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  • Locust Invasions and its mitigation

     

     

    The locust, a short-horned, desert grasshopper that attacks standing crops and green vegetation, has been making news in India since May-June 2019 when it appeared in Rajasthan and Gujarat. In Kharif season last year, it was also seen in a few areas along Punjab’s border with Rajasthan.

    Context

    • The Locust Warning Organisation (LWO) has been taking measures to control attacks by the pest for the past eight decades in the country.
    • Despite all of LWO’s efforts, the chain of periodic locust attacks in India is yet to be broken.

    Why Locusts attacks are deadly?

    • Adult locust swarms can fly up to 150 km (93 miles) a day with the wind and adult insects can consume roughly their own weight in fresh food per day.
    • A very small swarm eats as much in one day as about 35,000 people.
    • If allowed to breed unchecked in favourable conditions, locusts can form huge swarms that can strip trees and crops over vast areas.

    About LWO

    • In India, the scheme Locust Control and Research (LC&R) is responsible for control of Desert Locust.
    • It is being implemented through Organisation known as “Locust Warning Organisation (LWO)” established in 1939 and later amalgamated with the Directorate of Plant Protection Quarantine and Storage in 1946.
    • Locust Warning organization (LWO) is responsible to monitor and control the locust situation in Scheduled Desert Area (SDA) mainly in the States of Rajasthan and Gujarat while partly in the States of Punjab and Haryana.
    • It keeps itself abreast with the prevailing locust situation at National and International level through monthly Desert Locust Bulletins of FAO.

    What measures are being taken by the LWO to control locust breeding/attacks in India?

    • Experts at the LWO said around three dozen offices including 10 circle offices are working on this issue.
    • They have been doing regular field surveys to keeping a close and regular watch on an over two lakh sq. km area (nearly 11,500 villages) of three states including 1.79 lakh sq. km in Rajasthan (52 per cent of the state’s total area), and the remaining in Gujarat and Haryana.
    • To observe the locust, intensive surveys are conducted by walking along the wind direction and driving at low speed to count flying locusts.

    How often have there been locust attacks in India?

    • The pests have been appearing periodically after a gap of 2-3 or 5-7 years. Around 26 locust attacks have taken place in India in two major cycles.
    • After independence (1947), 25 attacks were observed. Among these, the attacks of 1949-55, 1962 and 1993 were most devastating when 167 and 172 swarms were noticed in 1962 and 1993 respectively.
    • Since 1993, locust attacks have occurred less frequently. The latest attack of 2019-20, has had quite a severe effect on crops in Rajasthan.

    Financial losses incurred

    • According to LWO, to date, the financial loss due to locusts is said to be Rs 50 lakh, Rs 2 lakh and Rs 7.18 lakh in 1962, 1978 and 1993 respectively.
    • A loss of Rs 2 crore was incurred in 1940-46 and 1949-55. Before the LWO was formed, a loss of Rs 10 crore is estimated in the 1926-31 cycle.

    Why has the chain not been broken even after 80 years?

    • LWO experts said it is because there are 30 countries in four regions of different continents that have an arid climate with large deserts that provide an ideal breeding ground for the locust.
    • Most of the time, locusts are coming to India from Pakistan, or from the Middle East via Pakistan.
    • There are four commissions for these 30 countries which include Iran, Pakistan, Afghanistan and India.
    • Laxity by any country would lead to its spread in all these countries which they invade one after another by following almost the same path.
    • The swarms which are coming to India (Rajasthan) have been following the same path, starting from central or western region and then Pakistan mostly in summers.
    • Apart from breaking the chain of summer attacks, the winter swarm has now posed another challenge.

    Where did the current locust attack originate?

    • The locust breeds in high temperatures and high humidity, which is prevalent in areas around the Red Sea.
    • The current attack in India, which started in 2019, has its origin in Yemen, where there was internal conflict and civil war.
    • When the locust was breeding in heavy numbers there in 2018-19, the country could not take care due to its attention towards the civil war and lack of resources to control it.
    • The insect went out of control, took the route of Saudi Arabia, Iran, Pakistan, Somalia, Ethiopia and other countries located on both sides of the Red Sea where they multiplied rapidly.

    Control measures

    • The chain can be broken only when the pest is killed at the time of breeding or before migration to another country.
    • Farmers used to try to drive away the locusts by lighting fires. They also dug up the eggs.
    • Now crops can be sprayed with insecticides from vehicles or airplanes.
    • Scientists are trying to improve the control of locusts, by preventing or dispersing swarms.

    Also read:

    https://www.civilsdaily.com/news/desert-locusts-incursion-in-india/

  • What is the ‘Raman effect’?

     

     

    Yesterday, February 28th was celebrated as National Science Day. In 1986, the Govt. of India designated this Day, to commemorate the announcement of the discovery of the “Raman effect”.

    CV Raman

    • Raman conducted his Nobel-prize winning research at IACS, Calcutta.
    • While he was educated entirely in India, Raman travelled to London for the first time in 1921, where his reputation in the study of optics and acoustics was known to physicists such as JJ Thomson and Lord Rutherford.
    • The Raman Effect won scientist Sir CV Raman the Nobel Prize for physics in 1930.
    • It was also designated as an International Historic Chemical Landmark jointly by the American Chemical Society (ACS) and the Indian Association for the Cultivation of Science (IACS).
    • His speciality was the study of vibrations and sounds of stringed instruments such as the Indian veena and tambura, and Indian percussion instruments such as the tabla and mridangam.

    The Raman Effect

    • In 1928, Raman discovered that when a stream of light passes through a liquid, a fraction of the light scattered by the liquid is of a different colour.
    • While Raman was returning from London in a 15-day voyage, he started thinking about the colour of the deep blue Mediterranean.
    • He wasn’t convinced by the explanation that the colour of the sea was blue due to the reflection of the sky.
    • As the ship docked in Bombay, he sent a letter to the editor of the journal Nature, in which he penned down his thoughts on this.
    • Subsequently, Raman was able to show that the blue colour of the water was due to the scattering of the sunlight by water molecules.
    • By this time he was obsessed with the phenomenon of light scattering.

    Observing the effect

    • The Raman Effect is when the change in the energy of the light is affected by the vibrations of the molecule or material under observation, leading to a change in its wavelength.
    • Significantly, it notes that the Raman effect is “very weak” — this is because when the object in question is small (smaller than a few nanometres), the light will pass through it undisturbed.
    • But a few times in a billion, light waves may interact with the particle. This could also explain why it was not discovered before.
    • In general, when light interacts with an object, it can either be reflected, refracted or transmitted.
    • One of the things that scientists look at when light is scattered is if the particle it interacts with is able to change its energy.

    Applications

    • Raman spectroscopy is used in many varied fields – in fact, any application where non-destructive, microscopic, chemical analysis and imaging is required.
    • Whether the goal is qualitative or quantitative data, Raman analysis can provide key information easily and quickly.
    • It can be used to rapidly characterize the chemical composition and structure of a sample, whether solid, liquid, gas, gel, slurry or powder.

  • Red Snow in Antarctica

     

     

    Over the last few weeks, photographs of “red snow” off the coast of Antarctica’s northernmost peninsula, have gone viral. “Red snow” or “watermelon” is a phenomenon that has been known since ancient times. Now, it raises concerns about climate change.

    Red snow in Antarctica: Why it happens 

    • Aristotle is believed to be one of the first to give a written account of red snow, over 2,000 years ago.
    • What Aristotle described as worms and grub, the scientific world today calls algae.
    • This alga species, Chlamydomonas Chlamydomonas nivalis, exists in the snow in the polar and glacial regions and carries a red pigment to keep itself warm.

    Signs of faster melting 

    • In turn, the red snow causes the surrounding ice to melt faster. The more the algae packed together, the redder the snow.
    • And the darker the tinge, the more the heat absorbed by the snow. Subsequently, the ice melts faster.
    • While the melt is good for the microbes that need the liquid water to survive and thrive, it’s bad for glaciers that are already melting from a myriad of other causes, the study said.
    • These algae change the snow’s albedo — which refers to the amount of light or radiation the snow surface is able to reflect back. Changes in albedo lead to more melting.

  • Svalbard Global Seed Vault

     

    The Svalbard Global Seed Vault — referred to as the earth’s ‘doomsday vault’ — now contains about 1.05 million seeds.

    Global Seed Vault

    • The vault — in the island of Spitsbergen, midway between Norway and the North Pole — opened in 2008 and preserves seeds for several food varieties.
    • The aim of the vault is to preserve a vast variety of crop seeds in the case of a doomsday event, calamity, climate change or national emergency.
    • The vault is artificially cooled at temperatures of minus 18 degrees Celsius.
    • The low temperature and limited access to oxygen will ensure low metabolic activity and delay seed ageing.
    • The permafrost surrounding the facility will help maintain the low temperature of the seeds if the electricity supply fails.

    Access to seeds

    • Vault seed samples are copies of samples stored in the depositing genebanks.
    • Researchers, plant breeders, and other groups wishing to access seed samples cannot do so through the seed vault; they must instead request samples from the depositing genebanks.
    • The samples stored in the genebanks will, in most cases, be accessible in accordance with the terms and conditions of the International Treaty on Plant Genetic Resources for Food and Agriculture, approved by 118 countries or parties.

  • [Burning Issue] Trump in India

     

     

    Donald Trump’s visit to India continues a trend of more and more frequent visits by US Presidents. He is the first US President to visit India on a stand-alone visit in the seven decades of Indo-US diplomatic ties. US Presidents who came to India before him, from Dwight Eisenhower to Barack Obama, all had other stops in the region.

    Here’s how ties between the two countries have evolved, strengthening in key areas while some areas remain a concern.

    Visits before 2000, and later

    • Between 1947 and 2000, the first 53 years of India-US ties, there were only three visits by US Presidents to India — Dwight Eisenhower in 1959, Richard Nixon in 1969 and Jimmy Carter in 1978.
    • In the 20 years since 2000, there have been four visits by three US Presidents — Bill Clinton in 2000, George W Bush in 2006, and Obama in 2010 and 2015. Trumps being the fifth.
    • While only three of the nine US Presidents during 1947-2000 visited India, every President in the last two decades has visited India at least once.

    Many reasons could be ascribed to the higher frequency of visits — a shift in global geo-politics in the post-Cold War era, India’s economic ascent, rise of an assertive China, and New Delhi’s place on the global high table.

    The beginning of Strategic Partnership

    • In 2003-04, the first seeds of the Next Steps of Strategic Partnership were sown during the Atal Bihari Vajpayee regime.
    • The relationship peaked with the Indo-US nuclear deal in 2008, which was negotiated during 2005-08 between the Manmohan Singh government and the Bush administration, and is considered the game-changer.
    • The Obama administration carried forward the relationship, and during his visit in 2010 hosted by Singh, the US promised support to India for a UN Security Council membership.
    • When Narendra Modi became PM in 2014, Obama navigated the transition and visited again in 2015, when he was the chief guest for the Republic Day celebrations.

    Ties after Trump

    • After Trump came to power in 2016, there was a shift in the US political landscape as his unpredictability defined his presidency.
    • The Indian government moved fast, and Modi visited the White House in June 2017. It is in this backdrop that the visit is taking place in a year that will witness US presidential elections.

     Namaste Trump

    Outcomes of the Visit

    Despite years of high-level negotiations, India and the United States did not announce a trade deal—even a so-called mini-deal—despite Trump’s hinted during the visit that an “incredible” agreement was in the works.

    President Trump’s visit can easily be cleaved into two separate parts:

    1. the symbolism of the joint rally with PM Modi, along with their obvious personal rapport, and
    2. the actual bilateral outcomes of their Delhi meeting
    • The visit’s concrete outcomes were not as dramatic or historical as the rally images were.
    • Although the External Affairs Ministry had said at least five MoUs would be ready for signing, the three made ready were two on health care, and one Letter of Cooperation on LNG pipeline infrastructure.
    • The agreement signed for defence purchases worth $3-billion, including American helicopters, has led to both sides signalling more cooperation in defence, military exercises and technology sharing.

    Disagreements over the price of apples, walnuts, and medical devices; the US’s demands for greater access to India’s dairy, poultry and e-commerce market; and ongoing discussions over lowering Indian tariffs on American-made Harley Davidson motorcycles, remain unresolved.

    A “new designation” to the bilateral ties:

    Comprehensive Strategic Global Partnership

    • Giving concrete shape to an India-US ‘Comprehensive Global Strategic Partnership’ was the biggest achievement of Trump’s visit which was otherwise high on optics and low on substance.
    • The CGSP was initiated in 2013 when PM Manmohan Singh had visited the US and met President Barack Obama.
    • The two leaders had then claimed that the India-US relationship has developed a “comprehensive global strategic partnership”.
    • In a joint statement, both nations vowed to strengthen India-US CGSP, anchored in mutual trust, shared interests, goodwill and robust engagement of their citizens.

    Core of the extravaganza

    Why US matters for India?

    1) Support against terrorism

    • This intense engagement has helped achieve robust support from the US against terrorism.
    • This was evident after the Pulwama attack last year, leading to designation of Jaish-e-Mohammed chief Masood Azhar as a global terrorist under UN Security Council Resolution 1267, and the placing of Pakistan on the grey-list of the FATF.
    • While Trump was once very critical on Pakistan, he has nuanced his position on Pakistan in the last seven months.
    • And now, with a deal between the US and the Taliban likely, his approach towards Pakistan, long-time benefactor of the Taliban, will be tested in the months to come.

    2) Defence

    • For India, its relationship with the US on defence issues has strengthened.
    • India has procured over $18 billion worth of defence items from the US, almost half of this in the last five years.
    • India conducts more bilateral exercises with the US than with any other country.
    • And, under Trump, the announcement of India’s elevation to Tier I of the Strategic Trade Authorization licence exception has opened up US defence technologies from the time when India faced a technology-denial regime.

    3) Energy

    • The other area where the relationship has grown in recent years is energy.
    • The bilateral Strategic Energy Partnership was launched in April 2018; India has started importing crude and LNG from the US from 2017 and 2018 respectively.
    • The total imports are estimated at $6.7 billion — having grown from zero.
    • The US is also India’s sixth largest source of crude oil imports, with hydrocarbon imports rising to $7 billion in the last two years.

    4) Trade

    • In the backdrop of the global economic slowdown, where India’s global exports have fallen consistently, it is important for the country to diversify and strengthen bilateral relations with other markets.
    • It has set its sights on “large developed markets”, improved access to which would help its industry and services sectors.
    • These include the US, which has, over the last two decades, become a crucial trading partner in terms of both goods and services.

    Why India matters to the US?

    1) India as an open data market

    • India is, after all, the largest open data market in the universe. Per capita, more data is consumed in India than anywhere else in the world.
    • For American “big tech” firms, India provides a scale for their products unavailable in any other country.
    • Despite current economic woes, this will continue to be the largest growing and relatively open consumer market for American products and business.

    2) Indian-Americans

    • About 4.5 million people of Indian origin live in the US today, but despite their relatively small numbers, Indian Americans are a growing political force in the country.
    • Trump has sought to court the Indian-American vote in the run-up to the 2020 election.

    3) India as a defence partner

    • India is also a large arms importer.
    • Defence trade is widely seen as the silver lining in this relationship – US-India defence deals have ballooned in the past decade, from nearly zero in 2008 to a little more than $15bn in 2019.

    4) India as a possible solution to China’s hegemony

    • On the trade front, India can be an effective supplier rather than being an outsourcing hub if compared to China.
    • Strategically also, the U.S. views India as a platform to contain China’s hegemony.
    • India sees it as an opportunity for economic expansion, with the U.S. being an equal partner.

    Areas of contention

    Tariff issues

    • The US feels that India is a high tariff country, and wants these reduced and a more predictable regime to conduct business.
    • Although the growth is 10% per year, many feel the potential is much higher.

    Visa norms

    • The other area of contention has been the movement of Indian skilled professionals to the US under the H1B programme.
    • While the US President has always made immigration a key campaign theme, it has not led to any major barriers for Indians so far. But in an election year in the US, the rhetoric could sharpen.

    Conclusion

    • India needs to keep US on its side for strategic and security reasons – the grand welcome India accorded the US president showed how serious it is about the relationship.
    • But the immediate future of the relationship depends on the upcoming US presidential elections.
    • These are relationship-building visits that serve as signalling mechanisms too.
    • If India-US relationship is a defining one for this century, as Modi said, Trump’s visit helps in that definition.
    • India will find it easier to deal with a leader it has already invested in, hoping Trump’s unpredictable nature won’t harm the relationship.

    Way Forward

    • Although any major trade package deal could not be clinched this time, in terms of emboldening the bilateral ties, this visit was critical.
    • The fact that President Trump did visit India and understand the imperatives is in itself a big achievement, considering his unpredictable nature.
    • It is also true that these visits are never about massive deliverables. These visits create an impression.
    • As many regards, the thinking beyond transactionalism in this event was a big achievement for both.
    • Having a trade deal becomes an uphill task with both sides taking a protectionist stance.
    • The two governments must now strive to complete the unfinished agreements and set the course for their newly designated ‘Comprehensive Strategic Global Partnership’.

    References

    https://indianexpress.com/article/explained/explained-donald-trump-visit-india-us-ties-over-the-years-bush-nixon-clinton-jimmy-carter-6280481/

    https://www.livemint.com/opinion/online-views/no-trade-deal-with-trump-still-a-win-for-india-11582771353905.html

    https://theprint.in/diplomacy/comprehensive-global-strategic-partnership-what-modi-trump-just-formalised-is-2013-concept/371631/

  • Is RBI raising systemic risks by pushing retail credit?

    Context

    Credit driven growth may not lead to sustainable growth.

    Credit driven economic boom

    • RBI and govt. acting in line: Both the government and Reserve Bank of India (RBI) have acted in line with their stated commitment towards the defined fiscal and monetary stability framework.
      • Given the pressures of a dwindling growth rate and limited fiscal and monetary elbow room, this is commendable.
    • Growth without increasing systemic risk: It is critical that the decisions taken to revive growth have a high likelihood of success without increasing systemic risk in the medium to long run.
      • Recent push may add to systemic risk: In this context, it may be argued that RBI’s recent push for retail credit growth would add to systemic risk, while the benefits for India’s gross domestic product growth (GDP) may be limited.
      • Credit-driven economic booms always end in economic misery.
    • Credit is a necessary evil: To pump-prime an economy, very few tools exist other than credit.
      • Thus there is all the more reason to handle it with care. In current economic growth frameworks, economic growth requires
      • Quite often, credit creation is the ultimate source of capital.
      • If the government spends by increasing its fiscal deficit, government debt increases. If the private sector borrows to invest and kick-start growth, its leverage increases.
      • What could be the best source of credit? The best use of credit is when it is used to finance real assets in the economy.
      • Creation of financial asset: When credit does not create real assets, it inevitably creates financial assets such as bonds held by investors, loans held by banks, or accounts receivables held by firms.
      • The precursor to a crisis: An overabundance of financial assets created by credit is a precursor to a crisis.

    How types of loans matters for growth and risk of the system

    • How money is used matters for reviving sustainable growth: Taking a consumer loan to splurge on a vacation or celebratory dinner does very little to support long-term growth. It creates economic activity only in the immediate period.
      • Which sector should be pushed to ramp up credit and how that money is used become important if reviving sustainable growth is the objective.
    • In a paper titled Who Gets The Credit And Does It Matter, Thorsten Beck et al studied the growth dynamics of 45 countries for the period from 1994 to 2005.
      • Only loans to firms contribute to growth: The paper concluded that only loans to firms are linked to GDP growth, the argument being that firms use credit to increase their capital stock, and thus, real assets.
      • Loans to households do not add substantially to growth: Loans to households, while having desirable social outcomes in terms of boosting consumption and allowing households to tide over short-term cash flow mismatches, do not add to sustainable GDP growth.
      • It is debatable whether consumer loans need a push at all.
    • Retail and household debt growth
      • Retail loan growth, while currently below its 2016 peak of 20%, has been managing to grow at around 15%.
      • Household debt: In December 2019, RBI cautioned lenders on household debt levels and the associated risk on retail loans.
      • Relation with banking crisis: Higher growth in household debt is associated with higher chances of a banking crisis (Household Debt And Monetary Stability, IMF, 2017).
    • Consumer loans not always add to capital stocks: Another kind of consumer loan, the home loan, need not always add to incremental capital stock. Given how slowly the supply of homes responds to demand in the short term, excess credit supply is known to add to the risk.
      • Of course, consumer loans such as education loans, which upgrade human resources, are a notable exception.
      • In fact, mortgage booms have played key roles in most credit blow-ups.
    • Surprising steps by the RBI
      • Risk weight of consumer loans lowered: Surprisingly, RBI reduced the risk weight for consumer loans other than credit card debt from 125% to 100% in September 2019.
      • Waiver to CRR requirement: Recently, RBI decided to waive lenders’ cash reserve requirement against new exposure to home, auto and Micro, Small and Medium Enterprises (MSME) loans.
    • Futile attempts to revive commercial lending:
      • Home loan growth was hovering around 15% for the last two years.
      • Commercial credit growth falling: Growth of commercial credit (loans to industry and services as per RBI), which last exhibited 20%-plus growth in June 2012, has been falling.
      • Since 2016, its annual growth averaged around 6%, with a strong downward trend observed since March 2019.
      • Efforts to revive commercial lending have not borne fruit.
      • Misplaced belief needs to be relooked: This misplaced belief—“if not commercial, let retail loans revive the economy”—needs to be re-looked.
      • The simplistic understanding that any credit uptick can revive the economy needs to change.
    • What retails at best can achieve? India’s retail credit push, if successful, may at best check the downward trend in GDP growth.
      • The argument that it will revive growth is based on optimism.
      • The assumption here being that consumption will drive the current capacity utilization of 69% to somewhere above 85%, which will trigger capital expenditure.
      • This assumes that the consumer loan boom, already a decade old, will continue for another 3-4 years.
    • Chances of household balance sheet weakening: In an environment of low job growth, it is difficult to see how household leverage will not increase.
      • If capacity utilization does not pick up sufficiently to revive growth, then along with banking and corporate balance sheets, household balance sheets will also be weakened.
      • Over the next 3-5 years, the downside of RBI’s retail push appears at least as significant as the upside.

    Conclusion

    • Polity stability needed: The government and RBI must make more determined efforts to revive corporate activity. Policy stability and confidence in the business environment may push commercial credit better than mere interest rate cuts.
    • Need to increase government spending: Among the options available, using good old government spending to stimulate infrastructure spending, and eventually, the economy, appears to be a wiser option.

     

  • 28th February 2020 | Prelims Daily with Previous Year Questions

    [WpProQuiz 379]

  • No gains for taxpayers

    Context

    Loss expected from lower tax rates may be countered by gains from the settlement of cases, higher dividend taxes on top incomes, and the wider scope for taxing international incomes.

    Simplification and providing ease to the taxpayers

    • Fiscal constraints leaving no room for a lower rate: Ahead of The Union budget, taxpayers had anticipated a wide range of measures that they hoped would stoke demand.
      • These ranged from lower tax rates to a more even tax structure on income from various sources.
      • As the former was less feasible given the fiscal constraints, the budget proposals focused on simplification and providing ease to the taxpayer.
    • Simplification in personal tax: The recalibration of personal income tax slabs was suggested as a step towards simplification.
      • However, its uptake is contingent on the preference for new slabs.
      • Who will not opt for a new slab? Switching over to the new slab rates is not beneficial to-
      • An individual currently claiming full exemptions.
      • An individual with incomes comprising largely of capital gains.
      • It is possible, however, that individuals do not claim such exemptions or deductions.
    • How switching to new slab impact revenue? An analysis of data published by the Central Board of Direct Taxes suggests that for the assessment year 2018-19, it suggest improvement in the collection.
      • 1% improvement: If individuals do switch over to the new regime, it may translate to a 1 per cent improvement in tax collections, rather than a loss.
    • Limited takers of the new slab: It can be inferred that this option may be exercised by few individuals, if at all, since the potential gains from foregoing exemptions and the intended simplification is expected to be limited.

    Tax disputes

    • The new scheme proposed: A common concern among taxpayers is protracted disputes. To reduce litigation, a new scheme has been proposed.
    • Importance of precedence in disputes: 39 per cent of the cases made a reference to a similar case in the previous year. This underscores the importance of precedence.
    • In such cases, the settlement is not a superior option as the waiver of the penalty and interest does not offer any advantage against a decision that would impact future assessment.
    • Success rates of disputes: The success rate of the tax department is 27 per cent at the Income Tax Appellate Tribunal (ITAT) and the Supreme Court and 12 per cent in appeals filed in high courts.
      • Given the odds of success, an assessee may thus be tempted to pursue litigation.
    • Incentivising the settlement: Taxpayers may choose to settle for the waiver of interest and penalty in cases where it is one time and does not set a precedent for future transactions.

    Dividend Distribution Tax (DDT)

    • What is DDT?  It is one of the significant change is in the taxation of dividends.
      • The dividend distribution tax is a unique levy on distributed profits and is payable by the distributing company.
      • What is the shortcoming in DDT? The shortcoming of such tax is that foreign investors can’t claim the credit.
      • Additional 10 % of DDT: In an effort to make the tax progressive, an additional dividend tax of 10 per cent was introduced for domestic investors receiving dividend in excess of Rs 10 lakh.
    • Dividend pay-out decreased after DDT: Changes in DDT were accompanied by a decline in dividend pay-out – the proportion of profits paid as dividends declined from 30 per cent in early 2000s to 22 per cent in 2019 (BSE 500 companies).
      • Chance of improvement in pay-outs: It is expected that the reversion to the classical system may improve dividends pay-outs.
      • However, this will benefit individual taxpayers with incomes below Rs 5 lakh as the slab rate applicable is less than the existing rate.

    Taxing cross-border income

    • In the international arena, India is determined to tax cross-border incomes.
    • Taxing digital companies: The addition of explanation 3A to the Income Tax Act reinforces India’s commitment to taxing digital companies.
    • What comprises the business with nexus to India: The proposed amendment clarifies that incomes related to the advertisement, sale of data of a person residing in India and sale of goods and services based on the data of a person residing in India, may be attributed to a business with nexus in India.
    • Taxing citizen not taxable anywhere: To tax Indian citizens that are not taxable in any other jurisdiction, the Act will now deem such individuals as resident taxable in India.
      • While the application of the law may be challenged giving rise to disputes, it is a step forward.

    The proposal of Citizen’s charter

    • Charter on rights and obligations: The finance minister also referred to introducing a citizen’s charter that incorporates taxpayer’s rights and obligations.
      • Limits of charters: International experience shows that charters have limited enforceability unless adopted in primary legislation.
    • Supporting charters with legislation: Introducing charter to the statutes may, therefore, prove to be a positive initiative.
      • Faith can be built through enforcement of the charter.
      • However, the penal provisions must be well-thought-out so as to avoid adding another contentious element.

    Conclusion

    • Lack of uniformity: The budget proposals aimed to provide simplicity, yet much remains to be done, given the lack of uniformity in the taxation of incomes such as capital gains.
    • Limited revenue implications: The success of schemes proposed is contingent on the traction they gain. As for the revenue implications, the impact of these measures may, in fact, be limited.
    • Countering loss through gains from settlements: Loss expected from lower tax rates may be countered by gains from the settlement of cases, higher dividend taxes on top incomes, and the wider scope for taxing international incomes.

  • Aadhaar, no standout performer in welfare delivery

    Context

    Aadhaar-based biometric authentication did not reduce PDS leakages, finds Jharkhand-based empirical study

    What was the rationale behind Aadhaar?

    • What did the UIDAI’s report say? Aadhaar has curtailed leakages of government subsidies. Through Aadhaar, savings worth ₹90,000 crores have accrued to the government– UIDAI’s2017-18 annual report.
    • Plugging the leakages in the schemes: When Aadhaar was conceived a decade ago, the rationale postulated was: India spends nearly three trillion rupees a year across several core welfare programmes such as Public Distribution System (PDS), LPG, Mahatma Gandhi National Rural Employment Guarantee Act etc.
      • Huge leakage due to duplications: Roughly 30-40% of this three trillion is lost in leakages.
      • Leakages are largely due to ‘ghost’ and ‘duplicate’ beneficiaries using fake identities to avail these benefits; a unique identity biometric scheme can eliminate these leakages and vastly improve efficiency in welfare delivery.
    • Improve welfare delivery efficiency: In fact, the former Union Minister, Arun Jaitley, even renamed the Aadhaar Bill to ‘Targeted Delivery of Financial and other Subsidies, Benefits and Services’ Bill, making it amply clear that Aadhaar’s primary, if not sole purpose, was to improve welfare delivery efficiency.

    What are the findings of study?

    • How was the study carried out?
      • Use of RCT and sample of 15 million people: They conducted a scientifically designed study of the PDS system in Jharkhand covering 15 million beneficiaries using the technique of randomised control trials (RCT).
      • In the study, one set of beneficiaries went through the Aadhaar-based biometric authentication while the other group used the old system of procuring their ration.
    • The results were then compared to see if Aadhaar-based biometric authentication had any impact in reducing leakages.
    • What were the findings of the study?
    • No measurable benefit: The study concluded that Aadhaar-based biometric authentication had no measurable benefit.
      • No reduction in leakages: Aadhaar-based biometric authentication did not reduce leakages due to elimination of ghosts and duplicates, as widely perceived.
    • Increase in transaction costs for beneficiary: On the other hand, they found that Aadhaar-based biometric authentication increased transaction costs for beneficiaries.
      • 17% extra cost: That is, to claim ration worth ₹40, beneficiaries in the Aadhaar system incurred an additional ₹7 of costs than those in the old system, because of multiple trips to authenticate themselves and the opportunity cost of time spent.
      • This is a whopping 17% extra cost burden of the value of the benefit they were entitled to receive.
    • Type 1 error of exclusion: To make matters worse, Aadhaar-based biometric authentication also introduced what empirical scientists call Type I error of exclusion.
      • Aadhaar authentication falsely rejected genuine PDS beneficiaries who were then denied their ration supplies.
      • The study finds that nearly 10% of legitimate beneficiaries were denied their ration either because they did not have their Aadhaar linked to their ration card or due to an exclusion error.
    • Summary of the finding: In summary, the study states that there was-
      • No direct impact of Aadhaar in reducing leakages.
      • 2. It denied ration to 10% of genuine beneficiaries and increased costs by 17% to those that were forced to get their ration using Aadhaar.
      • Pain with no gain: They conclude that Aadhaar authentication for PDS in Jharkhand caused “some pain with no gain”.

    What premises were wrong about Addhaar?

    • No testing of empirical belief: There was a widespread belief among the policy elite that ghosts and duplicates were the scourge of India’s welfare delivery and that Aadhaar would eliminate this.
      • But this belief was never empirically tested.
      • Based on this belief, an entire story was concocted about improving welfare efficiency by eliminating ghosts and duplicates with Aadhaar and a whole new law was enacted to this effect.
    • The pilot project not carried out: Many studies now establish that ghosts and duplicates are not the significant cause of leakages.
      • It would have been better to have undertaken a robust pilot project of scale to test the belief about ghosts and duplicates, before embarking on it nationwide.

    Conclusion

    In a sociologist’s world and in a liberal society, a policy that could run the risk of denying welfare to just a few people, putting their lives at risk, is not worth implementing regardless of how many millions it benefits.

     

     

     

     

  • Explained: Central Consumer Protection Authority (CCPA)

     

     

    Recently the Union Ministry of Consumer Affairs has announced that a Central Consumer Protection Authority (CCPA) will be established by the first week of April.

    What is the Central Consumer Protection Authority?

    • The authority is being constituted under Section 10(1) of The Consumer Protection Act, 2019.
    • The Act replaced The Consumer Protection Act, 1986, and seeks to widen its scope in addressing consumer concerns.
    • The CCPA, introduced in the new Act, aims to protect the rights of the consumer by cracking down on unfair trade practices, and false and misleading advertisements that are detrimental to the interests of the public and consumers.

    Why need CCPA?

    • The new Act recognizes offences such as providing false information regarding the quality or quantity of a good or service, and misleading advertisements.
    • It also specifies action to be taken if goods and services are found “dangerous, hazardous or unsafe”.
    • The CCPA will have the powers to inquire or investigate into matters relating to violations of consumer rights or unfair trade practices suo motu, or on a complaint received, or on a direction from the central government.

    What can the possible structure of CCPA be?

    • The proposed authority will be a lean body with a Chief Commissioner as head, and only two other commissioners as members — one of whom will deal with matters relating to goods while the other will look into cases relating to services.
    • It will be headquartered in the NCR of Delhi but the central government may set up regional offices in other parts of the country.
    • The CCPA will have an Investigation Wing that will be headed by a Director General.
    • District Collectors too, will have the power to investigate complaints of violations of consumer rights, unfair trade practices, and false or misleading advertisements.

    What kind of goods and food items in particular, can be classified as “dangerous, hazardous or unsafe”?

    • This is not specified in the notification of the Act.
    • Regarding food, an official said the CCPA will ensure that all standards on packaged food items set by regulators such as the FSSAI are being followed.

    What will the CCPA do if any goods or services are found not meeting these standards?

    Under Section 20 of The Consumer Protection Act, the proposed authority will have powers to:

    1. recall goods or withdrawal of services that are “dangerous, hazardous or unsafe;
    2. pass an order for refund the prices of goods or services so recalled to purchasers of such goods or services and
    3. discontinuation of practices which are unfair and prejudicial to consumer’s interest

    Penalties:

    For manufacture, selling, storage, distribution, or import of adulterated products, the penalties are:

    1. If injury is not caused to a consumer, fine up to Rs 1 lakh with imprisonment up to six months;
    2. If injury is caused, fine up to Rs 3 lakh with imprisonment up to one year;
    3. If grievous hurt is caused, fine up to Rs 5 lakh with imprisonment up to 7 years;
    4. In case of death, fine of Rs 10 lakh or more with a minimum imprisonment of 7 years, extendable to imprisonment for life.

    How will it deal with false or misleading advertisements?

    • Section 21 of the new Act defines the powers given to the CCPA to crack down on false or misleading advertisements.
    • The CCPA may order investigation that any advertisement is false or misleading and is harmful to the interest of any consumer, or is in contravention of consumer rights.
    • If dissatisfied, the CCPA may issue directions to the trader, manufacturer, endorser, advertiser, or publisher to discontinue such an advertisement, or modify it in a manner specified by the authority, within a given time.

    Penalties:

    1. The authority may also impose a penalty up to Rs 10 lakh, with imprisonment up to two years, on the manufacturer or endorser of false and misleading advertisements.
    2. The penalty may go up to Rs 50 lakh, with imprisonment up to five years, for every subsequent offence committed by the same manufacturer or endorser.
    3. CCPA may ban the endorser of a false or misleading advertisement from making endorsement of any products or services in the future, for a period that may extend to one year.
    4. The ban may extend up to three years in every subsequent violation of the Act.

    What other powers will the CCPA have?

    • While conducting an investigation after preliminary inquiry, officers of the CCPA’s Investigation Wing will have the powers to enter any premise and search for any document or article, and to seize these.
    • For search and seizure, the CCPA will have similar powers given under the provisions of The Code of Criminal Procedure, 1973.
    • The CCPA can file complaints of violation of consumer rights or unfair trade practices before the District, State, and the National Consumer Disputes Redressal Commission.
    • It will issue safety notices to alert consumers against dangerous or hazardous or unsafe goods or services.

    Also read:

    https://www.civilsdaily.com/news/five-new-rights-you-get-as-a-consumer/

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