategic business decisions.

    Beyond lofty roadmaps

    • In June 2019, NITI Aayog claimed that only EVs would be sold in India after 2030, replacing conventional IC engine vehicles, a claim that was later refuted by the Union Minister of Transport.
    • Policy ambiguity and lack of clear-cut directives on such a revolutionary technology can create disarray within the industry and on the broader strategic direction of the manufacturing sector.

    (4) Gaps in data and privacy lawmaking

    • The world is fast changing with the advent of the fourth industrial revolution, artificial intelligence (AI) and quantum computing (QC).
    • Every dimension of technology will start interacting with each other as the physical operations will all be controlled and operated by intelligent and adaptive virtual systems.

    Here too, India lags

    • Advanced economies have already put data regulation guidelines in place. China and the United States are already far too ahead in their R&D and policy research into AI and QC.
    • India developed its national strategy for AI only in 2018 and still lacks a full-proof futuristic policy on quantum computing.
    • Revolutionary and disruptive technologies require full-proof futuristic policies and strategies for development, and not vision documents and segregated schemes.

    Dealing with data

    • As of November 2019, the Internet and Mobile Association of India put India’s active Internet users at 504 million; in 2020, India would register nearly 700 million internet users.
    • We generate a copious amount of data, which, when combined with personal data from individual users in India, demand a new legal and paradigm change.
    • India’s data fiduciary laws are still in their nascent stage.
    • Data Protection Bill based on the recommendation of the Justice BN Srikrishna Committee is still pending with Parliament.

    Not treating the symptoms

    • Every day millions of Indians share intricate personal details and data over the internet; a majority of active users are unaware of the threats posed by an open-access to data.
    • Political battles are slowly gaining traction on the internet by harnessing the loopholes in social media.
    • Threats of state surveillance loom over millions of Indians and even now, any legal framework to protect data or privacy is missing.

    What we can deduce from the above discussion?

    • The Indian State heavily influences the outcome of the country’s technological development, largely due to the significant presence of PSEs, the dominance of public expenditure in R&D and the type of mixed economy.
    • Therefore timely policy intervention is essential to drive technological development in India.
    • Policies also require time to materialise and bear fruit, and thus far, India’s track record in implementing policies does not inspire confidence.

    India isn’t always laggard

    • India has been able to harness the potential of technology in the past by timely policy intervention. India was an early bird to its environmental policies and space technology.
    • The United States set up its Solar Energy Research Institute in 1977 and India set up its Commission of Alternate Sources of Energy (CASE) in 1981.
    • Today, India leads by example in the share of renewable energy in its power generation matrix. India’s space technology is another success story that doesn’t miss the public eye.
    • Time and again, through innovation and research, Indian academia and industries have exemplified its willingness and capacity to change, and all it requires is the desired policy push.

    Conclusion

    • With the rapid pace of technological development, the Union government and states cannot set to lose out time, as they have done in the previous decades.
    • India must hunt for new technological innovations, fund research into prospective applications and build policies to facilitate the adoption of new technologies.
    • Ministries and public-funded research bodies must be re-tasked to actively seek out new and emerging technologies all across the globe.

  • Shanghai Cooperation Organisation (SCO)

    In an indirect reference to the Chinese infrastructure projects in PoK, our PM has urged members of the Shanghai Cooperation Organisation (SCO) to respect “territorial integrity” and “sovereignty”.

    What is SCO?

    • After the collapse of the Soviet Union in 1991, the then security and economic architecture in the Eurasian region dissolved and new structures had to come up.
    • The original Shanghai Five were China, Kazakhstan, Kyrgyzstan, Russia and Tajikistan.
    • The SCO was formed in 2001, with Uzbekistan included. It expanded in 2017 to include India and Pakistan.
    • Since its formation, the SCO has focused on regional non-traditional security, with counter-terrorism as a priority.
    • The fight against the “three evils” of terrorism, separatism and extremism has become its mantra. Today, areas of cooperation include themes such as economics and culture.

    Try this PYQ now:

    Q. In the context of the affairs of which of the following is the phrase “Special Safeguard Mechanisms” mentioned in the news frequently?

    (a) United Nations Environment Programme

    (b) World Trade Organization

    (c) ASEAN- India Free Trade Agreement

    (d) G-20 Summits

    India’s entry to the SCO

    • India and Pakistan both were observer countries.
    • While Central Asian countries and China were not in favour of expansion initially, the main supporter — of India’s entry in particular — was Russia.
    • A widely held view is that Russia’s growing unease about an increasingly powerful China prompted it to push for its expansion.
    • From 2009 onwards, Russia officially supported India’s ambition to join the SCO. China then asked for its all-weather friend Pakistan’s entry.

    Tap to read more about SCO

  • What is OPEC+?

    Oil prices jumped by close to 10% for its biggest daily gain in almost six months after news of a highly effective vaccine against COVID-19 and Saudi Arabia’s assurance that an OPEC+ oil output deal could be adjusted to balance the market.

    About OPEC

    • OPEC stands for Organization of the Petroleum Exporting Countries.
    • It is a permanent, intergovernmental organization, created at the Baghdad Conference in 1960, by Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela.
    • It aims to manage the supply of oil in an effort to set the price of oil in the world market, in order to avoid fluctuations that might affect the economies of both producing and purchasing countries.
    • It is headquartered in Vienna, Austria.
    • OPEC membership is open to any country that is a substantial exporter of oil and which shares the ideals of the organization.
    • Today OPEC is a cartel that includes 14 nations, predominantly from the middle east whose sole responsibility is to control prices and moderate supply.

    What is OPEC+?

    • The non-OPEC countries which export crude oil along with the 14 OPECs are termed as OPEC plus countries.
    • OPEC plus countries include Azerbaijan, Bahrain, Brunei, Kazakhstan, Malaysia, Mexico, Oman, Russia, South Sudan and Sudan.
    • Saudi and Russia, both have been at the heart of a three-year alliance of oil producers known as OPEC Plus — which now includes 11 OPEC members and 10 non-OPEC nations — that aims to shore up oil prices with production cuts.

    Why OPEC plus came into existence?

    • When Russia concluded the Vienna Agreement in 2016, the Russian leadership believed that it would help prepare the country for the Russian presidential elections in March 2018.
    • Higher oil prices ensured the Kremlin’s financial capacity to lead a successful electoral campaign.
    • This changed the regime’s priorities – from satisfying the needs of the general population to ensuring the sustainability of the Kremlin’s alliance with powerful tycoons, including that controlling oil production.
    • For Saudi Arabia, turning what had been an ad hoc coalition into a formal group provides a hedge (protection) against future oil-market turbulence.
    • For Russia, the formalization of the group helps expand Putin’s influence in the Middle East
    • However, both reportedly aimed at causing a drop in oil prices in order to hit US shale producers, who have continued to benefit from OPEC production cuts by expanding their market share.

  • Armenia, Azerbaijan agree on peace deal

    Armenia and Azerbaijan agreed on a deal with Russia to end fierce clashes over Nagorno-Karabakh after a string of Azerbaijani victories in its fight to retake the disputed region.

    Ending up the bloodshed

    • During the course of the conflict, over 1200 have lost their lives as per the Nagorno-Karabakh authorities, while thousands have been displaced.
    • Since the conflict started in September, multiple ceasefire agreements have been signed between the two sides, but none so far have been successful.
    • The deal is meant to end the conflict between the two nations.
    • Russia’s role in the conflict has been somewhat opaque since it supplies arms to both countries and is in a military alliance with Armenia called the Collective Security Treaty Organisation.

    What is the Nagorno-Karabakh region?

    • Straddling western Asia and Eastern Europe, Nagorno-Karabakh is internationally recognised as part of Azerbaijan, but most of the region is controlled by Armenian separatists.
    • It has been part of Azerbaijan territory since the Soviet era.
    • When the Soviet Union began to collapse in the late 1980s, Armenia’s regional parliament voted for the region’s transfer to Armenia; the Soviet authorities turned down the demand.
    • Years of clashes followed between Azerbaijan forces and Armenian separatists.
    • The violence lasted into the 1990s, leaving tens and thousands dead and displacing hundreds of thousands.
    • In 1994, Russia brokered a ceasefire, by which time ethnic Armenians had taken control of the region.

    Consider this PYQ:

    Q.The area is known as ‘Golan Heights’ sometimes appears in the news in the context of the events related to: (CSP 2015)

    a) Central Asia
    b) Middle East
    c) South-East Asia
    d) Central Africa

    Who controls it?

    • While the area remains in Azerbaijan, it is today governed by separatist Armenians who have declared it a republic called the “Nagorno-Karabakh Autonomous Oblast”.
    • While the Armenian government does not recognise Nagorno-Karabakh as independent, it supports the region politically and militarily.

    Ethnicity and the conflict

    • Ethnic tensions from decades ago have a crucial role in the dispute.
    • While the Azeris claim that the disputed region was under their control in known history, Armenians maintain that Karabakh was a part of the Armenian kingdom.
    • At present, the disputed region consists of a majority Armenian Christian population, even though it is internationally recognised as a part of Muslim-majority Azerbaijan.

  • Thirty Metre Telescope (TMT)

    With regime change in the US, hopes have been raised for the Thirty Meter Telescope (TMT) in Hawaii. India is one of the partners in the ambitious next-generation observatory project along with the US, Canada, China and Japan.

    Try this PYQ:

    Q.“Event Horizon” is related to:

    (a) Telescope

    (b) Black hole

    (c) Solar glares

    (d) None of the above

    Thirty Metre Telescope

    • The TMT is a proposed astronomical observatory with an extremely large telescope (ELT) that has become the source of controversy over its planned location on Mauna Kea on the island of Hawaii.
    • It is being built by an international collaboration of government organisations and educational institutions, at a cost of $1.4 billion.
    • “Thirty Metre” refers to the 30-metre diameter of the mirror, with 492 segments of glass pieced together, which makes it three times as wide as the world’s largest existing visible-light telescope.
    • The larger the mirror, the more light a telescope can collect, which means, in turn, that it can “see” farther, fainter objects.
    • It would be more than 200 times more sensitive than current telescopes and would be able to resolve objects 12 times better than the Hubble Space Telescope.

    Utility of the telescope

    • One of its key uses will be the study of exoplanets, many of which have been detected in the last few years, and whether their atmospheres contain water vapour or methane — the signatures of possible life.
    • For the first time in history, this telescope will be capable of detecting extraterrestrial life.
    • The study of black holes is another objective.
    • While these have been observed in detail within the Milky Way, the next galaxy is 100 times farther away; the Thirty Metre Telescope will help bring them closer.

  • Unfurling India’s foreign policy concerns

    The article analyses two major concerns of India which would be influenced by the policies adopted by the next U.S. President. 

    Concern for India

    • What policy President-elect Joe Biden will adopt in its foreign policy will has bearing on India.
    • There are two foreign policy issues which are of great concern and interest — China and Iran in that order.
    • For the world, the equation between the United States and China may be the relationship of the greatest consequence.
    • For India, the most consequential relationship is not with the U.S. — as is sometimes claimed — but one with China.
    • What happens in greater West Asia will always remain of concern, but those interests will not be affected one way or the other by who is the President of the U.S.

    Quad dynamics and China

    • In the Trump years, India signed all the ‘foundational’ agreements with America.
    • India also bought billions of dollars worth of military hardware from them.
    • India resisted converting the Quad into a primarily military or strategic grouping, and is in fact aimed solely at containing China.
    • The Quad is an anti-China coalition.
    • How far it can be successful in containing the Dragon remains to be seen.
    • India’s External Affairs Minister has stated, India will not join any military alliance.
    • However, given the fact that all the other three, and perhaps five or six in future, are already in strategic alliance with one another and with the U.S., it is highly likely that India too will be forced to agree to some form of military alliance at a future date.
    • But no external power would want to get involved on our side in case of major hostilities with China.
    • On the other hand, if there is a major skirmish or worse in the South China Sea, the other members of the Quad will expect us to join them in fighting China, in an area far removed from our shores.

    Approach towards China

    • If Mr. Biden adopts a more conciliatory approach towards China, India may find ourselves in a difficult situation.
    • We do not want China to be permanently hostile to us; it will absorb huge resources, human and material.
    • The strong rhetoric employed in relation to China will need to be tempered.
    • Public opinion which has been worked up against China may make it difficult to do so immediately but the government is efficient in managing and moulding public opinion.

    Approach toward Iran

    • It may be difficult for Mr. Biden to quickly reverse Mr. Trump’s adventurist policy towards Iran.
    • It may not be possible for him given the domestic compulsions, to readopt JCPOA in its original form.
    • But he will surely, if slowly, engage Tehran in talks and negotiations through Oman or some other intermediary, to reduce tensions in the region.
    • India may be able to buy Iranian oil, and sell our pharma and other goods to that country.
    • The government may also feel less constrained in investing openly in oil and other infra projects in Iran, including the rail project in which Indian Railways Construction Ltd has been interested.

    Conclusion

    While India can’t expect the reversal of all Trump era policies, there will be certain changes in the stance adopted by the new U.S. President and India should be prepared to deal with it.

  • The cost of cleaning air

    The article deals with the issue of allocation of funds to tackle air pollution and issues with it.

    Allocation in the budget

    • A ₹4,400 crore package was announced in last budget for 2020-21 to tackle air pollution in 102 of India’s most polluted cities.
    • The funds would be used to reduce particulate matter by 20%-30% from 2017 levels by 2024 under the National Clean Air Programme (NCAP).

    Issues with estimating the scale of the problem

    • It is unclear if this amount is adequate because the scale of the problem is unknown.
    • Delhi government spent money on the measurement of pollution for in Delhi that far exceeds s allocations that find mention in the Centre and State government’s budgeting books.
    • The funds allocated don’t account for the trained manpower and the support system necessary to effectively maintain the systems and these costs are likely to be significant.
    • Historically, cites have used manual machines to measure specified pollutants and their use has been inadequate.
    • An analysis by research agencies Carbon Copy and Respirer Living Sciences recently found that only 59 out of 122 cities had PM 2.5 data available.
    • Only three States, had all their installed monitors providing readings from 2016 to 2018.
    • Prior to 2016, making comparisons of reduction strictly incomparable.
    • Now manual machines are being replaced by automatic ones and India is still largely reliant on imported machines.
    • In the case of the National Capital Region, at least ₹600 crore was spent by the Ministry of Agriculture over two years to provide subsidised equipment to farmers in Punjab and Haryana and dissuade them from burning paddy straw.
    • Yet this year, there have been more farm fires than the previous year and their contribution to Delhi’s winter air woes remain unchanged.
    • This indicates that money alone doesn’t work.

    Conclusion

    A clear day continues to remain largely at the mercy of favourable meteorology. While funds are critical, proper enforcement, adequate staff and stemming the sources of pollution on the ground are vital to the NCAP meeting its target.

  • Economic lessons from Vietnam and Bangladesh

    The article examines the emergence of Bangladesh and Vietnam as the major export hubs in the world and explains the lessons India could draw from it.

    Context

    • Bangladesh has become the second-largest apparel exporter after China.
    • Vietnam’s exports have grown by about 240% in the past eight years.

    Analysing Vietnam’s success

    • An open trade policy, a less inexpensive workforce, and generous incentives to foreign firms contributed to Vietnam’s success.
    • Vietnam’s open trade policy through Free Trade Agreements (FTAs) means trading partners do not charge import duties on products made in Vietnam.
    • Vietnam’s domestic market is open to the partners’ products.
    • Vietnam has agreed to change its domestic laws to make the country attractive to investors.
    • Over a decade or so, large brands such as Samsung, Canon, Foxconn, H&M, Nike, Adidas, and IKEA have flocked to Vietnam to manufacture their products.

    What explains Bangladesh’s success?

    • In Bangladesh, large export of apparels to the EU and the U.S. make the most of the country’s export story.
    • The EU allows the import of apparel and other products from least developed countries (LDCs) like Bangladesh duty-free.
    • India, as a good neighbour, accepts all Bangladesh products duty-free (except alcohol and tobacco).
    • Bangladesh may not have this facility in four to seven years as its per capita income rises and it loses the LDC status.
    • Bangladesh is working smartly to diversify its export basket.

    Lessons for India

    • The key learning from Bangladesh is the need to support large firms for a quick turnover.
    • Yet, most of Vietnam’s exports happen in five sectors, in contrast, India’s exports are more diversified.
    • The Economic Complexity Index (ECI), which ranks a country based on how diversified and complex its manufacturing export basket is, illustrates this point.
    • The ECI rank for China is 32, India 43, Vietnam 79, and Bangladesh 127.
    • India, unlike Vietnam, has a developed domestic and capital market.
    • To further promote manufacturing and investment, India could set up sectoral industrial zones with pre-approved factory spaces.
    • There should be no need to search for land or obtain many approvals.

    India should pursue organic growth

    • Most of Vietnam’s electronics exports are just the final assembly of goods produced elsewhere.
    • In such cases, national exports look large, but the net dollar gain is small. China also faces this issue.
    • Country’s Export to GDP ratio (EGR) indicates its export capacity.
    • Vietnam’s EGR is 107%, such high dependence on exports brings dollars but also makes a country vulnerable to global economic uncertainty. 
    • The U.S.’s EGR is 11.7%, Japan’s is 18.5%, India’s is 18.7%. Even for China, with all its trade problems, the EGR is 18.4%.
    • Most such countries, including India, follow an open trade policy, sign balanced FTAs, restrict unfair imports, and have a healthy mix of domestic champions and MNCs.
    • While export remains a priority, it is not pursued at the expense of other sectors of the economy.
    • The focus is on organic economic growth through innovation and competitiveness.

    Consider the question “While export is essential for the growth of the country, over-dependence on it and its promotion at the expense of the other sectors could do more harm to the economy than good. Comment.” 

    Conclusion

    With reforms promoting innovation and lowering the cost of doing business, India is poised to attract the best investments and integrate further with the global economy without increasing its dependence on export.

  • 15th Finance Commission submits report to President

    The 15th Finance Commission, chaired by NK Singh, on Monday submitted its final report for 2021-22 to 2025-26 to the President.

    Try this PYQ:

    With reference to the Finance Commission of India, which of the following statements is correct?

    (a) It encourages the inflow of foreign capital for infrastructure development

    (b) It facilitates the proper distribution of finances among the Public Sector Undertakings

    (c) It ensures transparency in financial administration

    (d) None of the statements (a), (b) and (c) given above is correct in this context

    Key recommendations that would feature in its final report:

    • A separate defence and national security: The viability of creating a separate defence and national security fund as suggested by the Centre.
      • States would keenly await these recommendations as it may translate into a lower share of funds for them.
    • GST compensation dues to States: The panel is also expected to factor in unpaid GST compensation dues to States for this year, while working out State’s revenue flow calculations for the years beyond 2022.

    Formula that decides a State’s share:

    Weight in 15th FC Parameters Weight in 14th FC
    15 (2011 Census) Population 27.5 (17.5 – 1972, 10 – 2011 Census)
    15 Area 15
    10 Forest and Ecology 7.5
    45 Income Distance 50
    12.5 Demographic Performance –
    2.5 Tax Effort

    What is the Finance Commission?

    • The Finance Commission (FC) was established by the President of India in 1951 under Article 280 of the Indian Constitution.
    • It was formed to define the financial relations between the central government of India and the individual state governments.
    • The Finance Commission (Miscellaneous Provisions) Act, 1951 additionally defines the terms of qualification, appointment and disqualification, the term, eligibility and powers of the Finance Commission.
    • As per the Constitution, the FC is appointed every five years and consists of a chairman and four other members.
    • Since the institution of the First FC, stark changes in the macroeconomic situation of the Indian economy have led to major changes in the FC’s recommendations over the years.

    Constitutional Provisions

    Several provisions to bridge the fiscal gap between the Centre and the States were already enshrined in the Constitution of India, including Article 268, which facilitates levy of duties by the Centre but equips the States to collect and retain the same.

    Article 280 of the Indian Constitution defines the scope of the commission:

    1. The President will constitute a finance commission within two years from the commencement of the Constitution and thereafter at the end of every fifth year or earlier, as the deemed necessary by him/her, which shall include a chairman and four other members.
    2. Parliament may by law determine the requisite qualifications for appointment as members of the commission and the procedure of selection.
    3. The commission is constituted to make recommendations to the president about the distribution of the net proceeds of taxes between the Union and States and also the allocation of the same among the States themselves. It is also under the ambit of the finance commission to define the financial relations between the Union and the States. They also deal with the devolution of unplanned revenue resources.

    Why need the Finance Commission?

    • As a federal nation, India suffers from both vertical and horizontal fiscal imbalances.
    • Vertical imbalances between the central and state governments result from states incurring expenditures disproportionate to their sources of revenue, in the process of fulfilling their responsibilities.
    • However, states are better able to gauge the needs and concerns of their inhabitants and therefore more efficient at addressing them.
    • Horizontal imbalances among state governments result from differing historical backgrounds or resource endowments and can widen over time.
    • The first FC was established in 1951 by Dr B.R. Ambedkar, the then-incumbent law minister, to address these imbalances.

    Important functions

    • Distribution of net proceeds of taxes between Center and the States, to be divided as per their respective contributions to the taxes.
    • Determine factors governing Grants-in-Aid to the states and the magnitude of the same.
    • To make recommendations to the president as to the measures needed to augment the Fund of a State to supplement the resources of the panchayats and municipalities in the state on the basis of the recommendations made by the finance commission of the state.
    • Any other matter related to it by the president in the interest of sound finance.

    Members of the Finance Commission

    • The Finance Commission (Miscellaneous Provisions) Act, 1951 was passed to give a structured format to the finance commission and to bring it to par with world standards.
    • It laid down rules for the qualification and disqualification of members of the commission, and for their appointment, term, eligibility and powers.
    • The Chairman of a finance commission is selected from people with experience of public affairs. The other four members are selected from people who:
    1. Are, or have been, or are qualified, as judges of a high court,
    2. Have knowledge of government finances or accounts, or
    3. Have had experience in administration and financial expertise; or
    4. Have special knowledge of economics

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