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Subject: Economics

  • The NMP is hardly the panacea for growth in India

    Context

    As the government seeks to monetise core assets through National Monetisation Pipeline (NMP), it needs to investigate the key reasons and processes which led to once profit-making public sector assets becoming inefficient and sick businesses.

    Background of the MNP

    • The National Monetisation Pipeline (NMP) envisages an aggregate monetisation potential of ₹6-lakh crore through the leasing of core assets of the Central government.
    • These assets are in sectors such as roads, railways, power, oil and gas pipelines, telecom, civil aviation, shipping ports and waterways, mining, food and public distribution, coal, housing and urban affairs etc. over a four-year period (FY2022 to FY2025).
    • Strategic objective of NMP: 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.
    • Unlocking idle capital: The NMP policy advocates unlocking idle capital from non-strategic/underperforming government owned assets
    • Contribution of core sectors: Eight core industrial sectors that support infrastructures such as coal, crude oil, natural gas, refinery products, fertilizers, steel, cement, and electricity have a total weight of nearly 40% in the Index of Industrial Production (IIP).

    Reasons for the decline of PSU and why the government should introspect the decline

    • Cost overruns, inter alia, is one of the major reasons.
    • Exceeding project completion time: In some cases, project completion time is exceeded, leading to elevated project cost so much so that either the project itself becomes unviable at the time of its launching or delays its break even point.
    • Lack of optimum input-output ratio: Optimum input-output ratio is seldom observed in a majority of government infrastructural projects leading to their overcapitalisation.
    • A reluctance to implement labour reforms, a lack of inter-ministerial/departmental coordination, poor decision-making, ineffective governance and excessive government control are other reasons for the failure of public infrastructural assets.
    • Need for introspection: It is quite likely that the nation may find itself in a vicious cycle of creating new assets and then monetising the same when they become liabilities for the Government at a later stage.

    Importance of public sector enterprises

    • Going by the annual report (2020-2021) of the Department of Public Enterprises there are 256 operationally-run central public sector undertakings (CPSUs), employing about one million people.
    • They posted a net profit of ₹93,294 crore (FY 2019-20).
    • Ratna Status: Out of these, 96 have been conferred the Ratna status (72, 14, and 10 are Miniratnas, Navaratnas, and Maharatna companies, respectively).
    • As India needs to invest about $1.5 trillion on infrastructure development in order to aspire to become $5 trillion economy by the year 2024-25, according to the Economic Survey 2019-20, public enterprises should be in focus.

    Steps to strengthen public sector businesses

    • Gati Shakti National Master Plan: Recently, the “Pradhan Mantri Gati Shakti National Master Plan” for multi-modal connectivity was launched.
    • It is essentially a digital platform for information sharing among different Ministries and departments at the Union and State levels.
    • Seamless planning and coordinated execution: The plan aims ‘to synchronise the operations of different departments of 16 Ministries including railways and roadways.
    •  Revamping corporate governance structure of PSUs: As enunciated in the Economic Survey 2020-21, an important step for the Government to take to strengthen public sector businesses would be to completely revamp their corporate governance structure in order to enhance operational autonomy augmented with strong governance practices including listing on stock exchange for greater transparency and accountability.
    • Initiative to boost domestic production of steel: The Economic Survey also highlights the Government’s initiatives as part of the Atmanirbhar Abhiyaan in order to boost domestic production in the steel sector.
    • Under it, four different types of steel are included for incentives under the production linked incentive (PLI) scheme; selling steel to Micro, Small and Medium Enterprises (MSMEs), affiliated to Engineering Export Promotion Council of India at export parity price under the duty drawback scheme of the Directorate General of Foreign Trade (DGFT);
    • It also include measures to provide preference to domestically produced iron and steel in government procurement, where aggregate estimate of iron and steel products exceeds ₹25 crore;
    • Protection of domestic industry from unfair trade practices: Protecting industry from unfair trade through appropriate remedial measures including imposition of anti-dumping duty and countervailing duty on the products on which unfair trade practices were adopted by the other countries.

    Conclusion

    More such out-of-the-box policy initiatives are needed to rule out public asset monetisation schemes such as the NMP in future.

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  • The stepping stones in the post-pandemic world

    Context

    The COVID-19 pandemic has profoundly impacted lives and livelihoods across the world. Governments, global institutions, industry, academia and non-profit organisations around the world have joined hands to tackle the global challenge and help countries rebuild their economies.

    Criticality of international cooperation and role for India

    • The novel coronavirus pandemic has once again highlighted the criticality of international cooperation in combating current and future challenges.
    • Areas of cooperation: Key among these include economic growth, building competitiveness of the investment climate, ensuring sustainable development paths and adapting to technology acceleration.
    • Strengthening global partnership: Building resilience to cope with the threats posed by pandemics and other man-made and natural disasters has necessitated strengthening global partnerships now more than ever.
    • Global partnerships help in building mutual trust and understanding by agreeing upon common rules and standards and sharing of best practices.

    Areas to focus on

    [1] Challenge of long term sustainability of growth process

    • While the world economy is rebounding strongly, the long-term sustainability of the growth process needs to be strengthened.
    • Exit from the massive stimulus packages itself may pose risks of economic and financial instability.

    [2] Challenges of supply chain management:

    • The pandemic severely disrupted global supply chains and set the global trade trajectory on a downward path.
    • Even as the world emerges from the pandemic, facilitating medical supplies and essentials will continue to remain a top priority and for this, supply chains will need to be kept flowing.
    • For this year, the United Nations Conference on Trade and Development (UNCTAD) indicates an increase of 22.4% in the value of global merchandise trade compared with 2020.
    • World trade is expected to stand about 15% higher than before the COVID-19.
    • FDI flows in developing economies also increased significantly, totalling $427 billion in the first half of 2021.
    •  Cooperation on trade facilitation for enhancing open and transparent markets, technical assistance and reduction of complex process and arrangements must be promoted.

    [3] Increasing competitiveness

    • Competitiveness will be key in facilitating growth and inclusive development.
    • New opportunities and avenues across potential high growth sectors such as manufacturing and start-ups must be leveraged.
    • An ecosystem of entrepreneurship and innovation with targeted policies and interventions will contribute to enhancing productivity and generating employment.

    [4] Structural changes with the emergence of digital economy

    • Certain structural changes are likely to become permanent in the future and this is especially true of the digital economy
    • Equitable adaptation: The rise of telemedicine, remote work and e-learning, delivery services, etc. necessitates equitable adaptation to advanced technologies and tools, building robust infrastructure, and occupational transitions.
    • Skill development and worker training, investments in education and vocational training, and capacity building would be some key areas of focus for filling technology gaps and nurturing new and existing talent.
    • Investment in innovation: At the same time, investments in innovation will be crucial, especially during a crisis.

    [5] Climate change

    • Matter of urgency: Climate change has now acquired urgency from policymakers around the world, as seen in the recent COP26 at Glasgow.
    • International alliances and cooperation on building sustainable solutions, green technology, resource efficiency, sustainable finance, etc., must be promoted to fast-track meeting the sustainable development goals and for ensuring all-round development.

    Opportunities for India

    • Attaining faster growth path: India’s recent reforms, role in combating the pandemic, and startup vibrancy, among other factors, have attracted global attention and can help it attain a faster growth path, provided its integration with the world economy and trade gains strategic intensity.
    • Reliable and trusted player: With multiple strategic shifts, India’s role as a reliable and trusted player in the comity of nations stands enhanced.

    Way forward

    • In the post-pandemic world, it will be critical for India to improve on its investment climate and systematically target its export capabilities across sectors and regions.
    • Ease of doing business and new free trade agreement with major markets will help it integrate closely with the world through trade and investment partnerships.

    Conclusion

    The time for India is here and it must leverage international partnerships for ensuring a robust and sustained economic growth path.

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  • The challenges in being a chip hub

    Context

    India is aiming to manufacture silicon semiconductor chips.

    Efforts to set up chip fabrication plant

    • India has intensified efforts to set up a semiconductor fabrication plant with the help of Taiwan, the market leader.
    • For this the government is investing over $7.5 billion.
    • The Tata Group is in talks with three States — Tamil Nadu, Telangana and Karnataka — to invest over $300 million to set up a semiconductor manufacturing facility.
    • In 2014, NASSCOM wanted to promote a National Technology Corridor along coastal A.P. stretching through the Visakhapatnam, Rajahmundry and Vijayawada region.
    • Given the abundance of water, sand (raw material for making silicon ingots), road, rail, ports and airport connectivity, the industry body wanted to push and promote the design and manufacturing of electronic chips.

    Challenges

    • IP and design: While welcoming such moves by the government and technology experts, local players in the segment say that chip making itself will not be enough.
    • Other aspects such as designing and Intellectual Property are required to make a mark.
    • Designing is what brings value to the chips.
    • If the Intellectual Property lies with the foreign entity, we end up manufacturing the basic material which does not serve the purpose.
    • Need to promote SoCs: Rather, we need an ecosystem to promote SoCs (System on a Chip) which makes more sense.”
    • There are several firms in India which are now making SoCs, which is a good sign.
    • Connect related industries: The bigger challenge and immediate need for the Indian government is to connect related industries in India to create the ecosystem, industry players say.

    Consider the question “What are the challenges India may face as it aims to manufacture silicon semiconductor chips?”

    Conclusion

    The initiative is an uphill task as many factors need to come together for India to make a mark in the niche chip making and designing industry. Also, upcoming firms should be able to sustain themselves in the market when subsidies from the government are withdrawn.

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  • What is Q-Commerce Model?

    Online grocer Grofers has rebranded itself “Blinkit”, in line with its new focus on “quick commerce”, which essentially involves delivering customer orders much faster than it does currently.

    Q-Commerce Model

    • Q-commerce (‘quick commerce’) – sometimes used interchangeably with ‘on-demand delivery’ and ‘e-grocery’ – is e-commerce in a new, faster form.
    • It combines the merits of traditional e-commerce with innovations in last-mile delivery.
    • The premise is largely the same, with speed of delivery being the main differentiator. Delivery is not in days but minutes – 30 or less, to be competitive.
    • This has in turn expanded the breadth of what individuals can order, with perishable goods – like groceries – being a large niche q-commerce companies speak to.
    • It tends to focus on the micro – smaller quantities of fewer goods.

    Features of this model

    • Countering pandemic: The supply chain disruptions triggered by the Covid-19 pandemic led to the emergence of a new sub-vertical in the online grocery segment.
    • Quickest delivery: It is the unique selling proposition (USP) of which was the promise of delivery within 10-30 minutes of ordering.
    • Micro-warehousing : The focus of most of these ventures is on setting up micro-warehouses located closer to the point of delivery, and of restricting stocks of high-demand items.

    Back2Basics:  Marketplace and Inventory-Based Model

    (1) Marketplace Model

    • It provides an IT platform by an e-commerce entity on a digital & electronic network to act as a facilitator between the buyer and seller. Ex. India Mart, Amazon, Flipkart.
    • The e-commerce firm does not directly or indirectly influence the sale price of goods or services and is required to offer a level playing field to all vendors.

    (2) Inventory-Based Model

    • Inventory based model of e-commerce means an e-commerce activity where the inventory of goods and services is owned by an e-commerce entity and is sold to the consumers directly.
    • Ex. Alibaba

     

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  • Co-Lending Model for Banks-NBFCs

    A November 2020 decision by the RBI to permit banks to “co-lend with all registered NBFCs based on a prior agreement” has led to unusual tie-ups between the banks and companies.

     The ‘Co-Lending Model’

    • In September 2018, the RBI had announced “co-origination of loans” by banks and Non-Banking Financial Companies (NBFCs) for lending to the priority sector.
    • The arrangement entailed joint contribution of credit at the facility level by both the lenders as also sharing of risks and rewards.
    • Subsequently, based on feedback from stakeholders, the RBI allowed the lenders greater operational flexibility, while requiring them to conform to regulatory guidelines.
    • The primary focus of the revised scheme, rechristened as ‘Co-Lending Model’ (CLM), was to “improve the flow of credit to the unserved and underserved sector of the economy.

    Repercussions of Co-Lending

    (1) Bank-NBFC tie-ups at indiscriminate scale

    • Several banks have entered into co-lending ‘master agreements’ with NBFCs, and more are in the pipeline.
    • SBI, the country’s largest lender, signed a deal with Adani Capital, a small NBFC of a big corporate house, for co-lending to farmers to help them buy tractors and farm implements.

    (2) Greater risk in co-lending

    • NBFCs are required to retain at least a 20 per cent share of individual loans on their books.
    • This means 80 per cent of the risk will be with the banks — who will take the big hit in case of a default.

    (3) Corporates in banking

    • While the RBI hasn’t officially allowed the entry of big corporate houses into the banking space, NBFCs — mostly floated by corporate houses — were already accepting public deposits.
    • They now have more opportunities on the lending side through direct co-lending arrangements.

    Back2Basics: Non-Banking Financial Company (NBFC)

    • An NBFC is a company incorporated under the Companies Act 2013 or 1956.
    • According to section 45-I (c) of the RBI Act, a Non–Banking Company carrying on the business of a financial institution will be an NBFC.
    • It further states that the NBFC must be engaged in the business of Loans and Advances, Acquisition of stocks, equities, debt etc issued by the government or any local authority or other marketable securities.

    NBFC business:

    The NBFC business does not include business whose principal business is the following:

    1. Agricultural Activity
    2. Industrial Activity
    3. Purchase or sale of any goods excluding securities
    4. Sale/purchase/construction of any immovable property – Providing of any services

    Difference between Banks and NBFCs:

    • NBFCs lend and make investments and hence their activities are akin to that of banks; however there are a few differences as given below:
    1. NBFC cannot accept demand deposits;
    2. NBFCs do not form part of the payment and settlement system and cannot issue cheques drawn on itself;
    3. Deposit insurance facility of Deposit Insurance and Credit Guarantee Corporation is not available to depositors of NBFCs, unlike in the case of banks.

     

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  • Why crypto currency legislations needs careful consideration

    Context

    The government has decided to introduce a bill that seeks to prohibit all private cryptocurrencies in India.

    Background of the bill

    • In 2018, the three-judge bench of the Supreme Court set aside the RBI circular that prevented crypto exchanges from dealing with the formal financial system on grounds of proportionality.
    • Purpose of the bill: The current bill now attempts to define the rules of the game so that the RBI, tax authorities, SEBI and other agencies have much better legal guidance in deciding the course of action with respect to VCs in their respective domains.
    • The rules can, therefore, range from a ban to controlled interaction with the formal financial system.

    Issues involving cryptos

    • Issues involving cryptos can be seen at three levels, each of which is equally important.
    • The first is its impact on sovereignty.
    • The second is its interaction with financial markets.
    • Third is the value proposition that the entire concept of crypto brings to the economic debate.
    • Incorporation of price stability mechanism: Some of the variants of cryptos such as the stable coin clearly indicate that these are attempts to create systems of money that incorporate features of price stability that imply a parallel monetary system.
    • Diluting the sovereign function of money creation: Unrestricted co-opting of VC clearly dilutes the sovereign function of money creation, clearly impacting the revenues of RBI.
    • Concerns pertaining to money laundering, terrorist threats and narco-trading also come under this category given the high value and anonymity offered by cryptocurrencies.

    Challenges in cryptocurrencies interaction with the formal system

    • As of now cryptos have been recognised as assets or commodities and as a medium of exchange. Their role as units of account or legal tender is rather limited.
    • They may offer a store of value given their short supply. From a banking point of view, certain issues do arise.
    • Since VCs are not legal tenders, they cannot be used in the discharge of debt.
    • Thus, banks cannot accept VCs to close a loan account.
    • Second, can banks lend in fiat by accepting VCs as collateral assuming the VC is an asset?
    • Incompatible with the fractional system of banking: At a deeper level, the very idea of VCs and the way they are designed are incompatible with the fractional system of banking.
    • The fluctuations in interbank liquidity require that money supply adjusts to system requirements.
    • If money supply undergoes compositional change in favour of VCs, this ability will be curtailed thus accentuating the crisis.
    • In financial markets, crypto such as ICOs bring another set of issues.
    • The ICO is a creature that disrupts the very concept of limited liability in corporate finance.
    • ICOs are, at times, designed in such a way that the beneficial owner identity is concealed.
    • SEBI is yet to convey a position on various issues surrounding this idea.
    • Issues with making VCs medium of exchange: VCs have emerged as a medium of exchange and many countries have permitted VC ATMs.
    • But how does this proposition fare given that considerable advances have been made in the payment systems domain in India.
    • Is it worthwhile that additional competition is introduced in a market that is hyper-competitive?
    • It will have impact on existing investments in mobile payment and UPI technology.
    • Impact on poor states: It is well known that the Indian population exhibits significant behavioural divergences in their savings and credit behaviour across regions.
    • Such wide behavioural changes have profound implications on bank strategies and product designs.
    • In the past, there have been several instances of states having low per capita income being more prone to chit fund investments that have negatively impacted the savings of many poor households.
    • The issue of consumer protection needs to be addressed and the current laws may have to be reviewed considering this innovation.

    Conclusion

    The bill must meet many important objectives. While there are obvious concerns of money laundering and benami transactions, there are equal concerns with respect to company laws, payment systems and banking, securities and other commercial laws.

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    Back2Basics: About Stablecoin

    • Stablecoins bridge the worlds of cryptocurrency and everyday fiat currency because their prices are pegged to a reserve asset like the U.S. dollar or gold.
    • This dramatically reduces volatility compared to something like Bitcoin and results in a form of digital money that is better suited to everything from day-to-day commerce to making transfers between exchanges.

    What is ICO?

    • ICO stands for “initial coin offering,” and refers to a formerly popular method of fundraising capital for early-stage cryptocurrency projects.
    • In an ICO, a blockchain-based startup mints a certain quantity of its own native digital token and offers them to early investors, normally in exchange for other cryptocurrencies such as bitcoin or ether.

  • Bank Deposit Insurance Programme

    The PM has addressed depositors during a programme titled ‘Depositors First: Guaranteed Time-bound Deposit Insurance Payment up to ₹5 Lakh’.

    Deposit Insurance Programme

    • The bank savings are insured under the Deposit Insurance and Credit Guarantee Corporation (DICGC) Act providing full coverage to around 98 per cent of bank accounts.
    • Earlier, account holders had to wait for years till the liquidation or restructuring of a distressed lender to get their deposits that are insured against default.
    • Last year, the government raised the insurance amount to Rs 5 lakh from Rs 1 lakh.
    • Prior to that, the DICGC had revised the deposit insurance cover to Rs 1 lakh on May 1, 1993 — raising it from Rs 30,000, which had been the cover from 1980 onward.

    What are new changes?

    • Earlier, out of the amount deposited in the bank, only Rs 50,000 was guaranteed, which was then raised to Rs 1 lakh.
    • Understanding the concern of the poor, understanding the concern of the middle class, we increased this amount to Rs 5 lakh.
    • If a bank is weak or is even about to go bankrupt, depositors will get their money of up to Rs five lakhs within 90 days.

    Significance of the scheme

    • Earlier account holders could not access their own money for up to 8-10 years after financial stress at banks.
    • The new changes would give confidence to depositors and strengthen the banking and financial system.
    • Now, depositors can get insurance money within 90 days, without waiting for the eventual liquidation of the distressed banks.

     

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  • What true MSP means

    Context

    Amid the demand for a guarantee of MSP, many commentators fail to understand the true spirit of the demand for a legal MSP.

    How demand for legal backing for MSP is misinterpreted?

    • Mandatory enforcement of price above MSP: The demand has been interpreted as a mandatory enforcement of trade in agricultural produce, including private trade to be necessarily at or above the MSP for that crop.
    • Nationalisation of agricultural trade: Another interpretation is the nationalisation of agricultural trade whereby the government promises to buy all the crop produced at MSP.
    • Commentators have been using these two interpretations to project large estimates of government expenditure needed to implement.
    • They fail to understand the true spirit of the demand for a legal MSP.

    Current nature of MSP

    • It is not an income support program: By definition MSP is not an income support programme.
    • Intervention to stabilise prices: It is designed to be used as government intervention to stabilise prices, to provide remunerative prices to farmers.
    • Public procurement program to meet requirements of NFSA: Currently, it is no more than a public procurement programme to meet the requirements of the National Food Security Act (NFSA).
    • Only rice and wheat procured: As against the official announcement of MSP for 23 crops, only two, rice and wheat are procured as these are distributed in NFSA.

    Larger context of demand for legal backing to MSP

    • Droughts and declining commodity prices: In addition to the twin droughts of 2014 and 2015, farmers have also suffered from declining commodity prices since 2014.
    • Impact of demonetisation and GST: The twin shocks of demonetisation and hurried rollout of GST, crippled the rural economy, primarily the non-farm sector, but also agriculture.
    • Impact of pandemic: The slowdown in the economy after 2016-17 followed by the pandemic has ensured that the situation remains precarious for majority of the farmers.
    • Increased input prices: Higher input prices for diesel, electricity and fertilisers have only contributed to the misery.
    • In this context, the demand for ensuring remunerative prices is only a reiteration of the promise by successive governments to implement the Swaminathan Committee report.

    What should be the true nature of MSP?

    • Intervene to stabilise price: A true MSP requires the government to intervene whenever market prices fall below a pre-defined level, primarily in case of excess production and oversupply or a price collapse due to international factors.
    • It does not require the government to buy all the produce but only to the extent that creates upward price pressures in the market to stabilise prices at the MSP level.

    Way forward

    • Mechanism for market intervention: What is needed is a mechanism to monitor the prices.
    • While such a mechanism already exists, a policy for requisite market intervention is missing.
    • Use MSP as incentive to achieve nutritional security and reduce import dependence: MSP can also be an incentive price for many of the crops which are desirable for nutritional security such as coarse cereals, and also for pulses and edible oils for which we are dependent on imports. 
    • Include pulses, edible oil and millets in PDS: Despite repeated demands from food activists, there has not been any progress in including pulses, edible oils and millets in PDS.
    • A guaranteed MSP then is nothing more than restoring the true spirit and functions of MSP, applicable to a broad range of crops and all sections of farmers.

    Issues

    • The current MSP regime has no relation to prices in the domestic market.
    • Its sole raison d’être is to fulfil the requirements of NFSA making it effectively a procurement price rather than an MSP. 
    • It is basically a lack of understanding of what agriculture needs and above all a lack of political commitment to ensure remunerative prices to farmers.

    Conclusion

    An efficient and functional MSP is certainly the least that the government can do to protect a sector which remains the largest employer and a refuge for the poor and vulnerable as was seen during the pandemic.

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  • Goods and Services Tax as an unfinished agenda

    Context

    Seen purely from a revenue point of view and as a fiscal policy tool, India’s GST is still on a rocky road.

    Background

    • The GST was launched by India on the midnight of July 1, 2017.
    • Benefits of GST: Hailed as a landmark reform in India’s tax history, it was expected to improve tax-GDP ratio, end tax cascading, enhance efficiency, competitiveness, growth, and ensure lower prices.
    • Fiscal federalism: It was also projected as a watershed in India’s fiscal federalism.
    • the States have forgone a substantial part of their own tax revenue.
    • States were in turn guaranteed a GST compensation assuring 14% growth in their GST revenue during the initial five years.
    • India’s GST architecture: India’s GST architecture is built on the firm foundations of a GST Council and the GST Network (GSTN).
    • GST Council as due federal process: The first is the key decision-making body, chaired by the Union Finance Minister with a Minister of State in charge of Finance and the Finance Ministers of States as members.
    • This is envisaged as a due federal process to protect the interests of the States.

    Unresolved issues

    [1] Revenue neutrality not achieved

    • India’s GST paradigm stands on two key pillars: revenue neutrality and GST compensation for the States.
    • The assured revenue neutrality remains a mirage and many States have experienced a declining tax-GDP ratio.
    • Decline in tax to GDP ratio of state: In the case of major 18 States, the ratio of own tax revenue to GDP has declined.
    • While the share of the Centre in total GST increased by 6%, that of States put together lagged behind with only a 4.5% increase.
    • Stark differences between the Revenue Neutral Rates (RNR) for the producing States and consumption State have been observed. States producing exempted food grains also lost out.
    • Since the rates were lower under GST vis-à-vis the VAT regime, revenue neutrality was not adhered ab initio.
    • The problems were compounded with massive evasion following the dismantling of check posts, and later on fake invoices, that grew by leaps and bounds.
    • Experience of other countries: The South African experience illustrates how zero-rating and large exemptions have defeated revenue goals.
    • Canadian experience shows that GST could be improved by limiting zero rating, tax-exemptions and harmonising tax rates.
    • The resilience of the economy at the time of rolling out of GST is critical for its wider reception as the Australian experience shows.

    [2] Not conducive to co-operative federalism

    • While the States collectively forewent 51.8% of their total tax revenue, the Centre surrendered only 28.8%.
    • Yet, GST is shared equally between the Centre and States despite two expert committees recommended for a higher share for the States.
    • Given the revenue neutrality failure and the host of other issues, many of the States are left with no option except to depend on GST compensation.
    • This is not conducive to sustainable co-operative federalism.

    [3] Need for revenue sharing formula for IGST

    • Although IGST is a key source of revenue for many of the States, the clearing house mechanism and the process therein remains unknown territory.
    •  It was pointed out that GST is discriminatory to manufacturing States, indicating the need for a revenue sharing formula that duly incentivises exporting States by sharing IGST revenue among three parties instead of two.

    [4] Other issues

    • Swift functioning of Input tax credit: The Malaysian experience demonstrates the need for swift and transparent functioning of the input tax credit system through a flawless IT infrastructure.
    • We operate in an almost information vacuum especially with respect to IGST along with several glitches in the digital architecture.
    • GSTN is now in the doldrums.
    • Data monopoly: It neither makes effective use of the massive and invaluable data being generated nor shares them to enable others to make use of them.
    • Such practice in “data monopoly” was a fact of history in India’s statistical system and has to go sooner rather than later.
    • Australia, having several similarities with India, in terms of Centre and the subnational units, and destination-based, multi-stage tax with input credit provisions, has not been revenue-buoyant.
    • It is a matter for consideration whether widening exemptions and the replacing of income-tax by GST in the case of small and medium enterprises are advisable measures in the Indian context.

    Consider the question “What are the challenges facing the GST in India? What India can learn from the experience of other countries’ experience.”

    Conclusion

    Despite many years of efforts in evolving an Indianised GST system and over 50 months of adjustments with over a thousand notifications, with accompanying uncertainties in the first year and the novel coronavirus pandemic and the lockdown still in the saddle, GST continues to be an unfinished agenda. But how far and how long?

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  • [pib] Saryu Nahar National Project

     

    PM will inaugurate the Saryu Nahar National Project.

    Saryu Nahar National Project

    • The Project involves the interlinking of five rivers – Ghaghara, Saryu, Rapti, Banganga and Rohini to ensure optimum usage of water resources of the region.
    • It will benefit nine districts of Eastern Uttar Pradesh namely – Bahraich, Shravasti, Balrampur, Gonda, Siddharthnagar, Basti, Sant Kabir Nagar, Gorakhpur and Maharajganj.
    • The sub canals with a length of 6,600km have been linked to the 318km main canal.
    • The work on the project started in 1978 but due to lack of continuity, it got delayed and was not completed even after nearly four decades.

    Benefits offered

    • The project will provide assured water for irrigation of over 14 lakh hectares of land and benefit about 29 lakh farmers of over 6200 villages.
    • The farmers of the region, who were the worst sufferers of the inordinate delay in the project, will now immensely benefit from the upgraded irrigation potential.
    • They will now be able to grow crops on a larger scale and maximize the agri-potential of the region.

    Back2Basics: Sarayu River

    • The Sarayu is a river that originates at a ridge south of Nanda Kot mountain in Bageshwar district in Uttarakhand.
    • It flows through Kapkot, Bageshwar, and Seraghat towns before discharging into the Sharda River at Pancheshwar at the India—Nepal border.
    • Lower Ghaghara is also popularly known as Sarayu in India.
    • Especially while it flows through the city of Ayodhya, the birthplace of legendary Rama.

     

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