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Subject: Economics

  • Faceless Tax Scheme

    The government’s faceless tax assessment scheme has managed to deliver about 24,000 final orders since its introduction in August 2020.

    Try this PYQ:

    Q. With reference to India’s decision to levy an equalization tax of 6% on online advertisement services offered by non-resident entities, which of the following statements is/are correct?

    1. It is introduced as a part of the Income Tax Act.
    2. Non-resident entities that offer advertisement services in India can claim a tax credit in their home country under the “Double Taxation Avoidance Agreements”.

    Select the correct answer using the code given below:

    (a) 1 only

    (b) 2 only

    (c) Both 1 and 2

    (d) Neither 1 nor 2

    Faceless Tax Scheme

    • The Central Government introduced the Faceless Assessment Scheme to provide greater transparency, efficiency and accountability in Income Tax assessments.
    • It is an attempt to remove individual tax officials’ discretion and potential harassment for income taxpayers.
    • All provisions introduced under Faceless Assessment, under the Income Tax Act, 1961, are introduced to-
    1. Eliminate the interface between the Assessing Officer and the assesses during the course of proceedings, to the extent that is technologically feasible
    2. Optimize the utilization of resources through the economies of scale and functional specialization and
    3. Introduce a team-based determination of arm’s length price with dynamic jurisdiction.

  • PATENTS (AMENDMENT) RULES, 2020

    A recent amendment to a unique feature in patent law under which patentee/licensee has to disclose information regarding the extent to which they have worked patent in India, could have several implications.

    Why the changes in rules matter

    • Indian patent law grants a 20-year patent monopoly to an inventor.
    • In exchange for such monopoly, India’s patent law imposes a duty on the patentee to commercially work the invention in India to ensure that its benefits reach the public.
    • Accordingly, section 146(2), a unique provision not found in patent laws of most other countries, requires every patentee and licensee to submit to the Patent Office an annual statement (Form 27 format) explaining the extent to which they have worked the invention in India.
    • This statement is meant to help the Patent Office, potential competitors, etc. to determine whether the patentee has worked the invention in India and made it sufficiently available to the public at reasonable prices.
    • A failure of this duty could trigger compulsory licensing or even subsequent revocation of the patent under the Patents Act, 1970. 
    • The central government recently amended the format of a statement that patentees and licensees are required to annually submit to the Patent Office.
    • The amendment has significantly watered down the disclosure format.
    • This could hamper the effectiveness of India’s compulsory licensing regime.
    • This in turn could hinder access to vital inventions including life-saving medicines, thereby impacting public health.
    • There has been significant pressure from multinational corporations and the United States government to do away with this requirement.

    What changes were made through the amendment

    • The recent amendment to the form was made in response to a PIL filed by Shamnad Basheer before the Delhi High Court in 2015.
    • The PIL brought to the Court’s attention the rampant non-filing and defective filing of Form 27 and sought a direction to strictly enforce the patent working disclosure rules and take action against the violators.
    • The PIL also called for a reform of Form 27, arguing that the information it sought was grossly insufficient to ascertain the extent of the working of the patent.
    •  However, instead of strengthening the form, the amendment has significantly weakened it further, thereby defeating the entire purpose of the amendment exercise.
    • The amended form has removed the requirement of submitting a lot of important information.
    • It is no longer required to provide any information in respect of the quantum of the invention manufactured/imported into India, the licenses and sub-licenses granted during the year and the meeting of public requirement at a reasonable price.
    • It no longer requires quantum or the total units of the invention manufactured/imported in India.
    • The deletion of this requirement of its disclosure is shocking.
    • This is because,  it is the disclosure of this data by Bayer in Form 27 that played a crucial role in grant of India’s first compulsory license to Natco for the anti-cancer drug Sorafenib/Nexavar.
    • The removal of the requirement of submitting any licensing information, including the disclosure of even the existence of licenses means that the patentees/licensees can just self-certify that they’ve worked the patent.
    • The omission to mandate disclosure of details makes it extremely difficult to ascertain whether the invention has been made available to the public in sufficient quantity and at an affordable price.

    Conclusion

    The government has significantly weakened the critical duty imposed by the law on patentees/licensees to disclose patent working information. Therefore, the government must reconsider its amendments to the form taking into account the PIL recommendations and re-amend it to restore as well as strengthen its spirit.

  • Blueprint of post covid development model

    The article discusses the themes of the post-covid world which will be somewhat more aware and mindful of the dangers of global dimension.

    Collaborative model and public-private partnership

    • A few weeks back, Prime Minister visited the private companies involved with the formulation of the anti-COVID vaccine.
    • The PM’s visit was one more reminder of the critical importance of public-private partnerships.
    • The PM signalled the government’s receptivity to external expert advice.
    • The CEOs reaffirmed their commitment to partnering with the state to help address not just this medical crisis but also the many other social and humanitarian problems.
    • The government has appreciated that the model for sustainable development in a post-COVID world must be a collaborative one.
    • Businesses will repurpose their goals and look beyond profits.

    Working together to deal with the crises of global dimensions

    • COVID-19 was not the first, nor will it be the last crisis of global dimensions.
    • The threat of global warming, for instance, hangs over our heads.
    • Its impact is less immediate and for the present, at least less palpable.
    • But it looms and its consequences are existential.
    • COVID has offered, it is the tangible evidence that no one entity or group — the state, markets, businesses, entrepreneurs, scientists — can tackle existing and emergent economic and social problems on their own.
    • They have to work together to resolve them.

    Business uncertainties

    • Businesses has been the uncertainty of operating in the post-COVID digital world.
    • Every business leader has, in some form or other, expressed three types of uncertainties.
    • 1) Is their business facing a hinge moment, necessitating the reimagining and re-engineering of their strategy and product portfolio?
    • Or are they witnessing no more than another turn of the business cycle and that, once the vaccine is developed and distributed, the market will return to business as usual?
    • Or will conditions necessitate a middle of the road approach: Stay the pre- COVID course but at the same time, speed up the pivot toward a new business model.
    • Most business leaders are adopting this third hybrid path.
    • The key to corporate success in a digital world in which a distinct incident could influence it, is the capability of leaders to think out of the box and to handle the unexpected.
    • Financial, technological and human resources will be necessary, but they will not be sufficient.

    Consider the question “The post-covid development model must be based on the cooperation underscored by the public-private partnership as the challenges that could emerge are not possible to be tackled by any on entitiy. Comment”

    Conclusion

    COVID has “obliterated the one remaining obstacle to a digital future — human attitudes”. Covid forced them to adopt and adapt. The challenge for our business leaders will be to navigate a pathway that sustains the benefits of these tools but without deepening the existing social and economic inequalities. Life is not digital for millions in our country.

  • Agricultural policy monitoring and evaluation by OECD

    The OECD (Organisation for Economic Co-operation and Development) has provided five sets of data on the issue of agriculture support and India trails on most counts:

    The ongoing debate about farmers protest has brought to light some of the key support mechanisms for agriculture in India. And it is being argued that the government has preferred the welfare of Indian consumers over the Indian farmers.

    Lets’ have a look at various OECD’s parameters:

    (1) Producer Support Estimates (PSE)

    • These are transfers to agricultural producers and are measured at the farm gate level.
    • They comprise market price support, budgetary payments and the cost of revenue foregone.

    (2) Consumer Support Estimates (CSE)

    • These refer to transfers from consumers of agricultural commodities. They are measured at the farm gate level.
    • If negative, the CSE measures the burden (implicit tax) on consumers through market price support (higher prices), that more than offsets consumer subsidies that lower prices to consumers.

     (3) General Services Support Estimates (GSSE)

    • GSSE transfers are linked to measures creating enabling conditions for the primary agricultural sector through the development of private or public services, institutions and infrastructure.
    • GSSE includes policies where primary agriculture is the main beneficiary but does not include any payments to individual producers.
    • GSSE transfers do not directly alter producer receipts or costs or consumption expenditure.

    (4) Total Support Estimate (TSE)

    • The TSE transfers represent the total support granted to the agricultural sector, and consist of producer support (PSE), consumer support (CSE) and general services support (GSSE).

    (5) Producer protection

    • Lastly, the OECD also provides data on “producer protection”.
    • The PP is the ratio between the average price received by producers (measured at the farm gate), including net payments per unit of current output, and the border price (measured at the farm gate).
    • For instance, a coefficient of 1.10, which China has, suggests that farmers, overall, received prices that were 10% above international market levels.

  • [pib] Kochi – Mangaluru Natural Gas Pipeline

    PM will today dedicate the Kochi – Mangaluru Natural Gas Pipeline to the nation.

    Try this PYQ:

    Q. Consider the following statements:

    1. Natural gas occurs in the Gondwana beds.
    2. Mica occurs in abundance in Kodarma.
    3. Dharwars are famous for petroleum.

    Which of the statements given above is/are correct?

    (a) 1 and 2 only

    (b) 2 only

    (c) 2 and 3 only

    (d) None

    Kochi – Mangaluru Pipeline

    • The 450 km long pipeline has been built by GAIL (India) Ltd.
    • It has a transportation capacity of 12 Million Metric Standard Cubic Metres per day.
    • It will carry natural gas from the Liquefied Natural Gas (LNG) Regasification Terminal at Kochi (Kerala) to Mangaluru (Dakshina Kannada district, Karnataka).
    • It will pass through Ernakulam, Thrissur, Palakkad, Malappuram, Kozhikode, Kannur and Kasaragod districts.

    Its significance

    • The event marks an important milestone towards the creation of ‘One Nation One Gas Grid’.
    • The pipeline will supply environment-friendly and affordable fuel in the form of Piped Natural Gas (PNG) to households and Compressed Natural Gas (CNG) to the transportation sector.
    • It will also supply Natural Gas to commercial and industrial units across the districts along the pipeline.
    • Consumption of cleaner fuel will help in improving air quality by curbing air pollution.

    Back2Basics: Natural Gas

    • Natural gas is a fossil fuel source consisting primarily of methane.
    • It is the cleanest among all the available fossil fuels.
    • It is used as a feedstock in the manufacture of fertilizers, plastics and other commercially important organic chemicals as well as used as a fuel for electricity generation, heating purpose in industrial and commercial units.
    • Natural gas is also used for cooking in domestic households and a transportation fuel for vehicles.

  • RBI comes up with Digital Payments Index

    The RBI has constructed a composite Digital Payments Index (DPI) with March 2018 as the base period to capture the extent of digitization of payments across the country.

    Note various indicators of the DPI.

    Digital Payments Index

    • RBI-DPI will be published on the central bank’s website on a semi-annual basis from March 2021 onwards with a lag of four months.
    • It comprises five broad parameters that enable the measurement of deepening and penetration of digital payments in the country over different time periods.
    • The parameters are:
    1. Payment enablers (weight 25 percent)
    2. Payment infrastructure–demand-side factors (10 percent)
    3. Payment infrastructure – supply-side factors (15 percent)
    4. Payment performance (45 percent) and
    5. Consumer centricity (5 percent)
    • Each of these parameters has sub-parameters which, in turn, consist of various measurable indicators, RBI said.

    Why need such an Index?

    • Digital payments in India have been growing rapidly.
    • The DPI reflects accurately the penetration and deepening of various digital payment modes.

  • What is Interconnection Usage Charge (IUC) in Telecom?

    The termination charge for wireless to wireless domestic calls has been zeroed from January 1 onwards. Until now operators paid Interconnection Usage Charges (IUC) of 6 paise per minute on mobile calls.

    We are heading for 5G and yet we were indulged in 2G era spat. Sounds strange, but finally IUC got away….

    Interconnection Usage Charge (IUC)

    • IUC is the cost that a mobile operator pays to another operator for carrying through/ terminating a call.
    • If a customer of Mobile Operator A calls a customer of Mobile Operator B and the call is completed, then A pays an IUC charge to B for carrying/facilitating the call.
    • Essentially, it is the originating network compensating the receiving network for the cost of carrying the call. In India, IUC is set by the TRAI.

    When was it introduced?

    • IUC was introduced at a time when some operators had a larger network footprint compared to new players.
    • In such a scenario, the larger operators had to be compensated for the investments it had to enable call completion. However, over the years this gap between operators has reduced.
    • All the remaining operators have identical network footprint when it comes to voice calls.
    • TRAI’s original deadline to phase out IUC was January 1, 2020.

    What does it mean to Consumers?

    • For mobile users, this means that all voice calls will be free from now on.
    • While almost all operators had already started offering unlimited calls as part of their bundled pack, some were charging the 6 paise from consumers for paying IUC charges.
    • From January 1, operators will stop collecting the charges.
    • But other than that there will not be any significant gain for users. Tariff packs available in the market already offer data with unlimited voice calls.

    What does the end of the IUC regime imply?

    • For the operators, the end of the IUC regime will lead to easier operations.
    • Many legal battles have been fought in the past over disputes related to IUC charges.
    • Now, the operators can keep whatever money they collect from consumers without having to keep a tab on where the call is terminating.
    • The change in the billing system will not have any significant impact on operators’ revenue.

  • [pib] Remission of Duties and Taxes on Exported Products (RoDTEP) Scheme

    The Union govt. has decided to extend the benefit of the Scheme for Remission of Duties and Taxes on Exported Products (RoDTEP) to all export goods with effect from 1st January 2021.

    Try this PYQ:

    Q.Among the following, which one is the largest exporter of rice in the world in the last five years? (CSP 2019)

    (a) China

    (b) India

    (c) Myanmar

    (d) Vietnam

    RoDTEP Scheme

    • RoDTEP is a scheme for the Exporters to make Indian products cost-competitive and create a level playing field for them in the Global Market.
    • It has replaced the current Merchandise Exports from India Scheme, which is not in compliance with WTO norms and rules.
    • The new RoDTEP Scheme is a fully WTO compliant scheme.
    • It will reimburse all the taxes/duties/levies being charged at the Central/State/Local level which are not currently refunded under any of the existing schemes but are incurred at the manufacturing and distribution process.

    Why need such a scheme?

    • The scheme was announced last year as a replacement for the Merchandise Export from India Scheme (MEIS), which was not found not to be compliant with the rules of the World Trade Organisation.
    • Following a complaint by the US, a dispute settlement panel had ruled against India’s use of MEIS as it had found the duty credit scrips awarded under the scheme to be inconsistent with WTO norms.

    Back2Basics: Merchandise Exports from India Scheme (MEIS)

    • MEIS was launched with an objective to enhance the export of notified goods manufactured in a country.
    • This scheme came into effect on 1 April 2015 through the Foreign Trade Policy and will be in existence till 2020.
    • MEIS intended to incentivize exports of goods manufactured in India or produced in India.
    • The incentives were for goods widely exported from India, industries producing or manufacturing such goods with a view to making Indian exports competitive.
    • The MEIS covered almost 5000 goods notified for the purpose of the scheme.

  • The growth India deserve

    The Indian economy has been showing the green shoots in the results of the third quarter. However, the recovery is far from complete. The article suggests the strategy to get to the 5 per cent trend line.

    Divergent performance after lockdown

    • At the end of the third quarter, the economy is showing a hugely divergent performance.
    • Pharmaceuticals and chemicals are showing growth on their Year-To-Date numbers.
    • FMCG reached last year’s level in the second quarter.
    •  Construction equipment are showing a huge recovery, with record sales numbers in the last three months, driven by rural demand from sales to individuals.
    • Capital goods are still sluggish with YTD numbers well down on last year, but are now showing some signs of life.
    • In contrast, travel and tourism, real-estate and construction, and retail, are all still at under half last year.
    • These are high employment sectors, and salaried employment has correspondingly taken a big hit, with potentially longer term effects.

    How to achieve ‘full recovery’

    • Full recovery means getting back to the trend line of growth where we would have been pre-COVID.
    • We need to aspire to grow 9 per cent for three years, which is what will get us back to our 5 per cent trend line of growth by 2024.
    • The recovery underway is solid, but we need measures to sustain and deepen it.
    • The government can do three things.

    3 suggestions to sustain the recovery

    1) Stimulate the economy

    • The most immediate fiscal stimulus possible is to put cash into the economy.
    • Distribute the pending tax refunds, pay the bills of all companies, pay off the arbitration awards pending where the government has lost cases, and pay state governments their pending GST dues.
    • All this will run into a few trillion rupees, and it will be cash that immediately stimulates the economy.

    2) Invest in public health infrastructure

    • Some preparation is underway to distribute vaccines, but there is need to go much further.
    • Centre should finance state government efforts to build an extensive public health network so we are equipped to handle a possible second wave of the virus.
    • If we demonstrate that we are much more prepared in February and March 2021 than we were in April and May 2020, we will spread confidence.
    • Government should work in partnership with private sector hospitals.

    3) Invest in inftrstructure

    • There are dozens of projects stuck as funds are not available.
    • The 20 trillion infrastructure pipeline needs to have some cash flow in it.
    • The COVID crisis revealed awful things about living conditions in slums across our cities.
    • We can put in place the right public-private programme to provide decent, accessible housing, with quick and cheap connectivity into our cities.
    • This could trigger a building boom that would stimulate demand like nothing else.

    How to finance the spending: Privatisation program

    • Government can manage the resource for spending through privatisation program.
    • Our current stock market boom says that buyers are ready to invest. But public-sector stock values are still depressed.
    • The best way to see them take off is to announce that the government intends to reduce its share-holding to 26 per cent across public-sector banks, steel companies, oil companies, and every manufacturing company and hotel it currently owns.
    • To avoid opposition to such reforms, we must operate consistent with our democratic institutions.
    • We need discussion papers for public comment, the debate in Parliament, hearing out stakeholders, and compromise with the interests of state governments.

    Consider the question “What are the measures India needs to take to achieve the complete recovery of the Indian economy disrupted in the wake of the pandemic.”

    Conclusion

    Unless we act now we will have a stunted recovery. We must use our economic crisis to set some bigger things right. 2021 will be a year to welcome if it returns us to the growth trajectory we deserve.

  • Need for comprehensive agri policy

    The article examines the reasons for declining farm incomes and the contribution of farm subsidies.

    Contribution of agriculture

    • India’s agriculture, which also supports the rural workforce, was, forever, living beyond its means.
    • In 1950-51, agriculture’s share in the country’s GDP was 45%, the share of the workforce dependent on it was close to 70%.
    • Today, agriculture’s share in GDP is below 16%, but almost 50% of the country’s workforce depends on this sector.
    • The squeeze on the agricultural sector becomes even more evident from its terms of trade vis-à-vis the non-agricultural sectors.
    • Agriculture has been facing adverse terms of trade over extended periods since the 1980s, and even during the phases when the terms of trade have moved in its favour, for instance in the 1990s and again since 2012-13, there was no distinct upward trend.

    Reason for fall in farm incomes: falling investment

    • The decline in farm incomes was triggered by growing inefficiencies.
    • This decline, in turn, was caused by a lack of meaningful investment in agriculture.
    • The share of this sector in the total investment undertaken in the country consistently fell from about 18% in the 1950s to just above 11% in the 1980s.
    • In the most recent quinquennium for which data are available (2014-15 to 2018-19), the average share of agriculture was 7.6%.

    India’s dismal performance in term of yields of major crops

    • If one ranks countries in terms of their yields in wheat and rice — India’s two major crops — the country’s ranks were 45 and 59, respectively, in 2019.
    • This ranking would go down sharply if the areas recording high yields, such as Punjab and Haryana, are excluded.
    • In other words, for farmers in most regions of the country, it is an uphill battle for survival amid low yields.

    Need for coherent policy for agriculture

    • The lack of a coherent policy for agriculture must surely be regarded among the most remarkable failures of the governments in post-Independence India.
    • Compare this failure with the United States, with less than 2% of its workforce engaged in agriculture, has been enacting farm legislations every four years since the Agricultural Adjustment Act was enacted in 1933.
    • These policies comprehensively address the needs of the farm sector through proactive support from the respective governments.

    Issue of the farm subsidies in India

    • The subsidies are the price that the country pays for the failure of the policymakers to comprehensively address the problems of the farm sector.
    • Wanton distribution of subsidies without a proper policy framework has distorted the structure of production and, consequently, undesirable outcomes in terms of excessive food stockpiling.
    • And, yet, the fundamental ills of Indian agriculture are not adequately addressed.
    • Members of the World Trade Organization (WTO) are expected to notify their agricultural subsidies as a part of their commitment under the Agreement on Agriculture (AoA).
    • India’s latest notification, for 2018-19, shows that the subsidies provided were slightly more than $56 billion.
    • In most of the recent years, the largest component of India’s subsidies ($24.2 billion, or 43% of the total) is provided to “low income or resource-poor farmers”, a terminology that the AoA uses.
    • However, the designation of this category of farmers is left to individual members.
    • India has notified that 99.43% of its farmers are low income or resource-poor.
    • According to the agricultural census conducted in 2015-16, these are the farmers whose holdings are 10 hectares or less.
    • Thus, almost the entire farm sector comprises economically weak farmers.

    Comparing subsidies given by various countries

    • America provided $131 billion in 2017 and the EU, nearly €80 billion (or $93 billion) in 2017-18.
    • Instead of absolute numbers; the ratios of subsidies to agricultural value addition for the three countries give a much better picture.
    • Thus, for 2017, India’s farm subsidies were 12.4% of agricultural value addition, while for the U.S. and the EU, the figures were 90.8% and 45.3%, respectively.
    • This then is the reality of farm subsidies that India provides.

    Consider the question “Indian agriculture has been contributing beyond its means since Indian independence. However, agri incomes have shown a gradual decline. What are the reasons for such a decline? How far has farm subsidies succeeded in solving the low-income problem?” 

    Conclusion

    India needs a comprehensive Agri policy to deal with the distortion created by the subsidies.