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  • 12th June 2021 | Prelims Daily with Previous Year Questions

    [WpProQuiz 672]

    [WpProQuiz_toplist 672]

  • [Yojana Archive] One Nation-One Election

    May 2021

    Have you been hearing the words ‘simultaneous elections’ often these days? That’s because there is a proposal to conduct the elections to the Lok Sabha and a State assemblies at the same time.

    What are simultaneous polls?

    • Currently, elections to the state assemblies and the Lok Sabha are held separately — that is whenever the incumbent government’s five-year term ends or whenever it is dissolved due to various reasons.
    • This applies to both the state legislatures and the Lok Sabha. The terms of Legislative Assemblies and the Lok Sabha may not synchronize with one another.
    • For instance, Rajasthan faced elections in late 2018, whereas Tamil Nadu will go to elections only in 2021.
    • But the idea of “One Nation, One Election” envisages a system where elections to all states and the Lok Sabha will have to be held simultaneously.

    Simultaneous polls in India

    • India had concurrent elections for the first two decades.
    • Starting from the first general elections of free India in 1951 and the next three cycles of elections, the country witnessed concurrent Lok Sabha and Assembly elections.
    • Exceptions to these were a few states like Kerala where a mid-term election was held in 1960 on the premature dissolution of the Assembly.
    • In Nagaland and Pondicherry where the Legislative Assembly was created only after the 1962 general elections.

    End of the era

    • The fourth Lok Sabha constituted in 1967 was dissolved prematurely in 1971 ahead of its normal term resulting in a mid-term Lok Sabha election.
    • This was the beginning of the end of simultaneous elections in India.
    • Extension of the term of Lok Sabha during the National Emergency declared in 1975 and the dissolution of Assemblies of some States after the 1977 Lok Sabha election further disturbed this cycle.
    • Currently, there are at least two rounds of Assembly general elections every year.

    Making simultaneous elections a reality

    • Sections 14 and 15 of the Representation of the People Act, 1951, empower the Election Commission to notify elections any time during the last six months of the term of the House and not earlier than that.
    • Therefore, if the terms of the Houses are expiring within a window of three to four months, it would be legally possible to hold elections simultaneously to constitute the new Houses.
    • In other words, to contemplate simultaneous elections, we need, as a starting point, a situation where the Lok Sabha and the Legislative Assemblies of all States and UTs have their terms ending together.

    Synchronizing the terms of the Houses

    • Both the Lok Sabha and Legislative Assemblies (ordinarily) have a term of five years.
    • Article 83 of the Constitution provides for the tenure of Lok Sabha. Identical provisions are present in Article 172(1) regarding the term of the Legislative Assemblies.

    There is no duplication of work in preparing the electoral rolls for the two elections and hence no extra labor or expenditure is involved on this count.

    What is required?

    • This necessarily calls for either extending the terms of several of the Houses or curtailing of terms or a combination of both, that too by two to three years in some cases.
    • For enabling such curtailing or extension of the term, the relevant Articles of the Constitution mentioned above will have to be suitably amended.

    Why Simultaneous Elections?

    Two seemingly relevant factors in favor of simultaneous elections as opposed to separate elections are:

    1. Effort saving: Simultaneous elections reduce labour, time and expenditure in the conduct of elections; and
    2. Instances of pause in governance are addressed if elections are conducted in one go instead of staggered elections.

    [1] How is effort saving possible?

    • Electoral roll: Polling stations for Lok Sabha and Legislative Assembly elections are the same. So is the electoral roll.
    • Labour: There is no duplication of work in preparing the electoral rolls for the two elections and hence no extra labour or expenditure is involved on this count.
    • Logistics: In the conduct of elections, all logistic arrangements are replicated for the two elections when the same drill can cater to both the elections if held together.
    • Security: This will also mean saving in terms of human resources. Another area of saving in simultaneous elections would be in the deployment of the Central Police Force.

    [2] Governance pause can be avoided

    • Instances of pause in governance is due to the Model Code of Conduct (MCC).
    • MCC is a set of behavior guidelines for candidates and political parties that comes into operation from the date election is announced by the Election Commission.
    • A crucial part of the MCC is the restrictions on the party in power.  If all elections are held together, the restrictions under MCC will be through in one go.

    [3] Help reduce campaign expenses

    • Simultaneous elections can bring considerable savings in the election propaganda campaign expenditure for the political parties.
    • Given that political funding is a major factor in the increasing menace of corruption, the move to reduce campaign expenditure is a welcome initiative.

    [4] Voter turnout

    • A nationwide election could push up the voter turnout since a once-in-five-years event is bound to attract more enthusiastic participation across all sections.
    • Frequent elections can bring in the election-fatigue factor at least among some sections of electors.
    • The simultaneous elections help address the fatigue element and the usually observed urban apathy in voting. Better electors’ participation will further add to the credibility of the election.

    Exceptions to this debate: Local Bodies’ Elections

    • The local bodies’ elections have not been considered for the analysis here.
    • This is for the reason that the elections to local bodies cannot be clubbed with the proposed simultaneous elections for the Lok Sabha.

    Why?

    • The elections to local bodies are conducted under the superintendence, direction, and control of a different constitutional authority, namely, the respective State Election Commission.
    • Holding local bodies’ elections along with the other elections will require the team of the same polling officials to report to and take instructions from two different authorities simultaneously.
    • There is a distinct set of polling stations too for local bodies’ elections.
    • Further, the litigation forum before which these elections can be challenged is different.

    Challenges in ensuring simultaneous elections in India:

    [1] Synchronizing the Houses

    • Bringing the terms of all the Houses to sync with one another necessarily calls for either extending the terms of several of the Houses or curtailing of terms or a combination of both.
    • This may be by two to three years in some cases.
    • For this, relevant Articles of the Constitution will have to be suitably amended.

    [2] Midterm dissolution cannot be controlled

    • Even if the terms of the Houses are in sync as a one-time measure, we will still need an adequate legal safeguard in place to avoid mid-term dissolution and protect the simultaneous elections cycle.
    • This can be a tough task in conventionally fragile states with smaller assemblies with coalitions.

    [3] EVM related expenses

    • One aspect that could offset the savings would be the doubling of expenses on electronic voting machines (EVMs).
    • Considering that the incidental recurring expense in the storage and security of the EVMs will also be a considerable amount.
    • The overall expenditure in holding elections may not see any substantial dip on account of simultaneous elections.

    Arguments against the idea

    • National and state issues are different, and holding simultaneous elections is likely to affect the judgment of voters.
    • Since elections will be held once in five years, it will reduce the government’s accountability to the people. Repeated elections keep legislators on their toes and increases accountability.
    • When an election in a State is postponed until the synchronized phase, President’s rule will have to be imposed in the interim period in that state.
    • This will be a blow to democracy and federalism.

    Way forward

    • We need an adequate legal safeguarding place to avoid mid-term dissolution and protect the simultaneous elections cycle.
    • For maintaining the electoral cycle, some countries have legal provisions to the effect that for a ‘no-confidence motion’.
    • Their proposed resolution also contains a constructive ‘vote of confidence in an alternative government to continue with the tenure.

  • 12 June 2021 | Nikaalo Prelims Quiz- TS 27- Science and Technology Test 3: Non-Conventional Energy; Health Information Technology

    [WpProQuiz 670]

    [WpProQuiz_toplist 670]

  • [pib] Aspirational Districts Programme

    In an independent appraisal report released today, United Nations Development Programme (UNDP) India has lauded the Aspirational Districts Programme (ADP) as a very successful model of local area development.

    Aspirational Districts Programme

    • Launched in January 2018, the ‘Transformation of Aspirational Districts’ initiative aims to remove this heterogeneity through a mass movement to quickly and effectively transform these districts.
    • The broad contours of the programme are Convergence (of Central & State Schemes), Collaboration (of Central, State level ‘Prabhari’ Officers & District Collectors), and Competition among districts driven by a spirit of mass Movement.
    • With States as the main drivers, this program will focus on the strength of each district, identify low-hanging fruits for immediate improvement, measure progress, and rank districts.

    Selection of districts

    • A total of 117 Aspirational districts have been identified by NITI Aayog based upon composite indicators.
    • These include Health & Nutrition, Education, Agriculture & Water Resources, Financial Inclusion and Skill Development and Basic Infrastructure which have an impact on Human Development Index.

    Weightage has been accorded to these districts as below:

    • Health & Nutrition (30%)
    • Education (30%)
    • Agriculture & Water Resources (20%)
    • Financial Inclusion & Skill Development (10%)
    • Basic Infrastructure (10%)

  • [pib] Sub-Mission on Agricultural Mechanization (SMAM)

    To empower the farmers through the Sub-Mission on Agricultural Mechanization (SMAM) scheme, the government has released funds for various activities of Farm Mechanization.

    Sub-Mission on Agricultural Mechanization (SMAM)

    • The Agri ministry has launched this mission in 2014-15 with the objectives of increasing the reach of farm mechanization to small and marginal farmers and to the regions & difficult areas where farm power availability is low.
    • Under this scheme, it has been proposed to established Village Level farm Machinery Bank (VLFMB), Custom Hiring Centres (CHC) and High Tech Hubs (HTH) in order to facilitate easy availability of farm implements and machinery for hire by farmers.

    Why need such a scheme?

    • Agricultural Mechanization plays a vital role in optimizing the use of land, water energy resources, manpower and other inputs like seeds, fertilizers, pesticides etc to maximize the productivity of the available cultivable area and make agriculture a more profitable and attractive profession for rural youth.
    • It is one of the key drivers for the sustainable development of the agriculture sector.
    • Sustainable Agriculture mechanization growth will require appropriate and precision agricultural machinery adequately supported by the latest technology.

  • [pib] Aerosol Nucleation

    Scientists tracing the concentration, size and evolution of aerosol particles smaller than 3 nanometers at an urban location in India have found the frequent formation of sub-3nm aerosol particles in the atmosphere.

    What is Aerosol Nucleation?

    • The formation of small molecular clusters of sub-3nm size is technically called aerosol nucleation, and subsequent growth of these newly formed clusters to the large sizes is called atmospheric new particle formation (NPF).
    • NPF occurs everywhere in the terrestrial troposphere, and therefore it is a large source of aerosol numbers to the atmosphere.
    • Though extensively studied globally using field observations, laboratory experiments and modelling approach, it is largely unexplored in India.

    What has the new research found?

    • The research showed that a pool of sub-3nm particles is often present in the atmosphere, but how fast these clusters grow depends on various factors.
    • The scientists observed that only half of these events showed newly formed molecular clusters growing past 10 nm size.
    • Thus particle size distributions display a conventional banana-shaped aerosol growth, which is indicative of regional NPF event.

    Role of Sulphur

    • The team found a strong positive correlation between sub-3nm particle concentrations and sulphuric acid concentrations, confirming the potential role of sulfuric acid in the formation of sub-3nm particles.
    • While NPF often starts with sulphuric acid in the atmosphere, sulphuric acid alone fails to explain observed particle formation and growth rates in the atmosphere.
    • Other vapours such as ammonia, amines and organics play a crucial role in the growth of newly formed particles.
    • This has critical importance as a major fraction of these newly formed particles can reach to sizes of cloud condensation nuclei where they have climatic impacts.

  • Why companies are adopting sustainable business models?

    The article discusses the three undercurrents that are pushing companies to adopt more sustainable business models.

    Demand for sustainable business practices

    • Companies across the world are facing pressure to adopt sustainable business practices.
    • In a global first, a judicial court in the Netherlands has invoked the principles of human rights obligations of companies to rule that the Royal Dutch Shell will have to further accelerate its targeted reduction in greenhouse gas (GHG) emission.
    •  The shareholders of Chevron forced upon the management a resolution to set strict emission targets from the products that it sells.
    • The German cabinet approved a law that requires all coal-fired plants to close down much earlier than the target date set only eighteen months ago.
    • In India, the SEBI came out with a new set of Business Responsibility and Sustainability Reporting (BRSR).
    • BRSR will be mandatory for the top 1,000 companies from the next year.

    Three factors driving the change

    1) Investors’ pull

    • Workers saving for their pension do not want their investments to go to companies whose tailings-dam can burst and cause hundreds of death in Brazil.
    • Investors also realise the long-term business risk of companies if sustainability isn’t a focus.

    2) Governments’/regulators’ push

    • In 2021, the US announced that it will cut emissions by over 50% by 2030.
    • Japan has almost doubled its 2030 targets.
    • The UK has now announced a target to cut 40-45% by the same time, from the earlier goal of a 30%-cut.
    • China has announced that its emissions will peak by 2030, and by 2060, it would have net zero emissions.
    • India is expected by the global community to announce net-zero by 2050.
    • All of these have huge implications not only for hydrocarbon companies but across multiple sectors.
    • Banking regulators are asking banks to include climate in the risk assessment of the companies they lend to.
    • Insurance and pension regulators are raising similar questions in their sector.

    3) Measurement/reporting

    • When sustainability debates picked up, many organisations like CDP, CDSB, PRI, GRI, TCFD, IMP, IIRC, SASB, etc, sprang up to fulfill the need for sustainability reporting.
    • Often, these worked at cross purposes and in competition with each other, leading to ‘greenwashing’ and other malpractices and creating confusion in the minds of investors.
    • But, the realisation that the investors need a set of comparable and verifiable reporting formats has gathered momentum in the past one year.
    • The last excuse to avoid focus on sustainable business practices will also wither away.

    Consider the question “Financial capital is just one of the multiple capitals a successful company must possess. This brings sustainability into the focus. In light of this, discuss the factors that are forcing the companies to factor in the sustainability in their business models.”

    Conclusion

    The decades-old debate on environmental damage and sustainability is now reaching a decisive phase. Companies need to factor in the sustainability aspect in their profit calculus to remain relevant in changing world.

    Source:

    https://www.financialexpress.com/opinion/the-sustainability-heat-on-companies/2268494/

  • Important International Economic Organizations

    11th June 2021

    Bank for International Settlements (BIS)

    • Bank for International Settlements (BIS) – is an intergovernmental organization of central banks which “fosters international monetary and financial cooperation and serves as a bank for central banks.”
    • It is not accountable to any national government.
    • The mission of the Bank for International Settlements (BIS) is to serve central banks in their pursuit of monetary and financial stability, to foster international cooperation in those areas and to act as a bank for central banks.
    • The Basel Committee for Banking Supervision (BCBS), while technically separate from the BIS, is a closely associated international forum for financial regulation that is housed in the BIS’ offices in Basel, Switzerland
    • The BCBS is responsible for the Basel Accords, which recommend capital requirements and other banking regulations that are widely implemented by national governments.
    • The BIS also conducts research on economic issues and publishes reports.

    European Central Bank (ECB)

    • The European Central Bank (ECB) is the central bank responsible for monetary policy of those European Union (EU) member countries which have adopted the euro currency.
    • This region is known as the eurozone and currently comprises 19 members.
      The principal goal of the ECB is to maintain price stability in the euro area, thus helping preserve the purchasing power of the euro.
    • The European Central Bank (ECB) is headquartered in Frankfurt am Main, Germany. It has been responsible for monetary policy in the Euro area since January 1, 1999.

    KEY TAKEAWAYS

    • The European Central Bank (ECB) is the central bank of the combined Eurozone.
    • The ECB coordinates EU monetary policy, including setting the region’s target interest rates and controlling the supply of the Euro common currency.
    • The ECB’s primary mandate is to achieve price stability through low inflation.

    International Monetary Fund (IMF)

    • The International Monetary Fund (IMF) is the inter-governmental organisation established to stabilize the exchange rate in the international trade.
    • It helps the member countries to improve their Balance of Payment (BOP) condition thorough the adequate liquidity in the international market, promote the growth of global monetary cooperation, secure financial stability, facilitate international trade.
    • It is one of the Bretton woods twins, which came into existence in 1945, is governed by and accountable to the 189 countries that make up its near-global membership.

    Objectives of IMF:

    • To promote international monetary co-operation.
    • To ensure balanced international trade
    • To ensure exchange rate stability
    • To eliminate or to minimize exchange restrictions by promoting the system of multilateral payments.
    • To grant economic assistance to members countries for eliminating the adverse balance of payment
    • To minimize the imbalances in quantum and duration of international trade.

    IMF Quota & Voting Rights

    • Quotas was assigned to member countries reflecting their relative economic power & credit deposit to IMF
    • Subscription was to be paid 25% in gold or currency convertible into gold (effectively the dollar, which was the only currency then, still directly gold convertible for central banks) and 75% in the member’s own currency
    • Members were provided voting rights in proportion to their quota, hence member countries with higher quota have a higher say at IMF

    Special Drawing Rights

    • Special drawing rights (SDRs) are supplementary foreign exchange reserve assets defined and maintained by the International Monetary Fund (IMF)
    • SDR is not a currency, instead represents a claim to currency held by IMF member countries for which they may be exchanged.
    • The value of an SDR is defined by a weighted currency basket of four major currencies: the US dollar, the euro, the British pound, the Chinese Yuan and the Japanese yen
    • The central bank of member countries held SDR with IMF which can be used by them to access funds from IMF in case of financial crises in their domestic market

    Reverse Tansche

    • A certain proportion of a member country’s quota is specified as its reserve tranche.
    • The member country can access its reserve tranche funds at its discretion and is not under an immediate obligation to repay those funds to the IMF.
    • Member nation reserve tranches are typically 25% of the member’s quota.

    Organization for Economic Cooperation and Development (OECD)

    • Organisation for Economic Co-operation and Development (OECD) is an inter-governmental organization founded in 1961 to accelerate economic progress and world trade.
    • It is a very unique organization where 34 Democracies work together with market economies and 70 non-member economies promote economic growth, prosperity, and sustainable development.
    • The setting of the OECD reflects the peripheral discussion forum based on the policy research and analysis that helps governments in order to shape their policies that may lead to a formal agreement among member governments or be acted on in domestic or other international stages.
    • Most OECD members are high-income economies with a very high Human Development Index (HDI) and are regarded as developed countries.
    • The OECD headquarters at Paris, France. The OECD is funded by contributions from member states.

    United Nations Conference on Trade and Development (UNCTAD)

    • The United Nations Conference on Trade and Development (UNCTAD) was established in 1964. It is an intergovernmental body of the United Nations Generally Assembly for promoting the development-friendly integration of developing countries into the world economy.
    • UNCTAD grew from the view that existing institutions like GATT (now WTO), the International Monetary Fund (IMF), and World Bank were not properly organized to handle the particular problems of developing countries.

    Functions of UNCTAD

    • UNCTAD Objective is to maximize the trade, investment and development opportunities of developing countries and assist them in their efforts to integrate into the world economy on an equitable basis.
    • It functions as a forum for intergovernmental deliberations, supported by discussions with experts and exchanges of experience, aimed at consensus building.
    • It undertakes research, policy analysis and data collection for the debates of government representatives and experts.
    • It provides technical assistance tailored to the specific requirements of developing countries, with special attention to the needs of the least developed countries and of economies in transition.

    United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP)

    • The Economic and Social Commission for Asia and the Pacific (ESCAP) serves as the United Nations’ regional hub promoting cooperation among countries to achieve inclusive and sustainable development.
    • Established in 1947 with its headquarters in Bangkok, Thailand.
    • The largest regional intergovernmental platform with 53 Member States and 9 associate members, ESCAP has emerged as a strong regional think-tank offering countries sound analytical products that shed insight into the evolving economic, social and environmental dynamics of the region.
    • The Commission’s strategic focus is to deliver on the 2030 Agenda for Sustainable Development, which is reinforced and deepened by promoting regional cooperation and integration to advance responses to shared vulnerabilities, connectivity, financial cooperation and market integration.
    • ESCAP’s research and analysis coupled with its policy advisory services, capacity building and technical assistance to governments aims to support countries’ sustainable and inclusive development ambitions

    UN-ESCAP providing results-oriented projects, technical assistance and capacity building to member States in the following areas:

    • Macroeconomic Policy, Poverty Reduction and Financing for Development
    • Trade, Investment and Innovation
    • Transport
    • Environment and Development
    • Information and Communications Technology and Disaster Risk Reduction
    • Social Development
    • Statistics
    • Subregional activities for development
    • Energy

    United Nations Economic Commission for Africa (UNECA)

    • United Nations Economic Commission for Africa (UNECA) was established by the Economic and Social Council (ECOSOC) of the United Nations (UN) in 1958 as one of the UN’s five regional commissions, ECA’s mandate is to promote the economic and social development of its member States, foster intra-regional integration, and promote international cooperation for Africa’s development.
    • Made up of 54 member States, and playing a dual role as a regional arm of the UN and as a key component of the African institutional landscape, ECA is well-positioned to make unique contributions to address the Continent’s development challenges.
    • ECA’s strength derives from its role as the only UN agency mandated to operate at the regional and subregional levels to harness resources and bring them to bear on Africa’s priorities. T
    • o enhance its impact, ECA places a special focus on collecting up to date and original regional statistics in order to ground its policy research and advocacy on clear objective evidence; promoting policy consensus; providing meaningful capacity development; and providing advisory services in key thematic fields.

    ECA’s thematic areas of focus are as follows:

    Macroeconomic Policy
    Regional Integration and Trade
    Social Development
    Natural Resources
    Innovation and Technology
    Gender
    Governance
    Statistic

    United Nations Economic Commission for Europe (UNECE)

    • The United Nations Economic Commission for Europe (UNECE) was set up in 1947 by ECOSOC. It is one of five regional commissions of the United Nations.
    • UNECE’s major aim is to promote pan-European economic integration. UNECE includes 56 member States in Europe, North America and Asia. However, all interested United Nations member States may participate in the work of UNECE. Over 70 international professional organizations and other non-governmental organizations take part in UNECE activities.
    • Providing legal frameworks and assistance activities through instruments like the UNECE Multilateral Environmental Agreements.
    • Developing expertise and policy solutions in areas such as resource efficiency, environmental performance, environmental democracy, sustainable transport, sustainable energy, sustainable housing, green real estate markets, and sustainable forest products.
    • Measuring sustainable development and improving capacities for environmental monitoring and assessment.
    • Encouraging eco-innovations and green investment.
    • Raising awareness to change behavioral patterns towards sustainable consumption and production, for example through the UNECE Strategy for
    • Education for Sustainable Development.
    • Developing green standards, for example the standards for cleaner and smarter vehicles developed by the World Forum for the Harmonization of Vehicle Regulations.
    • The Customs Convention on International Transport of Goods under Cover of TIR Carnets, 1975 (TIR Convention) is an international customs transit system under the auspices of the United Nations Economic Commission for Europe (UNECE)
    • India has become the 71st nation to join the United Nations TIR (Transports Internationaux Routiers) Convention.

    World Bank Group

    • The World Bank Group (WBG) is a family of five international organizations that make leveraged loans to developing countries.
    • It is the largest and most famous development bank in the world and is an observer at the United Nations Development Group.
    • Its five organizations are the International Bank for Reconstruction and Development (IBRD), the International Development Association (IDA), the International Finance Corporation (IFC), the Multilateral Investment Guarantee Agency (MIGA) and the International Centre for Settlement of Investment Disputes (ICSID).

    The World Bank (IBRD)

    • IBRD provides loans and other assistance primarily to middle income and poor but creditworthy countries at interest rates slightly lower than that offered by other financial institutions but with long term maturity<countries which have the capacity to repay the loan amount with interest>

    Origins: IBRD, as the name suggests, was created in 1944 to help Europe reconstruct/ rebuild after World War II. To be a member of IBRD, a country has t join IMF first.

    Main function:

    • Long-term capital assistance to its member-countries for their reconstruction and development
    • It works closely with the rest of the World Bank Group to help developing countries reduce poverty, promote economic growth, and build prosperity.

    Other functions of IBRD Bank –

    • Supports long-term human and social development that private creditors do not finance.
    • Preserves borrowers’ financial strength by providing support in times of crisis, when poor people are most adversely affected
    • Promotes policy and institutional reforms (such as safety net or anti-corruption reforms)
    • Creates a favourable investment climate to catalyze the provision of private capital
    • Facilitates access to financial markets often at more favorable terms than members can achieve on their own
    • Resources of the Bank consist of the capital and borrowings.

     

    International Development Association

    • The International Development Association (IDA) is the part of the World Bank group that helps the world’s poorest countries.
    • Overseen by 173 shareholder nations, IDA aims to reduce poverty by providing loans (called “credits”) and grants for programs that boost economic growth, reduce inequalities, and improve people’s living conditions.
    • IDA complements the World Bank’s original lending arm—the International Bank for Reconstruction and Development (IBRD). IBRD was established to function as a self-sustaining business and provides loans and advice to middle-income and credit-worthy poor countries.
    • IBRD and IDA share the same staff and headquarters and evaluate projects with the same rigorous standards.
    • IDA is one of the largest sources of assistance for the world’s 771 poorest countries, 39 of which are in Africa, and is the single largest source of donor funds for basic social services in these countries.
    • IDA lends money on concessional terms. This means that IDA credits have a zero or very low-interest charge and repayments are stretched over 25 to 40 years, including a 5- to 10-year grace period. IDA also provides grants to countries at risk of debt distress.
    • In addition to concessional loans and grants, IDA provides significant levels of debt relief through the Heavily Indebted Poor Countries (HIPC) Initiative and the Multilateral Debt Relief Initiative (MDRI).
    • IDA’s work covers primary education, basic health services, clean water and sanitation, agriculture, business climate improvements, infrastructure, and institutional reforms.

    IFC

    Largest global development institution focused exclusively on the private sector in developing countries established in 1956

    Objectives of the IFC

    • To further economic development by encouraging the growth of private enterprise in member-countries
    • Invests in private enterprise in member-countries in association with private investors and without a Government guarantee, in cases where sufficient private capital is not available on reasonable terms
    • Seeks to bring together investment opportunities, private capital of both foreign and domestic origin, and experienced management
    • Stimulates conditions conducive to the flow of private capital – domestic and foreign – into productive investments in member-countries
    • IFC investment normally does not exceed 40% of the total investment of the enterprise.
    • In case of its investment by equity participation, it does not exceed 25% of the share capital.

    IFC and India

    • IFC makes strategic investments and advisory interventions to promote inclusive growth, help address climate change impacts, and encourage global and regional integration
    • In India, IFC is sharpening its focus on increasing access to energy, finance and healthcare; providing the sustainable infrastructure; and boosting regional linkages

    Focus Areas –

    Building infrastructure
    Facilitating renewable energy generation
    Promoting cleaner production, energy and water efficiency
    Supporting agriculture for improved food security
    Creating growth opportunities for small businesses
    Helping reform investment climate

    The Multilateral Investment Guarantee Agency (MIGA)

    • It is an international financial institution which offers political risk insurance and credit enhancement guarantees. Such guarantees help investors protect foreign direct investments against political and non-commercial risks in developing countries.
    • MIGA is a member of the World Bank Group and is headquartered in Washington, D.C., United States. It was established in 1988 as an investment insurance facility to encourage confident investment in developing countries.
    • MIGA’s stated mission is “to promote foreign direct investment into developing countries to support economic growth, reduce poverty, and improve people’s lives”. It targets projects that endeavour to create new jobs, develop infrastructure, generate new tax revenues, and take advantage of natural resources through sustainable policies and programs.
    • MIGA is owned and governed by its member states, but has its own executive leadership and staff which carry out its daily operations. Its shareholders are member governments which provide paid-in capital and have the right to vote on its matters.
    • It ensures long-term debt and equity investments as well as other assets and contracts with long-term periods. The agency is assessed by the World Bank’s Independent Evaluation Group each year.

    International Centre for the Settlement of Investment Disputes (ICSID)

    • It encourages the flow of foreign investment to develop countries through arbitration and conciliation facilities
    • Except for ICSID, India is a member of the other four groups <We don’t like external interference such as arbitration in our decision-making process, hence not the member of ICSID>

    Let’s revise World Bank in brief

    Name Main Function Comment
    IBRD (WB) Infrastructure loan to poor middle income but credit worthy countries at just below market rates India founder member, largest recipient of loan
    IDA Soft loan at virtually zero rate for poverty eradication to poorest countries India founder largest recipient, has crossed the per capita threshold for funding but will continue to receive IDA funds
    IFC Private sector arm of WB group, supports private enterprises in developing countries India founder, IFC launched India’s offshore masala bond
    MIGA Provide a guarantee to investors against non-commercial political risk India not a founding member
    ICSID Resolve disputes through arbitration and conciliation India not a member

    World Trade Organization (WTO)

    • The WTO is an intergovernmental organization that is concerned with the regulation of international trade between nations.
    • The WTO officially commenced on 1 January 1995 under the Marrakesh Agreement, signed by 123 nations on 15 April 1994.
    • It replaced the General Agreement on Tariffs and Trade (GATT), which commenced in 1948.
    • It is the largest international economic organization in the world.

    Functions of WTO

    • The WTO deals with regulation of trade in goods, services and intellectual property between participating countries.
    • It provides a framework for negotiating trade agreements and a dispute resolution process aimed at enforcing participants’ adherence to WTO agreements, which are signed by representatives of member governments and ratified by their parliaments.
     
     

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  • What Centre must do to meet the economic challenges

    The article takes an overview of the fiscal and monetary challenges posed by the second covid wave and suggest ensuring the availability of liquidity.

    GDP projections need to be re-examined

    •  According to NSO’s provisional estimates for 2020-21, the annual contraction in real GDP turned out to be 7.3 per cent.
    • The erstwhile GDP growth projections for 2021-22 are being re-examined to take into account the adverse impact of the second wave of the pandemic.
    • The RBI has revised down its 2021-22 real GDP growth forecast to 9.5 per cent.
    • Some other recent estimates (ICRA) indicate the feasibility of a 9 per cent growth.
    •  It is also important to consider nominal GDP growth for 2021-22 since that would be a critical determinant of fiscal prospects. 
    • In the light of supply-side and cost-push pressures, the RBI has projected CPI inflation at 5.1 per cent.
    • The nominal GDP growth may be projected at 13.4 per cent, that is, 1 percentage point lower than Centre’s budget assumption of 14.4 per cent.

    Fiscal aggregates

    • The Controller General of Accounts’ data indicate a gross tax revenues (GTR) of Rs 20.2 lakh crore and net tax revenue of Rs 14.2 lakh crore for 2020-21. 
    • The likely growth in GTR for 2021-22 may be derived by applying a buoyancy of 0.9.
    • This gives a tax revenue growth of 12 per cent, translating that to projected gross and net tax revenues for 2021-22 would mean Rs 22.7 lakh crore and Rs 15.8 lakh crore respectively. 
    • This implies some additional net tax revenues to the Centre amounting to Rs 0.35 lakh crore as compared to the budgeted magnitudes.
    • The main expected shortfall may still be in non-tax revenues and non-debt capital receipts.
    • According to the CGA numbers, their 2020-21 levels are respectively Rs 2.1 lakh crore and Rs 0.57 lakh crore.
    • Applying a growth rate of 15 per cent on these, a shortfall in 2021-22 to the tune of Rs 1.3 lakh crore may arise in non-tax revenues and non-debt capital receipts.

    So, how much would be the Fiscal Deficit?

    • The growth rates of non-tax revenues and and non-debt capital receipts average to a little lower than 15 per cent during the five years preceding 2020-21.
    • In any case, the large budgeted growth of 304 per cent in non-debt capital receipts for 2021-22 seems quite unlikely because of the challenges posed by the second wave.
    • Taking into account RBI’s recently announced dividend of Rs 0.99 lakh crore to the Centre, the main shortfall may be in non-debt capital receipts.
    • Together, the overall shortfall in total non-debt receipts may be limited to about Rs 0.9 lakh crore, or 0.4 per cent of estimated nominal GDP.
    • This indicates that a slippage, if any, in the budgeted fiscal deficit of 6.7 per cent of GDP, as revised in view of the recently released GDP data, could be a limited one.

    Way forward: Prioritise three heads

    • First, an increase in the provision for income support measures for the vulnerable rural and urban population.
    • Second, in light of the recent decision, the budgeted expenditure on vaccination of Rs 0.35 lakh crore ought to be augmented, at the very least, doubled.
    • Third, additional capital expenditure for select sectors, particularly healthcare, should also be provided for.
    • Together these additional expenditures would amount to Rs 1.7 lakh crore, about 0.8 per cent of the estimated nominal GDP.
    • Thus, we need to plan for a fiscal deficit of about 7.9 per cent of GDP.

    Borrowing programme would need RBIs support

    • The Centre has announced borrowings of Rs 1.6 lakh crore to meet the shortfall in the GST compensation cess.
    • Given the higher fiscal deficit, it would need to add to its borrowing programme another Rs 2.6 lakh crore, taking the total borrowing, including GST compensation, to about Rs 16.3 lakh crore, from Rs 12.05 lakh crore now.
    • Borrowing by states would be in addition to this.
    • The net result will be an unprecedented borrowing programme by the Centre which may require RBI’s support.
    • RBI is injecting liquidity into the system through various channels.
    • Banks have sufficient liquidity to subscribe to new debt.
    • This is indirect monetisation of debt.
    • This is not new, but the scale is much higher.
    • Direct monetisation is best avoided.
    • The success of the borrowing programme of the Centre depends on the support provided by the RBI.
    • The support need not be direct.
    • It can be indirect as is currently happening. RBI is injecting liquidity into the system in a big way.
    • Despite this, the money multiplier is low.
    • This may be attributed to two reasons: Low credit expansion and larger leakage in the form of currency.
    • The potential for money supply growth is large.
    • The discussion in the monetary policy statement on inflation is focused entirely on supply availability and bottlenecks in the distribution of commodities.
    • The output gap is certainly relevant.
    • But equally relevant in an analysis of inflation is liquidity in the system, and its impact on output and prices with lags.
    • The injection of liquidity has its limits.

    Conclusion

    With higher expenditure, financed through borrowings, the impact of liquidity expansion on inflation needs to be monitored.

  • Issues with special treatment of states with higher contribution to GST pool

    The article highlights the issues with the demand for special treatment of states with higher contribution to GST pool.

    Debate on GST

    • The issue of GST concessions on COVID relief has brought into focus the structural flaws in the GST structure.
    • In this process, the structure and design of GST — essentially a tax on consumption — is being questioned.
    • The issue of  “rich” states versus “poor” ones, the decision-making process in the GST Council, and the representation of various states in the Council have also come into the focus.

    Why States should be treated equally in GST Council

    1) Consensus on GST

    • The structure and design of GST and its basic features, as enshrined in the 101st Constitution Amendment Act, were unanimously adopted and endorsed by Parliament.
    • The broader and finer points of the law, were thoroughly discussed and debated and recommended by the GST Council after a complete consensus.
    • These were further debated and approved by not only Parliament but also by each of the state legislatures.
    • There was complete consensus even on the issue of delegated legislation — something unheard of in a federal environment.

    2) Equality of all states

    • In this process of consensus building, no state was accorded even the slightest of special privilege.
    • That is why the consensus surrounding GST was unprecedented whether in India or any other federation.
    • Therefore, arguing for special treatment of some states is a dangerous idea, particularly in governance, and more so in a welfare state.
    • For, this would open the gates for elitist arguments such as special rights for bigger taxpayers, unequal voting rights in elections and preferential treatment for a select few.

    3) Issues with greater contribution to GST revenue pool

    • It is not correct to argue that the GST collected in a state represents the revenue of that particular state for, under the GST mechanism, the tax deposited by a taxpayer in a state is a function of largely the value of supplies made by such taxpayer.
    • Approximately 50 per cent at the aggregate level and much higher at the state level of such values are of an inter-state nature.
    • In other words, most supplies made from any producing state are consumed elsewhere and the revenue in such a situation naturally and rightfully accrues to the destination state.

    4) No transfers based on a formula

    • It is equally fallacious to argue that under GST, most of the revenue is collected by the Union and is transferred to the states on the basis of some formula.
    • The quantum of IGST revenue that is settled to any state is directly related to the returns filed in that state and the cross utilisation of credit exhibited in such returns; part of this settlement also comprises tax on supplies destined to that state, as exhibited in the returns of such suppliers.
    • There is no “formula” as such for “transfer” of revenue collected by the Centre. Instead, such “transfers” are directly relatable to the consumption (whether intermediate or final) in any state.

    5) Locational or geographical advantage

    • There is another dimension to the higher revenue collection in a few states.
    • One may note that such states enjoy locational or geographical advantages, being mostly coastal and immensely suited to the needs of trade and distribution as also manufacturing.
    • Also, the disadvantage to such states on account of lower availability of certain vital minerals like coal and iron ore was undone by the principle of freight equalisation resorted to in the years following Independence.
    • This contributed, in no small measure, to the development of such states.

    6) Unequal transfers of Central receipts

    • The argument of unequal transfers of central receipts also does not hold water, either in India or in any other federation.
    • As is well known, such transfers are intended for correcting horizontal fiscal imbalances in a federation.

    Conclusion

    We should thus concentrate on carrying forward the glorious traditions of perhaps the only institution of co-operative federalism that we have been able to build so far.

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