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  • COVID & Economic Inequality

    Pandemic hit hard the lives, livelihood and the economy. It has also worsened income inequality. The article deals with the issues of impacts of pandemic and suggests ways to revive growth the deal with income inequality.

    Need to address growth and inequality issue

    • The second wave of the pandemic is spreading to rural areas also.
    • It is known that rural areas have poor health infrastructure.
    • Similar to the first wave, inequalities are also increasing during the second wave.
    • The country has to address the issue of rising inequalities for achieving higher sustainable growth and the well-being of a larger population.
    • According to the State of Working in India 2021 report of the Azim Premji University, the pandemic would push 230 million people into poverty.
    • CMIE data shows a decline in incomes and rising unemployment during the second wave.
    • U-shaped impact: The recent RBI Bulletin says that the impact of the second wave appears to be U-shaped.
    • In the well of the U are the most vulnerable — blue collar groups who have to risk exposure for a living and for rest of society to survive.

    K-shaped recovery and rising inequality

    • The recovery seemed to be K-shaped during the first wave.
    • The share of wages declined as compared to that of profits.
    • A large part of the corporate sector managed the pandemic with many listed companies recording higher profits.
    • On the other hand, the informal workers including daily wage labourers, migrants, MSMEs etc. suffered a lot with loss of incomes and employment.
    • The recovery post the second wave is also likely to be K-shaped with rising inequalities.

    Policies needed for higher growth and reduction in inequality

    1) Vaccination and healthcare facilities

    • An aggressive vaccination programme and improving the healthcare facilities in both rural and urban areas is needed.
    • Reducing the health crisis can lead to an economic revival.
    • Vaccine inequality between urban and rural areas has to be reduced.
    • The crisis can be used as an opportunity to create universal healthcare facilities for all, particularly rural areas.
    • Other states can learn from Kerala on building health infrastructure.

    2) Investment in infrastructure

    • The budget offered some good announcements relating to capital investment in infrastructure.
    • The Development Financial Institution (DFI) for funding long-term infrastructure projects is being established.
    • This can revive employment and reduce inequalities.
    • The government has to fast track infra investment.

    3) Safety net for vulnerable

    • The informal workers and other vulnerable sections including MSMEs have been dealt back-to-back blows due to the first and second waves.
    • A majority of workers have experienced a loss of earnings.
    • Therefore, the government has to provide safety nets in the form of free food grains for six more months, expand work offered under MGNREGA in both rural and urban areas.
    • The government also need to undertake a cash transfer to provide minimum basic income.

    Policies for growth

    • Focus on demand: On economic growth, the RBI Bulletin says that the biggest toll of the second wave is in terms of a demand shock as aggregate supply is less impacted.
    • Investment: In the medium term, the investment rate has to be increased from the present 30 per cent of GDP to 35 per cent and 40 per cent of GDP for higher growth and job creation.
    • Export: It is one of the main engines of growth and employment creation.
    • There is positive news on exports as the global economy is reviving.
    • Protectionist trade policy: In recent years India’s trade policy has become more protectionist and the country has to reduce import tariff rates.
    • Role of fiscal policy: In the near term, fiscal policy has to play a more important role in achieving the objectives of growth, jobs and equity by expanding the fiscal space by restructuring expenditure, widening the tax base and increasing non-tax revenue.

    Consider the question “Two waves of the Covid pandemic have worsened the inequality. India has to address the issue of rising inequalities for achieving higher sustainable growth and the well-being of a larger population. Suggest the policies that India should follow for higher growth and reduction in inequality.”

    Conclusion

    Vaccination, expansion in rural healthcare and cash transfers should be part of the strategy to boost demand and address inequalities.

  • 25 May 2021 | Nikaalo Prelims Quiz- TS 19- Economy Test 2: Fiscal Policy; Monetary policy Taxation in India; Money market; Capital market; External sector (BOP, NEER, REER)

    [WpProQuiz 646]

    [WpProQuiz_toplist 646]

  • Israel-Palestine conflict explained

    Context

    The Israeli–Palestinian conflict is one of the world’s most enduring hostilities, with the Israeli occupation of the West Bank and the Gaza Strip reaching 53 years. Various attempts have been made to resolve the conflict as part of the Israeli–Palestinian peace process.

    British Palestine & Jew Migration

    • The British, after the First World War, established a colony in Palestine maintaining that they would rule the area until the Palestinians were ready to govern themselves. This was called Mandatory Palestine as it was according to the League of Nations mandate.
    • Even before this time, there was a massive influx of Jews from Europe into Palestine in the hope of creating their homeland after being expelled from it for centuries.
    • Meanwhile, in the 1920s and 1930s, the Jewish population in Palestine increased by hundreds of thousands, facilitated by the British (who were honouring the Balfour Declaration).
    • During this time, tensions between the growing Jewish communities and the Arabs were increasing.
    • In 1936, the Palestinian Arabs revolted against the British as a result of the Palestinian Arabs viewing themselves increasingly as a nation.
    • This revolt was suppressed by the British with help from Jewish militias.
    • After the revolt, however, the British issued a white paper that limited Jewish immigration into Palestine and called for the establishment of a joint Jewish-Arab state in Palestine within ten years.
    • During the course of World War II, many Jews escaping Europe from the Holocaust were brought to Palestine illegally (because of the immigration limit) by Jewish organisations.
      Tensions escalated and the British handed over the problem to the newly established United Nations.
    • In 1947, the UN voted to establish separate Palestinian and Jewish states in the region dividing Palestine. This plan was rejected by the Arabs.

    Background of the Israel Palestine conflict

    Following the Declaration of the Establishment of the State of Israel on 14 May 1948, the Arab League decided to intervene on behalf of Palestinian Arabs, marching their forces into former British Palestine, beginning the main phase of the 1948 Arab–Israeli War.

    1948 Arab Israel War

    • The overall fighting, leading to around 15,000 casualties, resulted in cease-fire and armistice agreements of 1949, with Israel holding much of the former Mandate territory, Jordan occupying and later annexing the West Bank and Egypt taking over the Gaza Strip, where the All-Palestine Government was declared by the Arab League on 22 September 1948.
    • Through the 1950s, Jordan and Egypt supported the Palestinian Fedayeen militants’ cross-border attacks into Israel, while Israel carried out reprisal operations in the host countries.
    • Over the following years, tensions rose in the region, particularly between Israel and Egypt, Jordan, and Syria. Following the 1956 Suez Crisis and Israel’s invasion of the Sinai Peninsula, Egypt, Jordan, and Syria signed mutual defense pacts in anticipation of a possible mobilization of Israel troops.
    • The 1956 Suez Crisis resulted in a short-term Israeli occupation of the Gaza Strip and exile of the All-Palestine Government, which was later restored with Israeli withdrawal.
    • The All-Palestine Government was completely abandoned by Egypt in 1959 and was officially merged into the United Arab Republic, to the detriment of the Palestinian national movement. Gaza Strip then was put under the authority of the Egyptian military administrator, making it a de facto military occupation.
    • In 1964, however, a new organization, the Palestine Liberation Organization (PLO), was established by Yasser Arafat.[29] It immediately won the support of most Arab League governments and was granted a seat in the Arab League.

    1967 Six day War

    • The 1967 Six-Day War exerted a significant effect upon Palestinian nationalism, as Israel gained military control of the West Bank from Jordan and the Gaza Strip from Egypt.
    • The PLO was unable to establish any control on the ground and established its headquarters in Jordan, home to hundreds of thousands of Palestinians, and supported the Jordanian army during the War of Attrition, which included the Battle of Karameh.
    • However, the Palestinian base in Jordan collapsed with the Jordanian–Palestinian civil war in 1970. The PLO defeat by the Jordanians caused most of the Palestinian militants to relocate to South Lebanon, where they soon took over large areas, creating the so-called “Fatahland”.

    Camp David Accords 1978

    1)  The Camp David Accords were a pair of political agreements signed by Egyptian President Anwar Sadat and Israeli Prime Minister Menachem Begin on 17 September 1978.

    2)  The Camp David Accords established the so framework for peace in the Middle East and brought about the end of simmering conflict between Egypt and Israel.

    3)  They also called for the creation of Palestinian state in the area known as Gaza and on the West Bank of river Jordan.

    4)  However since the Palestinians were not represented at the talks, the resulting agreement was not formally recognized by the United Nations.

    • In 1982, following an assassination attempt on one of its diplomats by Palestinians, the Israeli government decided to take sides in the Lebanese Civil War and the 1982 Lebanon War commenced. The initial results for Israel were successful. Most Palestinian militants were defeated within several weeks, Beirut was captured, and the PLO headquarters were evacuated to Tunisia in June by Yasser Arafat’s decision.
    • First Intifada: The tension between Israel and Palestine escalated with Israel’s increased settlement in West Bank and Gaza Strip. Palestinians living in the West Bank and the Gaza Strip fomented the riots begun in 1987, known as the first intifada.
    • Second Intifada (2000-05): In 2000, a more violent Palestine Uprising started and a large number of civilians died on both sides. This is known as the second intifada. As a defensive measure, Israel constructed a West Bank Barrier along West Bank to separate Israel and Palestine settlements.

    Road Map for Peace

    • 1993 OSLO Accord: The Oslo Accords are a pair of peace agreements between the     Government of Israel and the Palestine Liberation Organization (PLO

    1) Oslo 1 Accord: It was officially called the Declaration of Principles on Interim Self-Government Arrangements. It was signed in Washington, D.C., in 1993.

    • The accords called for the withdrawal of Israeli forces from parts of the Gaza Strip and West Bank, and affirmed a Palestinian right of self-government within those areas through the creation of a Palestinian Interim Self-Government Authority.
    • Palestinian rule was to last for a five-year interim period during which “permanent status negotiations” would commence in order to reach a final agreement.
    • Israel was to grant interim self-government to the Palestinians in phases.
    • Along with the principles, the two groups signed Letters of Mutual Recognition—the Israeli government recognized the PLO as the legitimate representative of the Palestinian people, while the PLO recognized the right of the state of Israel to exist and renounced terrorism as well as other violence, and its desire for the destruction of the Israeli state.
    • In order that the Palestinians govern themselves according to democratic principles, free and general political elections would be held for the council.
    • Jurisdiction of the Palestinian Council would cover the West Bank and Gaza Strip, except for issues that would be finalized in the permanent status negotiations. The two sides viewed the West Bank and Gaza as a single territorial unit.
    • The five-year transitional period would commence with Israeli withdrawal from the Gaza Strip and Jericho area. There would be a transfer of authority from the Israel Defense Forces to the authorized Palestinians, concerning education and culture, health, social welfare, direct taxation, and tourism. The council would establish a strong police force, while Israel would continue to carry the responsibility for defending against external threats.

    2) Oslo 2 Accord: It was called The Interim Agreement on the             West Bank and the Gaza Strip and was signed on the 28th    September, 1995 in Taba (Egypt).

    • Oslo I also set the agenda for the follow-up agreement that became known as Oslo II, which would include discussion of the future governance of the city of Jerusalem (both sides claim it as their respective capital) as well as issues concerning borders, security and the rights, if any, of Israeli settlers in the West Bank.
    • A protocol for free elections for Palestinian Authority leadership was also established.
    • Oslo II, which was signed two years later, gave the Palestinian Authority, which oversees Gaza and the West Bank, limited control over part of the region, while allowing Israel to annex much of the West Bank, and established parameters for economic and political cooperation between the two sides.
    • As part of the treaty, both sides were prohibited from inciting violence or conflict against the other.
    • Israel was to collects taxes from Palestinians who work in Israel but live in the Occupied Territories, distributing the revenue to the Palestinian Authority.
    • Israel was also to oversee the trade of goods and services into and out of Gaza and the West Bank.

    3) Aftermath of the Oslo Accords

    • Unfortunately, any momentum gained from the ratification of the Oslo Accords was short-lived.
    • In 1998, Palestinian officials accused Israel of not following through on the troop withdrawals from Gaza and Hebron called for in the Oslo Accords.
    • After initially slowing down settlement construction in the West Bank, at the request of the United States, the building of new Israeli housing in the region began in earnest again in the early 2000s.
    • Conversely, critics of the Accords said that Palestinian violence against Israeli citizens increased in their aftermath, coinciding with the increasing power of the Palestinian Authority.
    • These critics felt that the Palestinian Authority was failing to adequately police Gaza and the West Bank, and identify and prosecute suspected terrorists.
    • With these disagreements providing the backdrop, negotiators from both sides reconvened, once again at Camp David, with the hope of following up on the Oslo Accords with a comprehensive peace treaty.
    • In September 2000, Palestinian militants declared a “Second Intifada,” calling for increased violence against Israelis after Sharon, who as prime minister visited the Temple Mount—a site sacred to both Jews and Muslims.

    Camp David Accord 2000

    • The 2000 Camp David Summit was a summit meeting at Camp David between United States president Bill Clinton, Israeli prime minister Ehud Barak and Palestinian Authority chairman Yasser Arafat. The summit took place between 11 and 25 July 2000.
    • Barak put forward the following as “bases for negotiation”, a non-militarized Palestinian state split into 3–4 parts containing 87–92% of the West Bank including only parts of East Jerusalem, and the entire Gaza Strip.
    • The offer also included that 69 Jewish settlements (which comprise 85% of the West Bank’s Jewish settlers) would be ceded to Israel, no right of return to Israel, no sovereignty over the Temple Mount or any core East Jerusalem neighbourhoods, and continued Israel control over the Jordan Valley.
    • Arafat rejected this offer. According to the Palestinian negotiators the offer did not remove many of the elements of the Israeli occupation regarding land, security, settlements, and Jerusalem.

    Taba Summit (2001)

    • The Israeli negotiation team presented a new map at the Taba Summit in Taba, Egypt in January 2001. The proposition removed the “temporarily Israeli controlled” areas, and the Palestinian side accepted this as a basis for further negotiation.
    • The sides declare that they have never been closer to reaching an agreement and it is thus our shared belief that the remaining gaps could be bridged with the resumption of negotiations following the Israeli elections.
    • The following month the Likud party candidate Ariel Sharon defeated Ehud Barak in the Israeli elections and was elected as Israeli prime minister on 7 February 2001. Sharon’s new government chose not to resume the high-level talks.

    Arab Peace Initiative

    • The Arab Peace Initiative was first proposed by Crown Prince Abdullah of Saudi Arabia at the Beirut Summit (2002). The peace initiative is a proposed solution to the Arab–Israeli conflict as a whole, and the Israeli–Palestinian conflict in particular.
    • The initiative was initially published on 28 March 2002, at the Beirut Summit, and agreed upon again in 2007 in the Riyadh Summit.
    • Unlike the Road Map for Peace, it spelled out “final-solution” borders based explicitly on the UN borders established before the 1967 Six-Day War. It offered full normalization of relations with Israel, in exchange for the withdrawal of its forces from all the occupied territories, including the Golan Heights, to recognize “an independent Palestinian state with East Jerusalem as its capital” in the West Bank and Gaza Strip, as well as a “just solution” for the Palestinian refugees.
    • The Israeli government has expressed reservations on ‘red line,’ issues such as the Palestinian refugee problem, homeland security concerns, and the nature of Jerusalem.

    What led to Recent Crash

    •  In October 2020, an Israeli court ruled that several Palestinian families living in Sheikh Jarrah—a neighborhood in East Jerusalem—were to be evicted by May 2021 with their land handed over to Jewish families.
    • In February 2021, several Palestinian families from Sheikh Jarrah filed an appeal to the court ruling and prompted protests around the appeal hearings, the ongoing legal battle around property ownership, and demanding an end to the forcible displacement of Palestinians from their homes in Jerusalem.
    • In late April 2021, Palestinians began demonstrating in the streets of Jerusalem to protest the pending evictions and residents of Sheikh Jarrah—along with other activists—began to host nightly sit-ins.  In early May, after a court ruled in favor of the evictions, the protests expanded with Israeli police deploying force against demonstrators.
    • On May 7, following weeks of daily demonstrations and rising tensions between protesters, Israeli settlers, and police during the month of Ramadan, violence broke out at the al-Aqsa Mosque compound in Jerusalem, with Israeli police using stun grenades, rubber bullets, and water cannons in a clash with protestors that left hundreds of Palestinians wounded.
    • On May 10, after several consecutive days of violence throughout Jerusalem and the use of lethal and nonlethal force by Israeli police, Hamas, the militant group which governs Gaza, and other Palestinian militant groups launched hundreds of rockets into Israeli territory.
    • Israel responded with air strikes and later artillery bombardments against targets in Gaza, including launching several air strikes that killed more than twenty Palestinians. While claiming to target Hamas, other militants, and their infrastructure—including tunnels and rocket launchers—Israel has expanded its aerial campaign and struck targets including residential buildings, media headquarters, and refugee and healthcare facilities.

    Rival claims over Jerusalem

    • Both Israel and Palestine have declared Jerusalem their capital.
    • In July 1980, the Israeli Parliament passed the Jerusalem Law declaring it the country’s capital.
    • Palestinians declared Jerusalem the capital of the putative state of Palestine by a law passed by the Palestinian Authority in 2000.
    • The 1988 Palestinian Declaration of Independence also declared Jerusalem as the capital.
    • For the present, the Palestinian Authority has its headquarters in Ramallah.

    Hamas and Fatah

    • In 1987, Hamas (Islamic Militant group) for the liberation of Palestine through Jihad came into existence. It refused to recognize Israel as a country. It has received support from Iran and Syria.
    • On the other hand, Fatah, a faction of PLO under Yasser Arafat received support from Western nations.

    (Palestinians run for cover from tear gas during clashes with Israeli security forces near the border between Israel and the Gaza)

    What is happening in GAZA

    • Gaza is a densely populated strip of land that is mostly surrounded by Israel and peopled almost exclusively by Palestinians. Israel used to have a military presence, but withdrew unilaterally in 2005. It’s currently under Israeli blockade.
    • Egypt controlled Gaza until 1967, when Israel occupied it (along with the West Bank) in the Six-Day War.
    • Until 2005, Israeli military authorities controlled Gaza in the same way they control the West Bank, and Jews were permitted to settle there. In 2005, then–Israeli Prime Minister Ariel Sharon pulled out Israeli troops and settlers unilaterally.
    • Gaza is governed by the Islamist group Hamas, which formed in 1987 as a militant “resistance” group against Israel and won political power in a 2006 US-based election.
    • Hamas’s takeover of Gaza prompted an Israeli blockade of the flow of commercial goods into Gaza, on the grounds that Hamas could use those goods to make weapons to be used against Israel.
    • Israel has eased the blockade over time, but the cutoff of basic supplies like fuel still does significant humanitarian harm by cutting off access to electricity, food, and medicine.
    • Hamas and other Gaza-based militants have fired thousands of rockets from the territory at Israeli targets.
    • Israel has launched a number of military operations in Gaza, including an air campaign and ground invasion in late 2008 and early 2009, a major bombing campaign in 2012, and another air/ground assault in the summer of 2014.

    International Scenario

    Stand of USA

    • For decades, the U.S. has played a partisan role in the Israeli-Palestinian conflict.
    • It became involved shortly after World War II, joining the United Kingdom in a 1946 inquiry that recommended one hundred thousand Holocaust survivors relocate to Palestine, which would be neither a Jewish nor an Arab state.
    • The United States then became the first country to recognize Israel as a sovereign nation in 1948.
    • Shortly after the 1967 war, Israel began building settlements in some of the territories it had seized. For years, the United States officially condemned these settlements—branding them an obstacle to peace—but avoided outright calling them illegal to avoid the possibility that Israel would face international sanctions.
    • After the failed 2000 Camp David summit, Washington never made any meaningful attempt to push the Israelis to accept the two-state proposal.
    • The 2007 Annapolis conference was a failure too. The previous U.S. administration launched a peace bid which also collapsed at an early stage.
    • In 2018, the Trump administration canceled funding for the UN Relief and Works Agency, which provides aid to Palestinian refugees, and relocated the U.S. embassy from Tel Aviv to Jerusalem, a reversal of a longstanding U.S. policy.  The decision to move the U.S. embassy was met with applause from the Israeli leadership but was condemned by Palestinian leaders and others in the Middle East and Europe.
    • Biden has said he will continue the nearly two decades of , which calls for separate Israeli and Palestinian states with borders resembling those that existed before the 1967 war; this territory includes the Gaza Strip, the West Bank, and parts of East Jerusalem.

    Stand of Arab Countries

    a)   EGYPT

    • Egypt wants a unified Palestinian leadership. Therefore, it invests a lot in supporting a Palestinian reconciliation.
    • Egypt wants Gaza, the branches of Hamas and Fatah in Gaza, and other forces in Gaza, to have a bigger say in the Palestinian decision-making process.
    • Egypt wants to eradicate terror cells in Sinai.
    • Egypt wants Hamas to be less dependent (at least) on Iran, Turkey and Qatar. The Saudis and the Emiratis concur, and they can fund Gaza.

    b) Turkey

    • In December 1987, Turkey had already declared support for the Palestinians’ right to self-determination.  It described Israeli policy in the Gaza Strip as “state-sponsored terrorism”
    • The Turkish government’s condemnation of the 2008–2009 Israel–Gaza conflict strained relations between the two countries.

    c) Syria

    • Syria announced its complete support to Palestine after the 1948 Arab–Israeli War broke out, and had sent troops to fight against newly-formed Israel Defense Forces
    • Syria also joined the Six-Day War hoping to expel Israeli Army in order to restore Palestinian state, in which ended with a complete failure.

    d)  Lebanon

    • Lebanon did take a formal part in the 1948 Arab-Israeli War against Israel, but Lebanon was the first Arab league nation to signal a desire for an armistice treaty with Israel in 1949.
    • Israel also supported the secessionist Free Lebanon State during 1979-1984 and its successor South Lebanon Army.
    • In all Lebanon has maintained a pro Israeli stance.

    e)   Jordan

    • Jordan was not a member of the United Nations when the vote on the United Nations Partition Plan for Palestine was taken in November 1947, but following the establishment of the state of Israel on 14 May 1948, Jordan, then known as Transjordan, was one of the Arab League countries that invaded the former Palestinian Mandate territory precipitating the 1948 Arab–Israeli War.
    • By war’s end, Jordan was in control of the West Bank and East Jerusalem (including the Old City). It expelled its Jewish population, and formally annexed the territories in 1950.
    • Promoting peace between Israel and the Palestinian Authority is a major priority for Jordan. It supports U.S. efforts to mediate a final settlement, which it believes should be based on the 2002 Arab Peace Initiative, proposed by Saudi Arabia.

    f)    Saudi Arabia

    • Israel and Saudi Arabia do not have any official diplomatic relations.
    • Saudi Arabia played an active role in attempting to bring the Palestinians towards a self-governing condition which would permit negotiations with Israel. It has done so primarily by trying to mend the schism between Fatah and Hamas, most notably when King Abdullah invited the two factions to negotiations in Mecca resulting in the Mecca Agreement of 7 February 2007. The agreement soon failed, but Saudi Arabia has continued to support a national unity government for the Palestinians, and strongly opposed the war in Gaza in early 2009.

    3)   Stand of India

    • India was one of the few countries to oppose the UN’s partition plan in November 1947, echoing its own experience during independence a Few Months Earlier.
    • In the decades that followed, the Indian political leadership actively supported the Palestinian cause and withheld full diplomatic relations with Israel.
    • India recognised Israel in 1950 but it is also the first non-Arab country to recognise Palestine Liberation Organisation (PLO) as the sole representative of the Palestinian. India is also one of the first countries to recognise the statehood of Palestine in 1988.
    • In 2014, India favoured UNHRC’s resolution to probe Israel’s human rights violations in Gaza. Despite supporting the probe, India abstained from voting against Israel in UNHRC IN 2015.
    • As a part of Link West Policy, India has de-hyphenated its relationship with Israel and Palestine in 2018 to treat both the countries mutually independent and exclusive.
    • In June 2019, India voted in favour of a decision introduced by Israel in the UN Economic and Social Council (ECOSOC) that objected to granting consultative status to a Palestinian non-governmental organization

    Way Forward

    • Though not a shining example, Israel can learn a lesson from its neighbour, Lebanon. The sectarian model of power sharing, where Christians, Shias, Sunnis, Druze, Armenians etc. are offered government positions demographically, did help enable Lebanon transition to some degree of stability after the civil war ended in 1990.
    • There must be change in leadership in both the countries. Leaders are that are ready mentally and physically for a truce must be brought to power.

    To start a peace process following steps must be taken:

    • Israel must  end settlement expansion beyond the wall.
    • Easing restrictions on Gaza
    • Redesignating parts of the West Bank currently falling under full Israeli administration (Area C) as areas that fall under partial or full Palestinian administration (Areas B or A)
    • Removing impediments to Palestinian economic development
    • Ending home demolitions and other forms of collective punishment
    • Removing impediments to Palestinian elections in East Jerusalem, the West Bank and Gaza
    • Alleviating restrictions on movement and access
    • Gradually releasing Palestinian prisoners
    • Allowing the reopening of Palestinian institutions, such as the Orient House, in East Jerusalem

  • challenges the second Covid wave poses to India’s path to fiscal consolidation.

    The article highlights the challenges the second Covid wave poses to India’s path to fiscal consolidation.

    Recalibration to growth projection due to second Covid wave

    • The growth projections of different national and international agencies and the fiscal projections of Centre’s 2021-22 Budget require recalibration.
    • The International Monetary Fund (IMF) had forecast real GDP growth for 2021-22 at 12.5%.
    • The Reserve Bank of India (RBI) had forecast real GDP growth for 2021-22 at 10.5%.
    • The Ministry of Finance’s Economic Survey had forecast real GDP growth for 2021-22 at 11.0%.

    Growth rate of 8.7% to keep GDP at same level as in 2019-20

    • Moody’s has recently projected India’s GDP growth in 2021-22 at 9.3%.
    • Benchmark growth rate: 9.3% is close to the benchmark growth rate of 8.7% which would keep India’s GDP at 2011-12 prices at the same level as in 2019-20.
    • This level of growth may be achieved based on the assumption that the economy normalises in the second half of the fiscal year.
    • The 2019-20 real GDP was ₹145.7-lakh crore at 2011-12 prices.
    • It fell to ₹134.1-lakh crore in 2020-21, implying a contraction of minus 8.0%.
    •  At 8.7% real growth, the nominal GDP growth would be close to 13.5%, assuming an inflation rate of 4.5%.
    • This would be lower than the nominal growth of 14.4% assumed in the Union Budget.
    • At 13.5% growth, the estimated GDP for 2021-22 is ₹222.4-lakh crore at current prices.
    • Impact: This will lead to a lowering of tax and non-tax revenues and an increase in the fiscal deficit as compared to the budgeted magnitudes.

    How much the gross tax revenue would be impacted?

    • The budgeted gross and net tax revenues for 2021-22 were ₹22.2-lakh crore and ₹15.4-lakh crore, respectively.
    • The assumed buoyancy for the Centre’s gross tax revenues (GTR) was 1.2.
    • If, however, the buoyancy of 1.2 proves optimistic and instead a buoyancy of 0.9, which is the average buoyancy of the five years preceding the COVID-19 year, is applied, the nominal growth of GTR would be 12.2%.
    • This would lead to the Centre’s GTR of about ₹21.3-lakh crore.
    • The corresponding shortfall in the Centre’s net tax revenues is estimated to be about ₹0.6 lakh crore.
    • The budgeted magnitudes for non-tax revenues and non-debt capital receipts at ₹2.4-lakh crore and ₹1.9-lakh crore, respectively, may also prove to be optimistic.
    • In these cases, the budgeted growth rates were 15.4% and 304.3%, respectively.
    •  The excessively high growth for the non-debt capital receipts was premised on implementing an ambitious asset monetisation and disinvestment programme.
    • Together with the tax revenue shortfall of nearly 0.6 lakh crore, the total shortfall on the receipts side may be about ₹2.1-lakh crore.

    Impact on fiscal deficit estimates

    • Two factors will affect the fiscal deficit estimate of 6.76% of GDP in 2021-22.
    • First, there would be a change in the budgeted nominal GDP growth.
    • Second, there would be a shortfall in the receipts from tax, non-tax and non-debt sources.
    • Together, these two factors may lead to a slippage in fiscal deficit which may be close to 7.7% of GDP in 2021-22 if total expenditures are kept at the budgeted levels.
    • This would call for revising the fiscal road map again.
    • Protecting total expenditures at the budgeted level is, however, important given the need to support the economy in these challenging time.

    Vaccination policy and role of Central government

    • Positive externalities: COVID-19 vaccination is characterised by strong inter-State positive externalities, making it primarily the responsibility of the central government.
    • The entire vaccination bill should be borne by the central government.
    • If the central government is the single agency for vaccine procurement, the economies of scale and the Centre’s bargaining power would keep the average vaccine price low.
    • The central government may transfer the vaccines rather than the money that it has budgeted for transfer.
    • Some of the smaller States may find procuring vaccines through a global tender to be quite challenging.

    Conclusion

    Protecting total expenditures at the budgeted level and mass vaccination are important in India’s pandemic situation.

    Back2basics: Tax buoyancy

    • There is a strong connection between the government’s tax revenue earnings and economic growth.
    • Tax buoyancy explains this relationship between the changes in government’s tax revenue growth and the changes in GDP.
    • It refers to the responsiveness of tax revenue growth to changes in GDP.
    • When a tax is buoyant, its revenue increases without increasing the tax rate.
    •  In 2007-08, everything was fine for the economy, GDP growth rate was nearly 9 per cent.
    • Tax revenue of the government, especially, that of direct taxes registered a growth rate of 45 per cent in 2007-08.
    • We can say that the tax buoyancy was five (45/9).

    What is tax elasticity?

    • It refers to changes in tax revenue in response to changes in tax rate.
    • For example, how tax revenue changes if the government reduces corporate income tax from 30 per cent to 25 per cent indicate tax elasticity.

  • Deep Sea Faunal Diversity in India

    India is home to 4,371 species of deep-sea fauna, including 1,032 species under the kingdom Protista and 3,339 species under the kingdom Animalia, a recent publication by the Zoological Survey of India (ZSI) has revealed.

    Highlights of the Survey

    • India is surrounded by the Arabian Sea, the Bay of Bengal, the Andaman Sea, and the Laccadive Sea (Lakshadweep Sea).
    • Of the 4,371 species, a maximum of 2,766 species has been reported from deep-sea areas of the Arabian Sea, followed by 1,964 species from the Bay of Bengal, 1,396 species from the Andaman Sea, and only 253 species from the Laccadive Sea.

    RIMS ship investigator

    • India is one of the countries that made a pioneering exploration in the deep Indian Ocean region in 1874 by commissioning a RIMS (Royal Indian Marine Survey) ship investigator.
    • This conducted enormous studies in seas around India and continued to work till 1926.

    Components of the exploration

    • The deep-sea ecosystem was the most unexplored ecosystem across the world. It included hydrothermal vents, submarine canyons, deep-sea trenches, seamounts, cold seeps, and mud volcanoes.
    • This publication, the first of its kind, provides baseline information on all groups of fauna and biological organisms in the Indian deep seas.
    • Not only will this support our knowledge on conserving and managing deep-sea faunal resources, but it will also pave way for their sustainable utilization.

    Key findings

    (1) Mammals

    • There are 31 species of sea mammals that are found in the deep-sea ecosystem of Indian waters, including the Critically Endangered Irrawaddy Dolphin.
    • Two other species, the Indo-Pacific Finless Porpoise and the Sperm Whale are recorded as ‘Vulnerable’ in the IUCN classification.
    • The list of mammals includes Cuvier’s Beaked Whale and Short-beaked Common Dolphin, which dive as deep as 8,000 meters below the Earth’s surface.

    (2) Marine turtles

    • Out of the seven species of marine turtles found across the world, five species have been recorded from Indian waters.
    • India is known as one of the best and largest breeding grounds for sea turtles, especially for Olive Ridley and Leatherback Turtles, across the world.

  • China’s 17+1 Cooperation Forum

    Lithuania has decided to quit China’s 17+1 cooperation forum with central and eastern European states that include other EU members, calling it “divisive”.

    About 17+ 1 Forum

    • The forum is an abbreviation for Cooperation between China and Central and Eastern European Countries.
    • It is an initiative by the Chinese Ministry of Foreign Affairs to promote business and investment relations between China and 16 countries of CEE (CEEC).
    • The countries are Albania, Bosnia and Herzegovina, Bulgaria, Croatia, the Czech Republic, Estonia, Greece, Hungary, Latvia, North Macedonia, Montenegro, Poland, Romania, Serbia, Slovakia, and Slovenia.
    • The format was founded in 2012 in Warsaw to push for the cooperation of the “17+1” (the 17 CEE countries and China).
    • Its goals are to promote the Chinese Belt and Road Initiative and enhance cooperation in the fields of infrastructure, transportation, and logistics, trade and investment”.

  • Indian SARS-CoV-2 Genomic Consortia (INSACOG)

    In early March, members of the Indian SARS-CoV-2 Genomic Consortia (INSACOG), an advisory group to the Central government, warned of a new and contagious form of the novel coronavirus.

    What is INSACOG?

    • INSACOG is a consortium of 10 labs across the country tasked with scanning COVID-19 samples from swathes of patients and flagging the presence of variants that were known to have spiked transmission internationally.
    • It has also been tasked with checking whether certain combinations of mutations were becoming more widespread in India.
    • Some of these labs had begun scanning for mutations in April 2020 itself, but it was not a pan-India effort.
    • The institutes involved were laboratories of the Department of Biotechnology, the CSIR, the ICMR, and the Ministry of Health & Family Welfare (MoHFW).
    • The National Centre for Disease Control (NCDC) under the MoHFW was tasked with coordinating the collection of samples from the States as well correlating disease with the mutations.
    • The work began in January by sequencing samples of people who had a history of travel from the United Kingdom and a proportion of positive samples in the community.

    What are the findings?

    • The “foreign” variants identified were primarily the B.1.1.7 (first identified in the United Kingdom) and the B.1.351 (first found in South Africa) and a small number of P2 variants (from Brazil).
    • However, some labs flagged the growing presence of variants identified in India that were clubbed into a family of inter-related variants called B.1.617, also known as the ‘double mutant’ variant.
    • It was primarily due to two mutations — E484Q and L452R — on the spike protein.
    • The B.1.617 family was marked as an international ‘variant of concern’ after it was linked to a recent spike in cases in the UK.
    • INSACOG labs also found that the B.1.1.7 variant, which is marked by increased infectivity, is distinctly more prevalent in several northern and central Indian States in comparison to southern States.

    Beyond identifying patterns, why is genome sequencing useful?

    • The purpose of genome sequencing is to understand the role of certain mutations in increasing the virus’s infectivity.
    • Some mutations have also been linked to immune escape, or the virus’s ability to evade antibodies, and this has consequences for vaccines.
    • Labs across the world, including many in India, have been studying if the vaccines developed so far are effective against such mutant strains of the virus.
    • They do this by extracting the virus from COVID-19-positive samples and growing enough of it. Then, blood serum from people who are vaccinated, and thereby have antibodies, is drawn.
    • Using different probes, scientists determine how much of the antibodies thus extracted are required to kill a portion of the cultured virus.
    • In general, the antibodies generated after vaccination — and this was true of Covaxin, Covishield, Pfizer and Moderna jabs — were able to neutralize variants.
    • Antibody levels are not the only markers of protection and there is a parallel network of cellular immunity that plays a critical role in how vaccines activate immunity.
    • The current evidence for most COVID-19 vaccines is that they have almost 75% to 90% efficacy in protecting against disease but less so in preventing re-infection and transmission.

    Challenges faced by INSACOG

    • Given that the novel coronavirus is spreading, mutating, and showing geographical variations, the aim of the group was to sequence at least 5% of the samples.
    • For many reasons, this has so far been only around 1%, primarily due to a shortage of funds and insufficient reagents and tools necessary to scale up the process.
    • While some of these issues, the INSACOG, in spite of being peopled by expert scientists, is ultimately an advisory group to the Central government and part of its communication structure.
    • Warnings about emerging variants were not made public with sufficient urgency and the sharing of datasets, even within constituent groups of the INSACOG, was less than ideal.

  • Eruption of Mount Nyiragongo

    Thousands have fled a volcanic eruption in the Democratic Republic of Congo from Mount Nyiragongo on the outskirts of Goma City.

    These were some volcanoes in news this year:

    Mount Vesuvius, Taal Volcano, La Soufriere

    Mount Nyiragongo

    • Mount Nyiragongo is an active stratovolcano with an elevation of 3,470 m (11,385 ft) in the Virunga Mountains associated with the Albertine Rift.
    • The main crater is about 2km wide and usually contains a lava lake.
    • The crater presently has two distinct cooled lava benches within the crater walls.
    • It is one of the 16 Decade Volcanoes.
    • Nyiragongo’s lava lake has at times been the most voluminous known lava lake in recent history. The depth of the lava lake varies considerably.
    • Nyiragongo and nearby Nyamuragira are together responsible for 40 percent of Africa’s historical volcanic eruptions.

    Answer this PYQ in the comment box:

    Q.Which of the following adds/add carbon dioxide to the carbon cycle on the planet Earth?

    1. Volcanic action
    2. Respiration
    3. Photosynthesis
    4. Decay of organic matter

    Select the correct answer using the code given below:

    (a) 1 and 3 only

    (b) 2 only

    (c) 1, 2 and 4 only

    (d) 1, 2, 3 and 4

    What are Decade Volcanoes?

    • The Decade Volcanoes are 16 volcanoes identified by the International Association of Volcanology and Chemistry of the Earth’s Interior (IAVCEI).
    • They are considered worthy of particular study in light of their history of large, destructive eruptions and proximity to densely populated areas.
    • They are named Decade Volcanoes because the project was initiated in the 1990s as part of the United Nations-sponsored International Decade for Natural Disaster Reduction.

  • Benefits of environmental fiscal reforms

    The article highlights the advantages of environmental fiscal reforms in India.

    Status of  out-of-pocket spending on health in India

    • As per WHO data, in 2011,  17.33% of the population in India made out-of-pocket payments on health that was more than 10% of their income.
    • The percentage was higher in rural areas compared to urban areas.
    • Globally, 12.67% of the population spent more than 10% of their income (out of their pocket) on health.
    • In Southeast Asia, 16% spent more than 10% of their household income on health.
    • Similarly, 3.9% of the population in India made more than 25% of out-of-pocket payments on health, with 4.34% of it in the rural areas.

    Alternate source of health financing: Eco tax

    • The Economic Survey of India 2019-20 has outlined that an increase in public spending from 1% to 2.5-3% of GDP, can decrease out-of-pocket expenditure from 65% to 30% of overall healthcare expenses.
    • The National Health Policy of 2017 also envisages increase in public spending from 1% to 2.5-3% of GDP.
    • This is where the importance of alternate sources of health financing in India needs to be stressed.
    • Fiscal reforms for managing the environment are important, and India has great potential for revenue generation in this aspect.

    Environmental tax reforms

    • Environmental tax reforms generally involve three complementary activities:
    • 1. Eliminating existing subsidies and taxes that have a harmful impact on the environment;
    • 2. Restructuring existing taxes in an environmentally supportive manner;
    • 3. Initiating new environmental taxes.
    • Taxes can be designed either as revenue neutral or revenue augmenting.
    • Revenue augmenting model: In case of revenue augmenting, the additional revenue can either be targeted towards the provision of environmental public goods or directed towards the overall revenue pool.
    • In developing countries like India, the revenue can be used to a greater extent for the provision of environmental public goods and addressing environmental health issues.

    Eco tax

    • The success of an eco tax (environment tax) in India would depend on its architecture, that is, how well it is planned and designed.
    • It should be credible, transparent and predictable.
    • Ideally, the eco tax rate ought to be equal to the marginal social cost arising from the negative externalities associated with the production, consumption or disposal of goods and services.
    • This would include the adverse impacts on the health of people, climate change, etc.
    • The eco tax rate may, thus, be fixed commensurate to the marginal social cost so evaluated.
    • There is also a need to integrate environmental taxes in the Goods and Service Tax framework.

    In India, eco taxes can target three main areas

    • One, differential taxation on vehicles in the transport sector purely oriented towards fuel efficiency and GPS-based congestion charges.
    • Two, in the energy sector by taxing fuels which feed into energy generation.
    • Three, waste generation and use of natural resources.

    Benefits of implementation of eco taxes

    • The implementation of an environmental tax in India will have three broad benefits: fiscal, environmental and poverty reduction.
    • Finance basic public services: Environmental tax reforms can mobilise revenues to finance basic public services when raising revenue through other sources proves to be difficult or burdensome.
    • Reduce distorting taxes: It can can also help to reduce other distorting taxes such as fiscal dividend.
    • Finance research: Environmental tax reforms help internalise the externalities, and the said revenue can finance research and the development of new technologies.

    Impact

    • Environmental regulations may lead to slow productivity growth and high cost of compliance in private sector.
    • This could result in the possible increase in the prices of goods and services.
    • However, the European experience shows that most of the taxes also generate substantial revenue and there is no evidence on green taxes with sustainable development goals leading to a ‘no growth’ economy.
    • Negligible impact on GDP: Most countries’ experiences suggest negligible impact on the GDP, though such revenues have not necessarily been used for environmental considerations.
    • The negligible impact on the GDP may be a temporary phenomenon.

    Conclusion

    This is the right time for India to adopt environmental fiscal reforms as they will reduce environmental pollution and also generate resources for financing the health sector.

  • Historical and Archaeological Findings in News

     
    22nd May 2021

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