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Subject: Economics

  • Govt. mulls allowing local sales by SEZ units sans import tag

    The government is considering a proposal to allow producers in Special Economic Zones (SEZs) to sell their output to the domestic market without treating them as imports.

    What are SEZs?

    • A Special Economic Zone (SEZ) is an area in which the business and trade laws are different from the rest of the country.
    • SEZs are located within a country’s national borders, and their aims include increasing trade balance, employment, increased investment, job creation, and effective administration.
    • To encourage businesses to set up in the zone, financial policies are introduced.
    • These policies typically encompass investing, taxation, trading, quotas, customs, and labor regulations.
    • Additionally, companies may be offered tax holidays, where upon establishing themselves in a zone, they are granted a period of lower taxation.

    SEZs in India

    • The SEZ policy in India first came into inception on April 1, 2000.
    • The prime objective was to enhance foreign investment and provide an internationally competitive and hassle-free environment for exports.
    • The idea was to promote exports from the country and realizing the need for a level playing field must be made available to the domestic enterprises and manufacturers to be competitive globally.
    • Subsequently, the SEZ Act 2005, was enacted to provide the umbrella legal framework, covering all important legal and regulatory aspects of SEZ development as well as for units operating in SEZs.

    Who can set up SEZs? Can foreign companies set up SEZs?

    • Any private/public/joint sector or state government or its agencies can set up an SEZ.
    • Yes, a foreign agency can set up SEZs in India.

    What is the role of state governments in establishing SEZs?

    • State governments will have a very important role to play in the establishment of SEZs.
    • A representative of the state government, who is a member of the inter-ministerial committee on private SEZ, is consulted while considering the proposal.
    • Before recommending any proposals to the ministry of commerce and industry (department of commerce), the states must satisfy themselves that they are in a position to supply basic inputs like water, electricity, etc.

    Are SEZs controlled by the government?

    • In all SEZs, the statutory functions are controlled by the government.
    • The government also controls the operation and maintenance function in the central government-controlled SEZs. The rest of the operations and maintenance are privatized.

    Are SEZs exempt from labor laws?

    • Normal labor laws are applicable to SEZs, which are enforced by the respective state governments.
    • The state governments have been requested to simplify the procedures/returns and for the introduction of a single-window clearance mechanism by delegating appropriate powers to development commissioners of SEZs.

    Who monitors the functioning of the units in SEZ?

    • The performance of the SEZ units is monitored by a unit approval committee consisting of a development commissioner, custom, and representative of the state government on an annual basis.

    What are the special features for business units that come to the zone?

    • Business units that set up establishments in an SEZ would be entitled to a package of incentives and a simplified operating environment.
    • Besides, no license is required for imports, including second-hand machinery.

    How do SEZs help a country’s economy?

    • SEZs play a key role in the rapid economic development of a country.
    • In the early 1990s, it helped China and there were hopes that the establishment in India of similar export-processing zones could offer similar benefits – provided, however, that the zones offered attractive enough concessions.
    • Traditionally the biggest deterrents to foreign investment in India have been high tariffs and taxes, red-tapism, and strict labor laws.
    • To date, these restrictions have ensured that India has been unable to compete with China’s massively successful light-industrial export machine.

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  • Crypto is not currency, must regulate it as asset: Former RBI DG

    Former RBI Deputy Governor R. Gandhi made a case for treating and regulating crypto as a separate asset class with a view to enabling governments around the world to effectively deal with illegal activities associated with virtual currencies.

    Why in news?

    • After quite a lot of debate over the years, people have fully understood that crypto cannot be a currency because the fundamental element of a currency that it should be a legal tender is missing in this case.
    • The general consensus among many policymakers is that it should be deemed as an asset, not as a currency, not as a payment instrument, and not as a financial instrument as there is no clear identified issuer.

    What are Cryptocurrencies?

    • A cryptocurrency is a digital asset designed to work as a medium of exchange wherein individual coin ownership records are stored in a ledger existing in a form of a computerized database.
    • It uses strong cryptography to secure transaction records, control the creation of additional coins, and verify the transfer of coin ownership.
    • It typically does not exist in physical form (like paper money) and is typically not issued by a central authority.
    • Cryptocurrencies typically use decentralized control as opposed to centralized digital currency and central banking systems.

    How does it work?

    • Cryptocurrencies work using a technology called the blockchain.
    • Blockchain is a decentralized technology spread across many computers that manage and record transactions.

    What is Blockchain Technology?

    • Simply, blockchain is a decentralized, distributed, and public digital ledger.
    • Blockchains are a new type of network infrastructure (a way to organize how information and value move around on the internet) that creates ‘trust’ in networks by introducing distributed verifiability, auditability, and consensus.
    • Blockchains create trust by acting as a shared database, distributed across vast peer-to-peer networks that have no single point of failure and no single source of truth.
    • No individual entity can own a blockchain network, and no single entity can modify the data stored on it unilaterally without the consensus of its peers.

    Also read

    Cryptocurrency and Regulation of Official Digital Currency Bill, 2021

    Back2Basics: Legal Tender Money

    • A legal tender is a coin or a banknote that is legally tenderable for discharge of debt or obligation.
    • Coin of any denomination not lower than one rupee shall be legal tender for any sum not exceeding one thousand rupees.
    • Fifty paise (a half rupee) coins shall be legal tender for any sum not exceeding ten rupees.
    • While anyone cannot be forced to accept coins beyond the limits mentioned above, voluntarily accepting coins for amounts exceeding the limits mentioned above is not prohibited.
    • Every banknote issued by the Reserve Bank of India unless withdrawn from circulation shall be legal tender at any place in India.
    • ₹1 notes issued by the Government of India are also Legal Tender.

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  • Consequences of asset monetisation on ordinary citizens

    Context

    In the Budget for 2021-22, the Finance Minister had announced the Government’s decision to monetise operating public infrastructure assets. The National Monetisation Pipeline (NMP) was unveiled, which shows that the Government intends to raise ₹6-lakh crore over the next four years by monetising several “core assets”.

    Four issues with NMP

    1)  Assets transferred would be performing assets and not idle asset

    • Strategic and significant asset: The Government has identified “performing assets” to transfer to private entities and these are both strategic and significant.
    • These include over 26,700 kilometres of highways, 400 railway stations, 90 passenger trains etc.
    • Moreover, existing public sector infrastructure in telecoms, power transmission and distribution and petroleum, petroleum products and natural gas pipelines are included in the NMP.
    • Under the NMP, the Government intends to lease or divest its rights over these assets via long-term leases against a consideration that can be upfront and/or periodic payments.

    2) Consequences for ordinary citizens

    • There are two dimensions about the impact on common citizens.
    • Public as a stakeholder: The assets have all been created through substantial contribution by the tax-paying public, who have stakes in their operation and management.
    • Double taxation: These assets have, until now, been managed by the Government and its agencies,  which operate in public interest.
    • Therefore, charges borne by the public for using these assets have remained reasonable.
    • With private companies getting the sole responsibility of running all these assets, prices of these services will go up, as resutl the citizens of this country would be double-taxed.
    • First, they paid taxes to create the assets, and would now pay higher user charges.
    • Concern: Therefore, as the Government prepares to transfer “performing assets” to the private companies, it has the responsibility to ensure that user charges do not price the consumers out of the market.

    3) Are there other avenues to plug the revenue gap?

    • Increase tax revenue: One possibility was to increase the tax revenue, for at 17.4% in 2019-20, India’s tax to GDP ratio was relatively low, as compared to most advanced nations.
    • Improvements in tax compliance and plugging loopholes have long been emphasised as the surest way to improve tax revenue, but little has been done, as the following example shows.
    • Since 2005-06, the Government has been providing data on the profits declared and taxes paid by companies that file their returns electronically.
    • Data shows that India’s large companies have been exploiting the loopholes for reporting lower profits and to escape the tax net.

    4) Efficiency issue

    • According to NITI Aayog, the “strategic objective of the Asset Monetisation programme is to unlock the value of investments in public sector assets by tapping private sector capital and efficiencies”.
    • The NITI Aayog objective assumes that public sector enterprises are inefficient, which is contrary to the reality.
    • In 2018-19, while 28% of these enterprises were loss-making, the corresponding figure for large companies was 51%.

    Consider the question “How asset monetisation is different from the privatisation? What are the issues with the National Manetisation Pipeline that seeks to monetise the assets?”

    Conclusion

    The government should address the issues mention here associated with the roll out of the National Monetisation Pipeline to make it a success.

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  • New Code for Creditors (CoC) under IBC

    The insolvency regulator has called for public comments on a proposal to introduce a code of conduct for Committees of Creditors (CoC), of companies undergoing insolvency proceedings under the Insolvency and Bankruptcy Code (IBC).

    Before proceeding, try this PYQ first:

    Q. Which of the following statements best describes the term ‘Scheme for Sustainable Structuring of Stressed Assets (S4A)’, recently seen in the news? (CSP 2017)

     

    (a) It is a procedure for considering the ecological costs of developmental schemes formulated by the Government.

    (b) It is a scheme of RBI for reworking the financial structure of big corporate entities facing genuine difficulties.

    (c) It is a disinvestment plan of the Government regarding Central Public Sector Undertakings.

    (d) It is an important provision in ‘The Insolvency and Bankruptcy Code’ recently implemented by the Government.

     

    [wpdiscuz-feedback id=”lq23m2nrph” question=”Please leave a feedback on this” opened=”1″]Post your answers here.[/wpdiscuz-feedback]

    About IBC

    • The IBC, 2016 is the bankruptcy law of India that seeks to consolidate the existing framework by creating a single law for insolvency and bankruptcy.
    • It is a one-stop solution for resolving insolvencies which previously was a long process that did not offer an economically viable arrangement.
    • The code aims to protect the interests of small investors and make the process of doing business less cumbersome.

    Key features

    Insolvency Resolution: The Code outlines separate insolvency resolution processes for individuals, companies, and partnership firms. The process may be initiated by either the debtor or the creditors. A maximum time limit, for completion of the insolvency resolution process, has been set for corporates and individuals.

    1. For companies, the process will have to be completed in 180 days, which may be extended by 90 days, if a majority of the creditors agree.
    2. For startups (other than partnership firms), small companies, and other companies (with assets less than Rs. 1 crore), the resolution process would be completed within 90 days of initiation of request which may be extended by 45 days.

    Insolvency regulator: The Code establishes the Insolvency and Bankruptcy Board of India, to oversee the insolvency proceedings in the country and regulate the entities registered under it. The Board will have 10 members, including representatives from the Ministries of Finance and Law, and the RBI.

    Insolvency professionals: The insolvency process will be managed by licensed professionals. These professionals will also control the assets of the debtor during the insolvency process.

    Bankruptcy and Insolvency Adjudicator: The Code proposes two separate tribunals to oversee the process of insolvency resolution, for individuals and companies:

    1. National Company Law Tribunal: for Companies and Limited Liability Partnership firms; and
    2. Debt Recovery Tribunal: for individuals and partnerships

    What is the recent development?

    Ans. Code of conduct for Committees of Creditors (CoC)

    • A CoC is to be composed of financial creditors to the Corporate Debtor (CD) — or operational creditors in the absence of unrelated financial creditors.
    • Under the IBC, CoC is empowered to take key decisions, including decisions on haircuts for creditors, that are binding on all stakeholders, including those dissenting.
    • The CoC is also empowered to seek and choose the best resolution plan for a corporate debtor from the market, and its role is vital for a timely and successful resolution for a CD.
    • The IBBI noted that a code of conduct for CoCs would promote transparent and fair working on the part of CoCs.

    What are the issues that the code of conduct is seeking to address?

    • Several cases in which certain lenders have withdrawn funds from a CD undergoing insolvency proceeding and contributed to delays in the insolvency process.
    • Delays in resolution are seen as contributing to the loss of value in corporate debtors and have become a key criticism of the IBC, with over 75 percent of proceedings having crossed the 270-day timeline.
    • The IBBI highlighted cases in which representatives of lenders have had to seek approval from seniors for decisions such as an appointment of resolution professionals.
    • IBBI has recommended that a code of conduct require that members of the CoC nominate representatives with sufficient authorization to participate in meetings and make decisions during the process.
    • The regulator also highlighted cases where lenders have withdrawn funds from a corporate debtor during insolvency or liquidation proceedings.

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  • Govt must constitute GST tribunal: SC

    The Supreme Court has warned that the government had no option but to constitute the Goods and Services Tax (GST) Appellate Tribunal.

    What is GST Appellate Tribunal?

    • The GST Appellate Tribunal (GSTAT) is the second appeal forum under GST for any dissatisfactory order passed by the First Appellate Authorities.
    • The National Appellate Tribunal is also the first common forum to resolve disputes between the centre and the states.
    • Being a common forum, it is the duty of the GST Appellate Tribunal to ensure uniformity in the redressal of disputes arising under GST.
    • It holds the same powers as the court and is deemed Civil Court for trying a case.

    Constitution of the GST Appellate Tribunal

    The GSTAT has the following structure:

    1. National Bench: The National Appellate Tribunal is situated in New Delhi, constitutes a National President (Head) along with 2 Technical Members (1 from Centre and State each)
    2. Regional Benches: On the recommendations of the GST Council, the government can constitute (by notification) Regional Benches, as required. As of now, there are 3 Regional Benches (situated in Mumbai, Kolkata and Hyderabad) in India.
    3. State Bench and Area Bench

    Why in news now?

    • The GST tribunal has not been constituted even four years after the central GST law was passed in 2016.
    • Section 109 of the GST Act mandates the constitution of the Tribunal.
    • Citizens aggrieved are constrained to approach respective High Court and the same was overburdening the work of the High Courts.

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    Back2Basics: Goods and Services Tax

    • The GST is a value-added tax levied on most goods and services sold for domestic consumption.
    • It was launched into operation on the midnight of 1st July 2017.
    • It subsumed almost all domestic indirect taxes (petroleum, alcoholic beverages, and stamp duty are the major exceptions) under one head.
    • The GST is paid by consumers, but it is remitted to the government by the businesses selling the goods and services.
    • GST is levied at four rates viz. 5%, 12%, 18% and 28%. The schedule or list of items that would fall under these multiple slabs is worked out by the GST council.

    Types

    • The GST to be levied by the Centre is called Central GST (CGST) and that to be levied by the States is called State GST (SGST).
    • Import of goods or services would be treated as inter-state supplies and would be subject to Integrated Goods & Services Tax (IGST) in addition to the applicable customs duties.

    The GST Council

    • It is a constitutional body (Article 279A) for making recommendations to the Union and State Government on issues related to GST.
    • The GST Council is chaired by the Union Finance Minister and other members are the Union State Minister of Revenue or Finance and Ministers in charge of Finance or Taxation of all the States.
    • It is considered as a federal body where both the centre and the states get due representation.

  • Odisha’s Manda buffalo gets unique, indigenous tag

    The National Bureau of Animal Genetic Resources (NBAGR) has recognized the Manda buffalo, found in the Eastern Ghats and plateau of Koraput region of Odisha, as the 19th unique breed of buffaloes found in India.

    Manda Buffalo

    • The Manda are resistant to parasitic infections, less prone to diseases and can live, produce and reproduce at low or nil input systems.
    • These buffaloes have ash grey and grey coat with copper-coloured hair.
    • The lower part of the legs up to the elbow is light in colour with copper colour hair at the knee. Some animals are silver-white in colour.
    • Four breeds of cattle — Binjharpuri, Motu, Ghumusari and Khariar — and two breeds of buffalo — Chilika and Kalahandi — and one breed of sheep, Kendrapada, have already received NBAGR recognition.

    Their economic significance

    • The small, sturdy buffaloes are used for ploughing in their native habitat of the Koraput, Malkangiri and Nabarangpur districts.
    • There are around 1,00,000 buffaloes of this breed in the native tract mostly contributing to the family nutrition of households and assisting in all the agricultural operations in the undulated hilly terrain for generations.
    • The average milk yield of these buffaloes is 2 to 2.5 litres in single milking with more than 8% fat. However, a few of those yield up to 4 litres.
    • After going through the findings, the NBAGR made an assessment and recognised it as an indigenous and unique buffalo.

    Now pls do not ignore this PYQ:

    Q.What is/are unique about ‘Kharai Camel’, a breed found in India?

    1. It is capable of swimming up to three kilometres in seawater.
    2. It survives by grazing on mangroves.
    3. It lives in the wild and cannot be domesticated.

    Select the correct answer using the code given below:

    (a) 1 and 2 only

    (b) 3 only

    (c) 1 and 3 only

    (d) 1, 2 and 3

     

    [wpdiscuz-feedback id=”7b5fqwlhhm” question=”Please leave a feedback on this” opened=”1″]Post your answers here.[/wpdiscuz-feedback]

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  • National monetisation pipeline has narrow outlook

    Context

    Recently, FM announced the National Monetisation Pipeline (NMP) to lease a slew of “brownfield” (already developed) but underutilised public sector assets to the private sector with the objective of raising Rs 6 lakh crore.

    About the NMP

    • The assets identified for lease include roads, railways, ports, power, mining, aviation, oil and gas pipelines, warehouses, hotels and even two sports stadia.
    • The idea is to create “structured public-private partnerships” to unlock value from public sector assets and to recycle the revenues so raised into new infrastructure.
    • But the move raises several concerns.

    3 concerns with NMP

    1) Government is preferring financial value of assets over public welfare

    • The design of the NMP is out of sync with existential challenges — global warming, pandemics, geopolitical chaos and fundamentalism.
    •  The assets are valued on the basis of conventional financial metrics (enterprise value, book value, net present value, the costs of comparable assets).
    • The model seemingly absolves the government from the responsibility to unlock the intrinsic “social” (to include “smart” and “clean” ) value of these assets.

    2) It will lead to concentration of capital

    • NMP is designed to attract deep-pocketed financial institutions (PE firms) and industrial conglomerates.
    • This is because the valuations are so high that few other entities will have the resources or the risk carrying capacity to respond.
    • The result will be a deepening of the concentration of capital and existing inequalities.
    • There will be economic and social implications.

    3) Addressing the system problem

    • The government should have asked itself a fundamental question before placing a substantial share of public assets on the block:
    • Why have these assets been so poorly managed?
    • Was it because of bad leadership, inadequate talent within the PSEs, and/or systemic and structural shortcomings?
    • If the reason for low productivity was poor leadership or lack of talent, the transfer of these assets to a different, private sector-led organisational and investment structure would make sense.
    • Structural issues: But if the reason had to do with structural impediments, then such a change may not be warranted, at least not in the first instance.
    •  The example, gas pipelines GAIL are hugely underutilized, but this is not because of the “inefficiency” of GAIL, the PSE operator.
    • It is because of structural factors such as the shortage of domestic gas supplies; the regressive taxation system; the relatively uncompetitive price of gas and the perennial tussle between the Centre and state governments over land access.
    • A similar point can be made about most of the other assets identified for monetisation.
    • Their low productivity is because their PSE operators have faced a combination of systemic hurdles related to weak dispute resolution mechanisms; regulatory miasma; lack of transparency in governance; pricing distortions and intrusive bureaucratic intervention.
    • Way forward: So, until and unless these systemic problems are addressed, the private sector will find it difficult to harness the full value of these assets and the transfer of operatorship to them will offer at best a partial palliative.

    Conclusion

    Private-public investment structures make sense, but they must be modeled to also generate social value. In today’s world, there are no shortcuts to sustainable development.

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  • Indian Banks join ‘Account Aggregators Network’

    Eight of India’s major banks — State Bank of India, ICICI Bank, Axis Bank, IDFC First Bank, Kotak Mahindra Bank, HDFC Bank, IndusInd Bank and Federal Bank has joined the Account Aggregator (AA) network that will enable customers to easily access and share their financial data.

    What is an Account Aggregators (AA)?

    • According to the RBI, an AA is a non-banking financial company engaged in the business of providing, under a contract, the service of retrieving or collecting financial information pertaining to its customer.
    • It is also engaged in consolidating, organizing, and presenting such information to the customer or any other financial information user as may be specified by the bank.
    • The AA framework was created through an inter-regulatory decision by RBI and other regulators.
    • These regulators include SEBI, Insurance Regulatory and Development Authority, and Pension Fund Regulatory and Development Authority (PFRDA) through an initiative of the Financial Stability and Development Council (FSDC).
    • The license for AAs is issued by the RBI, and the financial sector will have many AAs.
    • The framework allows customers to avail themselves of various financial services from a host of providers on a single portal based on a consent method, under which the consumers can choose what financial data to share and with which entity.

    What does an AA do?

    • Reduce bank traffic: It reduces the need for individuals to wait in long bank queues, use Internet banking portals, share their passwords, or seek out physical notarization to access and share their financial documents.
    • Data security: An AA is a financial utility for the secure flow of data controlled by the individual.
    • Data flow: AA is an exciting addition to India’s digital infrastructure as it will allow banks to access consented data flows and verified data.
    • Reduced cost: This will help banks reduce transaction costs, which will enable us to offer lower ticket size loans and more tailored products and services to our customers.
    • Transaction security: It will also help us reduce fraud and comply with upcoming privacy laws.

    How does it work?

    • It has a three-tier structure:
    1. Account Aggregator
    2. FIP (Financial Information Provider) and
    3. FIU (Financial Information User)
    • A FIP is the data fiduciary, which holds customers’ data. It can be a bank, NBFC, mutual fund, insurance repository, or pension fund repository.
    • An FIU consumes the data from a FIP to provide various services to the consumer.
    • An FIU is a lending bank that wants access to the borrower’s data to determine if the borrower qualifies for a loan.
    • Banks play a dual role – as a FIP and as an FIU.
    • An AA should not support transactions by customers but should ensure appropriate mechanisms for proper customer identification.
    • An AA should share information only with the customer to whom it relates or any other financial information user as authorized by the customer

    What purpose does it serve?

    • AA creates secure, digital access to personal data at a time when Covid-19 has led to restrictions on physical interaction.
    • It reduces the fraud associated with physical data by introducing secure digital signatures and end-to-end encryption for data sharing.
    • These capabilities in turn open up many possibilities.
    • For instance, whereas physical collateral is usually required for an MSME loan, with secure data sharing via AA, ‘information collateral’ (or data on future MSME income) can be used to access a small formal loan.
    • HDFC Bank and Axis Bank have been using AA for auto loans, Lending Kart for MSME loans, and IndusInd Bank for personal finance management.

    What data can be shared?

    • An Account Aggregator allows a customer to transfer his financial information pertaining to various accounts such as banks deposits, equity, mutual fund, and pension funds to any entity requiring access to such information.
    • There are 19 categories of information that fall under ‘financial information, besides various other categories relating to banking and investments.
    • For sharing of such information, the FIU is required to initiate a request for consent by way of any platform/app run by the AA.
    • Such a request is received by the individual customer through the AA, and the information is shared by the AA, after consent is obtained.
    • The AA framework is an excellent initiative that will compile all the digital footprints of the customer in one place and make it easy for lenders like us to access it.
    • It will enable us to provide very quick turnarounds to our customers.

    Can an AA see or store data?

    • Data transmitted through the AA is encrypted. AAs are not allowed to store, process and sell the customer’s data.
    • No financial information accessed by the AA from a FIP should reside with the AA.
    • It should not use the services of a third-party service provider for undertaking the business of account aggregation.
    • User authentication credentials of customers relating to accounts with various FIPs shall not be accessed by the AA.

  • Why India’s Steady Exports Are At A Record High?

    Context

    First-quarter growth in India’s gross domestic product (GDP) stands at 20.1 %. This however still means that GDP in the first quarter was 9.2 % below its level two years ago.

    Export: Challenges

    • The key driver of growth in the coming quarters will be exports riding on the rapidity of recovery in major markets.
    • There are two serious worries here.
    • 1) Bullwhip element: This could cause an immediate ramp-up in demand for steel and other such upstream elements in global supply chains, with a corresponding damp down in the months to come.
    • In this connection, although the rates under the scheme for remission of duties and taxes on exported products (RODTEP) were finally notified in mid-August.
    • Steel, pharma and chemicals get no rebate at all, although many products using these inputs do.
    • The scheme looks like a subsidy to selected sectors disguised as duty rollback, which can get India into trouble at the World Trade Organization (WTO).
    • These excluded products need the rebate if they are to survive in a fiercely price-competitive global market in the months to come.
    • 2) Container shortage: A crippling shortage of sea-borne containers has afflicted key large-volume products in the Indian export basket (tea, basmati rice, furniture, garments).
    • Sea-freight subsidy: At a time when container rates have shot up, there is surely a case for a sea-freight subsidy (for a limited period).
    • Even more urgently, the estimated 25,000-30,000 containers locked up at different ports owing to customs disputes need to be unloaded into warehouses and these containers freed.

    Can National Monetisation Pipeline (NMP) spur growth?

    • Even if the expected ₹88,000 crore of revenue under NMP is realized during the current year, it is intended to feed only a small part of the infrastructure expenditure budgeted for the year.
    • It is the latter that will have to drive growth. Monetization is merely a funding source.
    • The scheme offers a participation incentive to states with a 33% matching transfer from the Centre for revenues that states realize under the scheme.
    • This matching transfer could well have the perverse consequence of states under-achieving the potential value realizable. 
    • Volume II of the NMP document refers to the Scheme for Special Assistance to States for Capital Expenditure announced in October 2020.
    • It offered states an interest-free loan with bullet repayment after 50 years to complete stalled capital projects, or settle the outstanding bills of contractors.
    • The NMP demands clear and well-thought-through processes, with sufficient transparency and safeguards in the form of regulatory structures.

    Conclusion

    For now, the need of the hour is export facilitation.

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  • Common Prosperity Drive in China

    Chinese President Xi Jinping has called for China to achieve “common prosperity”, seeking to narrow a yawning wealth gap that threatens the country’s economic ascent and the legitimacy of Communist Party rule.

    What is ‘Common Prosperity’?

    • “Common prosperity” was first mentioned in the 1950s by Mao Zedong, founding leader of what was then an impoverished country.
    • The idea was repeated in the 1980s by Deng Xiaoping, who modernized an economy devastated by the Cultural Revolution.
    • Deng said that allowing some people and regions to get rich first would speed up economic growth and help achieve the ultimate goal of common prosperity.
    • Common prosperity is not egalitarianism. It does not mean “killing the rich to help the poor”.

    Components of the drive

    • The push for common prosperity has encompassed a wide range of policies, that includes curbing tax evasion and limits on the hours that tech sector employees can work to bans on for-profit tutoring in core school subjects, and strict limits on the time minors can spend playing video games.

    Why in news now?

    • China became an economic powerhouse under a hybrid policy of “socialism with Chinese characteristics”, but it also deepened inequality, especially between urban and rural areas, a divide that threatens social stability.
    • This year, Xi has signaled a heightened commitment to delivering common prosperity, emphasizing it is not just an economic objective but core to the party’s governing foundation.
    • A pilot program in Zhejiang province, one of China’s wealthiest, is designed to narrow the income gap there by 2025.

    How will it be achieved?

    • Chinese leaders have pledged to use taxation and other income redistribution levers to expand the proportion of middle-income citizens, boost incomes of the poor, “rationally adjust excessive incomes”, and ban illegal incomes.
    • Beijing has explicitly encouraged high-income firms and individuals to contribute more to society via the so-called “third distribution”, which refers to charity and donations.
    • Several tech industry heavyweights have announced major charitable donations and support for disaster relief efforts.
    • Other measures would include improving public services and the social safety net.

    What will be the economic impact?

    • Chinese leaders are likely to tread cautiously so as not to derail a private sector that has been a vital engine of growth and jobs.
    • This goal may speed China’s economic rebalancing towards consumption-driven growth to reduce reliance on exports and investment, but policies could prove damaging to growth driven by the private sector.
    • Increasing incomes and improved public services, especially in rural areas, would be positive for consumption, and a better social safety net would lower precautionary savings.
    • The effort supports Xi’s “dual circulation” strategy for economic development, under which China aims to spur domestic demand, innovation, and self-reliance, propelled by tensions with the United States.

    Try answering this PYQ from CSP 2020:

    Q.One common agreement between Gandhism and Marxism is :

    (a) The final goal of a stateless society

    (b) Class struggle

    (c) Abolition of private property

    (d) Economic determinism

     

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