Policy Wise: India’s Power Sector

True empowerment of the electricity consumer

Note4Students

From UPSC perspective, the following things are important :

Prelims level : SERC

Mains level : Paper 3- The Electricity (Rights of Consumers) Rules, 2020

The article examines the various provisions of the Electricity (Rights of Consumers) Rules, 2020 and analyses whether or not these Rules will empower the consumers. 

Empowering electricity consumers

  • The Electricity (Rights of Consumers) Rules, 2020 was promulgated in December to deal with the problems faced by the consumers.
  • The enactment of consumer-centric rules does spark public debate that brings the rights of consumers to the fore.
  • the Rules lay an emphasis on national minimum standards for the performance parameters of DISCOMs. without urban-rural distinction.
  • They also reiterate the need for automatically compensating consumers.

Let’s analyse the changes introduced by the new Rule and issues with them

Supply quality issue

  • Many States have not been able to provide quality supply, especially to rural and small electricity consumers.
  • Provisions similar to made in the new Rule already exist in the Standards of Performance (SoP) regulations of various State Electricity Regulatory Commissions (SERCs).
  • It is not because of a lack of rules or regulations that quality supply is not provided; rather, it is on account of a lack of accountability systems to enforce them.
  • Unfortunately, neither these rules nor past efforts address these accountability concerns.
  • Guarantee of round the clock supply is a provision that the Rules emphasise, which might be missing in State regulations.
  • It is difficult to enforce since the availability of power supply is inadequately monitored even at 11 kV feeders, let alone at the consumer location.
  • This highlights not only the need for implementation of existing provisions in letter and spirit but also amending them with strong accountability provisions.

Weakening of existing provision

  • The Rules, in few cases, dilute progressive mechanisms that exist in State regulations.
  • For example, the Rules say that faulty meters should be tested within 30 days of receipt of a complaint.
  • Compared to this, regulations t in Andhra Pradesh, Bihar, and Madhya Pradesh, respectively, say that such testing needs to be conducted within seven days.
  • A similar observation can be drawn from the suggested composition of the Consumer Grievance Redressal Forum. 
  •  The Rules say that the forum — constituted to remedy complaints against DISCOMs should be headed by a senior officer of the company.
  • This is a regressive provision that would reduce the number of cases that are decided in favour of consumers.

Lack of clarity on net-metering

  • The Rules guarantee net metering for a solar rooftop unit less than 10 kW.
  • However, there is no clarity if those above 10 kW can also avail net metering.
  • This could lead to a change in regulations in many States based on their own interpretations.
  •  The possible litigation that follows would be detrimental to investments in rooftop solar units, and would discourage medium and large consumers to opt for an environment-friendly, cost-effective option.

Way forward

  • SERCs should assess the SoP reports of DISCOMs and revise their regulations more frequently.
  • SERCs should organise public processes to help consumers raise their concerns.
  • DISCOMs could be directed to ensure automatic metering at least at the 11 kV feeder level, making this data available online.
  • The Forum of Regulators — a central collective of SERCs — could come up with updated model SoP regulations.
  • Central agencies have taken proactive efforts to ensure regular tariff revision.
  • They could also support independent surveys and nudge State agencies to enforce existing SoP regulations.
  • The central government could disburse funds for financial assistance programmes based on audited SoP reports.

Consider the question”What are the problems faced by the electricity consumers in India? Will the Electricity (Rights of Consumers) Rules, 2020 help consumers to deal with the existing issues?”

Conclusion

The governments, DISCOMs and regulators need to work jointly and demonstrate the commitment and the will power to implement existing regulations. It is not yet late to recognise this and initiate concerted efforts to truly empower consumers.

Tax Reforms

Digital Service Tax could be an interim solution to cyber tax conundrum

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Equalisation levy

Mains level : Paper 3- Digital Service Tax as an interim solution to the challenge of taxing digital companies doing business internationally

Business models of digital companies challenge the conventional basis of taxation in which the fixed place of business formed the basis. Digital Service Tax could provide a basis to deal with the challenge. The article deals with this issue.

Equalisation levy and issues with it

  • Equalisation levy seeks to tax payments made for online advertising services to a non-resident business by residents in India.
  • India is amongst the first to have implemented such levy.
  • It is predominantly applicable to US companies since the market for digital services is dominated by US-based firms.
  • Any company that has a permanent residence in India is excluded since it is already subject to tax in India.
  •  In March 2020, India expanded the scope of the existing equalisation levy to a range of digital services that includes e-commerce platforms.
  • Such levy can result in over-taxation since the company will not be able to claim any credit for tax paid on Indian sales.
  • Such an approach is often viewed as contrary to the ethos of international agreements.

Issue of taxation of digital companies

  • The agenda to reform international tax law so that digital companies are taxed where economic activities are carried out was formally framed within the OECD’s base erosion and profit shifting programme.
  • Worried they might cede their right to tax incomes, many countries have either proposed or implemented a digital services tax (DST).
  • However, the proliferation of digital service taxes (DSTs) is a symptom of the changing international economic order.
  • Countries such as India which provide large markets for digital corporations seek a greater right to tax incomes.
  • The core problem that the international tax reform seeks to address is that digital corporations, unlike their brick-and-mortar counterparts, can operate in a market without a physical presence.
  • The current basis for taxing in a particular jurisdiction is a notion of fixed place of business.

Way forward

  • To overcome the challenge, countries suggested that a new basis to tax, say, the number of users in a country.
  • The EU and India were among the advocates of this approach.
  • In 2018, India introduced the test for significant economic presence in the Income Tax Act.
  • However, the proposal of a revised nexus was not supported widely.
  • Moreover, to give effect to a new system would require bilateral renegotiation of tax treaties that supersede domestic tax laws.
  • Meanwhile, the OECD continued to work to find commonalities among a range of solutions.
  • In its current form, the solution is too complex to administer and proposes to allocate residual profit — a term that has no economic definition.
  • It would also require political consensus on multiple issues, including sensitive matters such as setting up of an alternative dispute resolution process comparable to arbitration.
  • This can increase the compliance burden.
  • The US has expressed its preference to apply this measure on a safe harbour basis, which can limit the companies to which it may be applicable.

Consider the question “Digital corporations can operate in a market without a physical presence. The current basis for taxing in a particular jurisdiction is a notion of fixed place of business. In light of this, examine the challenges in taxing the digital companies and how India is dealing with such a challenge?” 

Conclusion

As countries calibrate their response to competing demands for sovereignty to tax, DST is an interim alternative outside tax treaties. It possesses the advantage of taxing incomes that currently escape tax and creates space to negotiate a final, overarching solution to this conundrum.

Real Estate Industry

Impact of RERA on real estate sector

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Article 254 of Indian Constitution

Mains level : Paper 2- RERA and its benefits to the consumers

The article highlights the various provision of RERA and its overall impact on the sector.

How it changed the real estate sector

  • Real Estate (Regulation and Development) Act (RERA) was enacted in 2016 and it had been in the works for more than a decade.
  • RERA has infused governance in a hitherto unregulated sector.
  • Along with demonetisation and GST, it has, to a large extent, cleansed the real estate sector of black money.
  • It has transformational provisions, conscientiously addressing issues which have been a constant bane for the sector.

Important provisions of RERA

  • The Act stipulates that no project can be sold without project plans being approved by the competent authority and the project being registered with the regulatory authority.
  • This provision ended the practice of selling on the basis of deceitful advertisements.
  • Promoters are required to maintain “project based separate bank accounts” to prevent fund diversion.
  • The mandatory disclosure of unit sizes based on “carpet area” strikes at the root of unfair trade practices.
  • The provision for payment of “equal rate of interest” by the promoter or the buyer in case of default reinforces equity.
  • These and many other provisions have empowered consumers, rectifying the power asymmetry prevalent in the sector.

How RERA is an effort in cooperative federalism

  • Though the Act has been piloted by the Central government, the rules are to be notified by state governments.
  • The regulatory authorities and the appellate tribunals are also to be appointed by them.
  • The regulatory authorities are required to manage the day-to-day operations, resolve disputes, and run an active and informative website for project information.
  • Since RERA came into full force, 34 states and Union territories have notified the rules, 30 states and Union territories have set up real estate regulatory authorities and 26 have set up appellate tribunals.
  • The operationalisation of a web-portal for project information, which is at the heart of ensuring full project transparency, has been operationalised by 26 regulatory authorities.
  • Around 60,000 projects and 45,723 real estate agents have been registered with regulatory authorities.
  • Twenty-two independent judicial officers have been appointed to redress consumer disputes, and 59,649 complaints have been disposed-off.

Consider the question “What were the various problems faced by the consumers in real estate sector? How various provisions in RERA helped in the protection of consumers’ interests?” 

Conclusion

RERA is to the real estate sector what SEBI is to the securities market. It helped consumers from the various malpractices in the real estate sector.

 

Foreign Policy Watch: India-Nepal

India-Nepal relations in a new transition

India-Nepal Joint Commission meeting took place at a time when Nepal in going through a political turmoil. The article examines the issues discussed in the meeting and how its implications for the bilateral relations between the two countries.

India-Nepal joint commission meeting amid political chaos in Nepal

  • Recently, the Minister for Foreign Affairs of Nepal, visited New Delhi for the sixth meeting of the India-Nepal Joint Commission.
  • Nepal’s Prime Minister dissolved the House of Representatives in late December 2020, the move was termed ‘unconstitutional’ by the experts and the country’s Supreme Court is hearing writ petitions against the move.
  • As a unique characteristic, Nepal’s internal political fundamentals continue to shape its foreign policy choices. 
  • In such a scenario, any inbound or outbound delegation is seen from a different prism.

Issues discussed in meeting

1) Progress on development partnership front

  • On the development partnership front, the expansion of the Motihari-Amlekhganj petroleum products pipeline to Chitwan and the establishment of a new pipeline on the eastern side connecting Siliguri to Jhapa in Nepal formed a part of the discussions.
  • The operating procedures for commencement of train services of first passenger railway line between India and Nepal from Jaynagar to Kurtha via Janakpurhave has been discussed.
  • Other cross-border rail connectivity projects, including a possible Raxaul-Kathmandu broad gauge railway line, were also discussed.
  • The joint hydropower projects, including the proposed Pancheshwar Multipurpose Project, should get positive momentum following this round of meeting.

2) Facilitating cross-border movement of people

  • The recently inaugurated Integrated Check Posts (ICPs) at Birgunj and Biratnagar have helped in the seamless movement of people and trade between the two countries.
  • The construction of a third integrated check post at Nepalgunj has already commenced, while the new integrated check post at Bhairahwa would begin shortly.
  • Since Nepal relies on India’s seaports in a big way for trading, and goods are transported by road, the integrated check posts are expected to ease trade and transit.

3) Border issue

  • Nepali side’s demand to include the boundary in the Joint Commission Meeting.
  • However, India made it clear to find a fresh mechanism to resolve any such crucial long-pending issue.

4) New direction to bilateral ties

  • India’s support to two more cultural heritage projects in Nepal, namely, the Pashupatinath Riverfront Development and the Bhandarkhal Garden Restoration in Patan Durbar is significant.
  • Nepal expressed support for India’s permanent membership of an expanded UN Security Council (UNSC) to reflect the changed balance of power.
  • The next meeting of the Joint Commission in Nepal should be crucial in giving a new direction to the bilateral ties, keeping a balance between change and continuity.

India’s deepening engagement with all sections

  • There is growing disenchantment among the Nepali masses over the increased centralisation of power, failure of the Provincial System in addressing the developmental issues, misuse of Presidential authority and unprecedented corruption.
  • While the unusual developments are taking place in Nepal, there are many who still think that India is comfortable with some changes as its Nepal policy is heading very clearly towards deeper engagement with all sections.

Consider the question “How India-Nepal ties are affected by the internal political fundamentals in Nepal? What approach should be adopted by India in dealing with Nepal?” 

Conclusion

Nepal cannot afford to enter in another round of political instability, and those who have commanding authority to spearhead India-Nepal bilateral relations must give a humane consideration to it. At the crossroads, Nepal needs action and to come to term with realities.

Government Budgets

Good economics must also make good politics

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Not much

Mains level : Paper 3- Reforms for economic growth

The article suggests the reforms that should be included in the next budget to boost the Indian economy.

Need for further reforms

  • Government has leveraged the Covid-19 slowdown as an opportunity for introducing transformative reforms.
  • The recently introduced reforms include liberalising agricultural markets, diluting the onslaught of labour laws, credit guarantees for SME loans, and a liberal PLI to stimulate manufacturing.
  • These reforms have created a cautious optimism among investors worldwide awaiting the forthcoming Budget.
  • India’s reforms require further acceleration, and a consensus that good economics makes good politics.

Reforms required to attract investment

  • Cost of acquiring land has increased substantially, which needs to be reduced.
  • The government must categorise 44 central laws into compensation, social security, industrial relations, and health and safety—and draft a unified model labour law to replace archaic laws for adoption by states.
  • India’s trade-to-GDP ratio must improve.
  • Having turned away from the RCEP, India needs to conclude trade agreements with the UK and other major economies. Announcing such intent would be welcome.
  • Effective corporate tax rate for domestic companies is 25.17%, while that for foreign firms is 43.68%, India should maintain tax parity across domestic and foreign companies.
  • With such parity, India will enhance investment attractiveness.
  • In view of the recent international arbitration rulings, India should discontinue retrospective taxation.
  • Defence FDI could be raised from 74% to 100% under automatic route.
  • The rationale to maintain FDI in the insurance sector at 49% now holds limited logic, India could increase it to a majority stake or even 100%.
  • Bottled-in-origin and bulk spirits attract a high basic customs duty (150%), deterring companies eyeing the Indian market, and depriving India of the corresponding FDI.
  • Phased reduction of duty on these products to 75% and finally to 30% is advisable.

Areas that need increased spending

  • Spending on public healthcare needs to rise from 1.3% to 3% of GDP with Covid-19 exposing glaring inadequacies.
  • Revising the National List of Essential Medicines to exempt inexpensively-priced medicines from price controls would help investments in innovation and API manufacturing.
  • If the New Education Policy is to be implemented properly, public spend on education and skill development must rise from 3% to 4.5% of GDP.
  • The government must raise defence allocations to over 2.5% of GDP given India’s new threat perceptions and increase capital component of total fiscal allocations for defence could be increased from 34% to 40%.

Other measures to boost the economy

  • Developing data adequacy agreements with the UK and other key countries would facilitate cross-border movement of personal data based on a mutual adequacy basis.
  • The online gaming industry should be supported by a model law, tax regime and self-regulation so that the government accrues tax revenues estimated at Rs 15,000 crore.
  • Most countries tax domestic corporate dividends at lower rates and, therefore, FPIs’ dividend income should be taxed at 10%.
  • Foreign banks must be brought at par with Indian banks with 8.5% deduction for NPA provisioning.
  • Excluding financial services from the e-commerce equalisation levy would be appropriate.
  • PSU disinvestments have slowed, and the Budget needs to announce measures for their acceleration as a privatisation push would be transformative for India in the long run.

Consider the question”What are the hurdles in making India the more attractive to the investors? Discuss the measures to make India more attractive for investors.” 

Conclusion

As developed countries contemplate relocating their manufacturing supply chains to destinations besides China, a progressive Budget would send positive signals to overseas investors and would propel India’s rightful ambition to be the world’s next manufacturing workshop, in consonance with the Atmanirbhar Bharat vision.


Source:

https://www.financialexpress.com/opinion/union-budget-fy22-good-economics-must-make-good-politics/2173553/

Coal and Mining Sector

Issues with treating mineral sale proceeds as revenue or income

Note4Students

From UPSC perspective, the following things are important :

Prelims level : National Mineral Policy

Mains level : Paper 3- Issues with our mining policies and changes needed to make them sustainable

The rate at which we are extracting mineral and spending the proceeds from it without consideration for the future generation needs a rethink. The article deals with this issue.

The principle of Intergenerational Equity

  • We cannot compromise the ability of future generations to meet their needs, and this is reflected in the aim for sustainable economy.
  • The principle of Intergenerational Equity would make it imperative for us to ensure future generations inherit at least as much as we did.
  • If we are successful in abiding by intergenerational equity, our children will be at least as well off as we are.

Issues with our mineral policy

  • India’s National Mineral Policy 2019 states: “natural resources, including minerals, are a shared inheritance where the state is the trustee on behalf of the people to ensure that future generations receive the benefit of inheritance.”
  • The extraction of oil, gas and minerals is effectively the sale of this inheritance.
  • Unfortunately, governments everywhere treat the mineral sale proceeds as revenue or income which is basically a sale of inherited wealth.
  • This results in governments selling minerals at prices significantly lower than what they are worth, driven by lobbying, political donations and corruption.

Error in accounting

  • Proceeds received by the government are treated as “revenue” and spent.
  • This is just not sustainable.
  • There is growing empirical evidence of large losses in mining from around the world.
  • There is also growing evidence from the International Monetary Fund that many governments of resource-rich nations face declining public sector net worth, i.e., their governments are becoming poorer.
  • Due to the high profits involved, the extractors are keen to extract as quickly as possible and move on.
  • More mining would make a bad situation significantly worse.
  • The Government Accounting Standards Advisory Board needs to correct this error in the standards for public sector accounting and reporting for mineral wealth.

Way forward

  • If we extract and sell our mineral wealth, the explicit objective must be to achieve zero loss in value; the state as trustee must capture the full economic rent.
  • Any loss is a loss to all of us and our future generations, and makes some rich; that is patently unfair.
  • India’s National Mineral Policy 2019 says: “State Governments will endeavour to ensure that the full value of the extracted minerals is received by the State.”
  • Like Norway, the entire mineral sale proceeds must be saved in a Future Generations Fund.
  • The Future Generations Fund could be passively invested through the National Pension Scheme framework.
  • The real income of a fund of this nature may be distributed only as a citizens’ dividend, equally to all as owners.
  • For the Indian economy this is sustainable — capital has been maintained; the savings rate would rise, making available more long-term domestic capital; it diversifies risk while likely improving returns.

Consider the question “What are the issues with our mining policies? Suggest the changes to make it more sustainable.”

Conclusion

Through these changes, let us be the generation that changes the course of history for the better, not the one that consumed the planet.

Cyber Security – CERTs, Policy, etc

New ideas needed for online privacy policies

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Data Protection Bill provisions

Mains level : Paper 3- Issues of informed consent to the online privacy policies

The article discusses challenges posed by online privacy policies and suggests some ideas to make them more user friendly.

Issues with online privacy policies

  • Such policies are not designed for easy reading.
  • These policies are full of legal jargon and most are difficult to read.
  • Most policies are exclusively in English, which is clearly inadequate in a country where no more than 12 per cent are comfortable with the language.
  • A human-centric study across India found that even people who couldn’t read or write, when made aware of what they were consenting to, cared deeply about it.
  • Online consent is, therefore, a false choice for most Indians.

Importance of consent in data ecosystem

  • Consent is also the fulcrum of India’s fast-growing data ecosystem.
  • The Data Protection Bill under consideration by Parliament lists consent as a legal ground for data processing.
  • Last year, NITI Aayog sought public comments on the Data Empowerment and Protection Architecture (DEPA), a system that will connect an individual’s financial, health, telecom and other data so that it can be moved from one provider to another.
  • DEPA intends to use consent to ensure that users remain in control of their data.

New ideas needed to give users greater control

1) Business as steward of consumer trust

  • Businesses need to become more responsible stewards of consumer trust.
  • Experiments suggest that making consumers read privacy policies by getting them to stay on the “privacy policy” page for a few minutes, led to increased trust in businesses and greater data sharing.
  • Businesses can adopt such ideas to make users trust them more.

2) Regulatory bodies need to guide consumers

  • Consumers do not have the time or knowledge to go through privacy policies.
  • The food regulator’s food safety certifications and the Bureau of Energy Efficiency (BEE)’s rating guides have become part of our everyday lives.
  • Similarly, a “privacy rating” for apps can help individuals make more informed choices about their data.
  • Such “rule of thumbs” can help them cut through the jargon, trust businesses more and share more data.

3) Running awareness campaign

  • Governments and industry associations can play an enabling role by running innovative awareness campaigns that leverage local contexts, and relatable narrative styles.
  • The campaign should include awareness about messages logging off from public computers, and not sharing phone numbers easily.

4) Some other ideas

  • The “burden of proof” on privacy should rest with providers rather than consumers.
  • Businesses should act as fiduciaries of user data and act in the best interest of the user than simply maximising profits.
  • Regulators can create a new class of intermediaries that warn consumers about dangerous practices, represent them, and seek recourse on their behalf.

Consider the question “What are the issues with the consent to the online privacy policies? Suggest the measures to give users greater control over their digital destinies.

Conclusion

By educating and empowering every Indian, we will enable her to participate fully in India’s digital economy, and thereby create a meaningful digital life for every Indian. Only then will the true potential of Digital India be realised.

Agricultural Sector and Marketing Reforms – eNAM, Model APMC Act, Eco Survey Reco, etc.

India needs an optimal agri-food policy

Note4Students

From UPSC perspective, the following things are important :

Prelims level : FCI and MSP

Mains level : Paper 3- Making India's agri-food policies optimal

The article highlights the issues with India’s agri-food policies and suggests changes in it on both the production front as well as consumption front.

Basic parameters to design optimal agri-food policy

  • UN population projections (2019) indicate that India is likely to be the most populous country by 2027.
  • By 2030, the country is likely to have almost 600 million people living in urban areas, who would need safe food.
  • Indian agriculture has an average holding size of 1.08 hectare (2015-16 data), while engaging 42 per cent of the country’s workforce.
  • Cultivable land and water for agriculture are limited and already under severe pressure.

What should be the basic features of agri-policy

  • 1) It should be able to produce enough food, feed and fibre for its large population.
  • 2) It should do so in a manner that protects the environment — soil, water, air, and biodiversity and achieves higher production with global competitiveness.
  • 3) It should enable seamless movement of food, keeping marketing costs low, save on food losses in supply chains and provide safe and fresh food to consumers.
  • 4) Consumers should get safe and nutritious food at affordable prices.

Need to change from sub-optimal to optimal policies

  • Free electricity and highly subsidised fertilisers, especially urea, are damaging groundwater levels especially in the Green Revolution states.
  • Sugar and wheat are being produced at prices higher than global prices, and these crops can’t be exported unless they are heavily subsidised.
  • Excessive stocks of wheat and rice with the Food Corporation of India (FCI) are putting pressure on the agency’s finances.
  • Rice remains globally competitive, but it should be remembered that in exporting rice we are also exporting massive amounts of precious water — almost 25-30 billion cubic meters, annually.
  • This is the water that is pumped for rice cultivation, enabled by subsidised power supply.
  • In the marketing segment also, for most of our agri-commodities, our costs remain high compared to several other developing countries due to poor logistics, low investments in supply lines and high margins of intermediaries.
  • All these are signs of sub-optimal agri-food policies.

Policy changes required: On the production level

  • Green Revolution states of Punjab, Haryana and western Uttar Pradesh require crop diversification.
  • This can be done by switching from the highly subsidised input price policy (power, water, fertilisers) and MSP/FRP policy for paddy, wheat and sugarcane, to more income support policies linked to saving water, soil and air quality.
  • Agri-marketing segment is also in the need of reforms especially with respect to bringing about efficiency in agri-marketing and lowering transaction costs.
  • It is believed that developing countries should invest at least one per cent of their agri-GDP in agri-R&D and extension.
  • India invests about half.
  • It needs doubling with commensurate accountability of R&D organisations, especially the ICAR and state agriculture universities to deliver.

Policy changes required: On the consumption level

  • The biggest challenge for next 10 years is that of malnutrition, especially amongst children.
  • The public distribution of food, through PDS, that relies on rice and wheat, and that too at more than 90 per cent subsidy over costs of procurement, stocking and distribution, is not helping much.
  • It is increasing the finances of FCI, whose borrowings have touched Rs 3 lakh crore.
  • To address that, beneficiaries of subsidised rice and wheat need to be given a choice to opt for cash equivalent to MSP plus 25 per cent.
  • The FCI adds about 40 per cent cost over the MSP while procuring, storing and distributing food.
  • This cash option will save some money and also lead to supplies of more diversified and nutritious food to the beneficiaries.

Consider the question “What are the issues with India’s agri-food policies? Suggest the changes in agri-food policies so as to make them optimal.

Conclusion

What we need is setting agri-food policies on a demand-driven approach, protecting sustainability and efficiency in production and marketing, and giving consumers more choice for nutritious food at affordable prices.

Higher Education – RUSA, NIRF, HEFA, etc.

Problem of control and governance of knowledge in a globalised world

Note4Students

From UPSC perspective, the following things are important :

Prelims level : UGC

Mains level : Paper 2- Impact of UGC's criteria in evaluation of research on social sciences and humanities

The article highlights the issues with the criteria applied by the UGC to evaluate the faculty research.

Impact of UGC standardisation on social sciences and humanities research

  • UGC has been the regulatory body responsible for maintaining standards in higher education, while addressing challenges of globalisation.
  • Processes of UGC mandated standardisation have in particular impacted social sciences and humanities research in Indian universities.
  • Over the years, UGC has linked institutional funding to ranking and accreditation systems like NAAC and NIRF.
  • In order to evaluate institutions, these bodies have evolved  criteria, which rank universities based on faculty research measured by citations in global journal databases like SCOPUS.
  • In comparison, importance granted to research outputs like books or other forms is declining.

Issues with the criteria

  • The insistence of publication in journals fails to distinguish between the varied trajectory of disciplines.
  • While in STEM (Science, Technology, Engineering, Management) disciplines, research is often highly objective and quantified.
  • In social sciences and humanities research is subjective, analytical and argumentative.
  • In disciplines like history, sociology, politics, philosophy, psychology and literature, researchers spend years writing books that engage with ideas in complex ways.
  • In devaluing books as authentic forms of research, UGC does major disservice to scholars of social sciences and humanities.
  • Due to emphasis on publication, teachers spend most of their productive time writing articles and getting them published, thereby missing out on quality engagement with pedagogy and research.

Issues with the process of peer review

  • The process of peer review itself is subjective, and depends upon the knowledge, inclination and availability of time of the particular reviewer.
  • It is often quite challenging for scholars to meet peer-review standards of A-listed journals.
  • This has actually required the UGC to expand its own list, ending up including and subsequently deleting a large number of locally published journals.

Issue of inaccessibility

  • Publication of research in paywalled journal databases makes research inaccessible for students as universities continue to cut down library budgets.
  • Students and teachers, access articles through pirated sites like Libgen and Scihub, prone to be shut down at any point of time as evident from the litigations.
  • Clearly, access to knowledge is structurally made inequitable in favour of the elite and/or moneyed institutions and their constituents.

Way forward

  • The above arguments maintain for the possible multiplicity that can emerge as the end-result of research.
  • Interdisciplinary and practice-based research can throw up social and ecological experiments, artworks and performances, and numerous new outcomes yet to be conceived as research outputs.
  • While the UGC hopes to raise the standards to global levels, precarity of employment, longer teaching hours, a dismal student-teacher ratio, lack of sabbaticals, research and travel grants, access to research facilities and office space, adversely impact the research potential of teachers.
  • Regulating research needs to be replaced with facilitating research, allowing minds to think and gestate.
  • Regulations without facilitation will merely bureaucratise the governance of knowledge without generating any pathbreaking insights.

Conclusion

The UGC needs to widen its criteria which values publication of a book as much as a research paper in the mandated journal to widen the research in social sciences and humanities.

Banking Sector Reforms

Recapitalization of state-owned banks: Privatization should do it

Note4Students

From UPSC perspective, the following things are important :

Prelims level : CRAR

Mains level : Paper 3- Recapitalisation of PSBs

The article suggest the approach to deal with the problems banking in India faces.

Banking sector under stress

  • Along with the other sectors, pandemic dealt a severe blow to the banking sector.
  • Stress tests reported in the Financial Stability Report (FSR) indicate that the low ratio of capital to risk-adjusted-assets (CRAR) is likely to decline further.
  • To revive the economy and resume sustained high growth, bold structural reforms will have to be combined with strong fiscal and monetary measures.

Declining credit growth: monetary challenge

  • India’s credit-to-gross domestic product ratio is around 51%.
  • 51% not too low compared to other countries at comparable levels of per capita income.
  • However, the worry is that credit growth is declining rapidly.
  • It is mainly attributable to rising risk aversion among lenders, reflecting the high and rising level of NPAs.
  • Risk aversion spiked during the economic contraction.

Rising NPA of Public Sector Banks

  • The FSR stress tests now indicate that the gross NPA ratio is likely to go up to as much as 13.5% by September 2021 in the report’s baseline case and 14.8% in the ‘severe stress’ case.
  • Within the banking sector, conditions are much worse in public sector banks (PSBs) compared to private banks (PBs) or foreign banks (FBs).
  • The gross NPA figure is forecast to rise to 16.2% for PSBs as compared to 7.9% and 5.4% for PBs and FBs in the baseline case.
  • Clearly, high NPAs are primarily a problem for PSBs, which still account for 60% of India’s total bank credit.

Expanding banking sector: bypass PSBs and give a big push to private banking

  • The recent report on Ownership and Corporate Structure for Indian Private Sector Banks submitted by an RBI internal working group (IWG) espouses this approach.
  • The IWG’s main  recommendation is to enable large corporations and industrial houses to acquire banking licences.
  • The proposal has been strongly opposed by former governors and deputy governors of RBI, several former chief economic advisers, a former finance secretary, and, most significantly, all save one of the many experts the IWG consulted.

Four issues with the push to private banking

  • 1) With an industry CRAR of only 12%, the proposed raising of the promoter share cap to 26% could potentially leverage the promoter’s investment by 32 times.
  • The very high risk appetite generated by such leveraging would subject depositors to a high level of systemic risk, given the limited deposit insurance provided in India.
  • 2) Excessive risk appetite would lead to imprudent lending, especially connected lending to group companies. Conglomerates always find ways around regulatory restrictions against such connected lending.
  • 3) Three, a conglomerate’s bank would have access to insider information on borrower companies that compete with its group companies.
  • 4) Conglomerate banks would lead to massive concentration of economic power and political influence against not just competing companies, but even the regulator.

Way forward

  • A safer and cleaner option would be to help the country’s banking sector grow through simultaneous privatization and recapitalization of PSBs.
  • However, these options do not change the ownership and governance structure of PSBs, which is what primarily is to blame for their poor performance.
  • A better option is for PSBs to recapitalize themselves by raising fresh equity.
  • It would be more prudent financially and also more acceptable politically to test this approach with one or two small PSBs.

Conclusion

Government should try to adopt the approach which reduces the risks associated with giving push to private players in the banking sector while making the PSBs more efficient.


Back2Basics: CRAR-Capital to risk-adjusted-assets

  •  The CRAR is the capital needed for a bank measured in terms of the assets (mostly loans) disbursed by the banks.
  • Higher the assets, higher should be the capital by the bank.
  • A notable feature of CRAR is that it measures capital adequacy in terms of the riskiness of the assets or loans given.

PPP Investment Models: HAM, Swiss Challenge, Kelkar Committee

Hybrid Annuity Model(HAM) for the benefit of the road sector

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Working of HAM

Mains level : Paper 3- Hybrid Annuity Model and risks involved

The article explains the working of Hybrid Annuity Model in the road construction and the risks involved in the model.

Investment in road sector

  • The central government has set a target of increasing the investment in infrastructure to over Rs 111 lakh crore over the period FY20-FY25.
  • Within the transportation segment, projects worth Rs 36.7 lakh crore, constituting 55% of transportation infra, are for the road sector.
  • The large investments planned in the road sector signifies its importance—it has a multiplier effect on the economy and provides large employment opportunities.

Models for the road sector

  • Out of HAM (Hybrid Annuity Model) and BOT (Build, Operate and Transfer)—toll developers prefer the relatively lower risk HAM model.
  • This is due to its various positives like lower equity requirements, provision for mobilisation advances, better right of way availability, inflation-linked adjustments for bid project cost, termination payments during the construction period and de-linking construction and operations.
  • These HAM features have garnered a favourable response and mix of HAM awards has increased from 10% in FY16 to 48% in H1FY2021.

How HAM works and risks involved

  • During the operations period for a HAM project, the recovery from authority is in the form of fixed annuity payments along with interest on balance accumulated annuity payments (calculated @300 bps over prevailing bank rate)
  • The only major risk for HAM is the prevailing low bank rates adversely affecting the overall project viability and returns.
  •  Such interest receipts account for around 45% of total inflows.
  • Low bank rate would thus reduce the overall inflows for a HAM project, thereby adversely affecting its debt coverage metrics and returns to the investors.
  • The second problem is related to delayed and inadequate interest rate transmission—there is a transmission lag for the project loan (linked to MCLR of banks).

Changes in model concession agreement

  • As per revised concession agreement dated November 10, 2020, interest rate on annuities will be equal to the average MCLR of top 5 scheduled commercial banks plus 1.25% instead of bank rate.
  • With the average MCLR replacing the bank rate, there will be a natural hedge between the annuity inflows and interest costs,
  • This will reduce the interest rate risks to a large extent, and that too without any delay.
  • The other major revision is the grant payment from the authority which will now be paid in 10 instalments instead of five.
  • The other major revision is the grant payment from the authority which will now be paid in 10 instalments instead of five.
  • Thus, the spacing between the payment milestones is reduced.
  • This will improve the cash conversion cycle for the contractors executing the HAM projects as their payments are back to back in nature.
  • However, these changes will be applicable for new awards, and the fate of the existing HAM projects is hanging in the balance.

Conclusion

With improved attractiveness, HAM is expected to remain the mainstay for public-private partnership projects in the road sector.


Source:-

https://www.financialexpress.com/opinion/hamsome-gains/2171329/

Coronavirus – Disease, Medical Sciences Involved & Preventive Measures

Covid-19 vaccine policy

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Vaccines for Covid-19

Mains level : Paper 2- Challenges in vaccination for Covid-19

The article explains the challenge in the vaccination program for the Covid-19 vaccine.

Issue of lack of data about the vaccine

  • In the COVID vaccine roll out, there is no clear data for either of the two vaccines proposed for use in the programme.
  • We do not know if they provide protection for life, for a year or six months, its efficacy among the elderly or the very sick or in stopping new infections.
  • Getting such data requires at least three years and cannot be obtained in a few months.

Guidelines for implementing vaccine programme

  • Given these limitations, the government has drawn up strategic guidelines for implementing an vaccine programme covering 30 crore people by July.
  • The guidelines draw upon the knowledge of running national campaigns acquired over three decades of implementing the Universal Immunisation Programme.
  • These guidelines detail the skills, roles and responsibilities of the required human resources, logistics for delivering vaccines at point of use, physical infrastructure, monitoring systems based on digital platforms and feedback systems for reporting adverse events.
  • The approach involves 19 departments, donor organisations and NGOs at the national, state, district and block level.
  • The guidelines also mention the priority criteria — caregivers, front line workers of the departments of health, defence, municipalities and transportation; persons above the age of 50 and those below 50 having diabetes, hypertension, cancers and lung diseases.

Issues with the guidelines

  • Of the 28,932 cold chain points, half are in the five southern states, Maharashtra and Gujarat.
  • Combined with poor human resources — doctors, nurses, pharmacists — a weak private sector, poor safety and hygiene standards, frequent power outages, poor infrastructure, the capacity to implement with the expected speed, quality and accuracy is daunting.
  • The immunisation can disrupt routine health service delivery — antenatal care, national programmes like those pertaining to TB or other immunisation drives.
  • While data for the above-50-year-olds is available in the electoral rolls, line listing of the under 50s with comorbidities can be challenging.
  • Not only are urban-rural variations substantial, but urban areas have weak public health infrastructure and a multiple number of private providers due to the poor implementation of the Clinical Establishment Act, 2010.
  • Patient tracking can be problematic.
  • The non-availability of efficacy data could also impact the procurement and supply of vaccines, result in huge wastage, and can introduce scope for errors and duplication.

Way forward

  • Central to the success of the roll out will be the confidence of the people in the vaccines.
  • Coming out of this messy situation is necessary and one option — as adopted for the polio eradication programme — is to establish an independent team of experts under the aegis of the WHO to ensure the safety of the vaccine.
  • This will create confidence in the community and international authorities as well.

Conclusion

it is important to understand that vaccination is an incomplete solution to ending the epidemic, since the virus is mutating. Adopting safe behaviour is.

Government Budgets

Improving fiscal situation through budget

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Kisan Credit Cards

Mains level : Paper 3- Enhancing credit flow to small and marginal farmers

The budget could be an opportunity to increase the consumption which has been impacted by the pandemic and still continues to show the declining trends.

Continuing decline in consumption

  • The first advance estimates of GDP for 2020-21 are much better than the earlier market consensus.
  • The demand side, however, continues to be in a decline with private consumption falling by 9.5 per cent and its share in the overall GDP reducing by full 100 basis points.
  • Per capita private consumption has contracted by 10.4 per cent, while capital formation has contracted by 14.5 per cent, with imports and exports also contracting.
  • Only government consumption remains in positive territory.

What should be the growth in nominal GDP for 2021-22?

  • In terms of specific numbers, the average growth in nominal GDP for the decade ending in 2013-14 was 15 per cent, but the average GDP deflator at 7.6 per cent far outpaced average real GDP at 6.8 per cent.
  • For the six year period ending in 2019-20, average nominal GDP growth was 10.4 per cent, with real GDP growth of 6.8 per cent far outpacing the GDP deflator at 3.6 per cent.
  • It is thus extremely important that we ensure that the current inflation trajectory is kept under control through policy interventions.

Policy recommendations for the farmers

1) Changing condition for renewal of loan on Kisan Credit Cards

  • Out of the outstanding bank credit of about Rs 12 lakh crore to the agriculture and allied activities sector, Rs 7 lakh crore is for Kisan Credit Cards.
  • The KCC portfolio of banks is under stress over the years due to a variety of factors like crop losses, unremunerated prices, debt waivers and the rigidity of the KCC product.
  • Currently, the renewal of KCC loans with payment of both principal and interest ensures interest subvention.
  • It is proposed that for renewal of KCC loans of small and marginal farmers and for loans of other categories of farmers for amounts up to Rs 3 lakh, the payment of interest must be a sufficient condition for renewal as with other loans.
  • The above measure has the potential to reduce the credit cost for banks considerably on KCCs as NPAs can be prevented more easily and the interest rate on KCC loans can be further reduced.

2) Formalise tenancy and provide credit to tenant farmers

  • There are 11.5 crore farmers who are PM-KISAN beneficiaries — 6.5 crore farmers have KCC.
  • Thus, the remaining 4-5 crore could be land owning cultivators and at least 3-4 crore of such could be tenants/lessees/landless.
  • Currently, such tenant farmers are not formalised into the credit deliveries of scheduled commercial banks.
  • As of now, it requires state interventions for tenancy certificates which is only available in Andhra Pradesh.
  • Formation of a SHG model under the Deen Dayal Antodoya Yojana will formalise tenancy even without formal documentation of tenancy.
  • This will enable formal lending to take place to three crore landless farmers.

3) Increasing investment in health and education

  • For health, it government could introduce medical savings account with a defined scheme to deduct interest from the savings account and pay towards a Mediclaim policy.
  • For the record, the size of the health insurance is Rs 32,000 crore and the savings bank interest is Rs 1.15 lakh crore.
  • The government should also consider exempting all retail and health insurance products from GST.

Three suggestions on the fiscal situation

  • First,Withdraw all tax appeals.
  • Second, accept all domestic arbitration decisions against government departments/agencies.
  • Third, clear all outstanding dues to all parastatal agencies within a stipulated time.
  • This will be a milestone structural administrative change that could be even thought of as a one-time balance sheet entry recognising liabilities and paying them off.
  • As a consequence, we could jump multiple positions on the Ease of Doing Business rankings.

Conclusion

By implementing these steps in the budget the government could use this opportnity to stimulate the economy and aid the economic recovery.

Important Judgements In News

Issues with suspension of the Farm laws

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Functions of the the judiciary

Mains level : Paper 2- Issues with the Supreme Court order suspending the implementation of the Farm acts

The article deals with the recent Supreme Court order in which it suspended the implementation of the Farm Acts. This order gives rise to several issues. The article deals with these issues.

What is the issue

  • The Supreme Court has suspended the implementation of the farm laws.
  • The court created a committee to ascertain the various grievances of the farmers.
  • But the Supreme Court has not clarified the legal basis of this suspension.

What are the issues with the suspension?

  • The court’s action, at first sight, is a violation of separation of powers.
  • It also gives the misleading impression that a distributive conflict can be resolved by technical or judicial means.
  • It is also not a court’s job to mediate a political dispute.
  • Its job is to determine unconstitutionality or illegality.
  • Even in suspending laws there needs to be some prima facie case that these lapses might have taken place.
  • It has set a new precedent for putting on hold laws passed by Parliament without substantive hearings on the content of the laws.
  • Also in appointing the committee, the court has violated the first rule of mediation: The mediators must be acceptable to all parties and appointed in consultation with them.

Conclusion

The Supreme Court order has given the government a setback while not addressing the concerns of the protesting farmers. The court needs to consider these facts and mend its implications.

Foreign Policy Watch: India-SAARC Nations

Reclaiming SAARC

Note4Students

From UPSC perspective, the following things are important :

Prelims level : SAARC, USMCA, MERCOSUR, AfCFTA

Mains level : Paper 2- Revival of SAARC

The article examines the issues are making it difficult to function and suggests its revival.

Dysfunctional SAARC and its implications

  • The year 2020 marked the sixth year since the leaders of the eight nations that make up SAARC were able to meet.
  • India-Pakistan issues have impacted other meetings of SAARC as well.
  • Inactive SAARC is making it easier for member countries, as well as international agencies, to deal with South Asia as a fragmented group.
  • India’s refusal to allow Pakistan to host the SAARC summit is akin to giving Pakistan a ‘veto’ over the entire SAARC process.
  • The events of 2020, particularly the novel coronavirus pandemic and China’s aggressions at the Line of Actual Control (LAC) shone a new spotlight on this mechanism.
  • This should make the government review its position and reverse that trend.

Reasons India should review its position on SAARC

1) India attend other forums with Pakistan

  • India continued to attend Shanghai Cooperation Organisation (SCO) meetings along with their Pakistani counterparts.
  • While China’s incursions in Ladakh constituted the larger concern in the year, India did not decline to attend meetings with the Chinese leadership at the SCO, the Russia-India-China trilateral, the G-20 and others.
  • No concerns over territorial claims stopped the government from engaging with Nepal either.

2) Pandemic caused challenges

  • Reviving SAARC is crucial to countering the common challenges brought about by the pandemic.
  • Studies have shown that South Asia’s experience of the pandemic has been unique from other regions of the world.
  • This experience needs to be studied further in a comprehensive manner in order to counter future pandemics.
  • Such an approach is also necessary for the distribution and further trials needed for vaccines, as well as developing cold storage chains for the vast market that South Asia represents.

3) Impact of the pandemic on economies of South Asia

  • Apart from the overall GDP slowdown, global job cuts which will lead to an estimated 22% fall in revenue for migrant labour and expatriates from South Asian countries.
  • World Bank have suggested that South Asian countries work as a collective to set standards for labour from the region, and also to promoting a more intra-regional, transnational approach towards tourism, citing successful examples including the ‘East Africa Single Joint Visa’ system.
  • In the longer term, there will be a shift in priorities towards health security, food security, and job security, that will also benefit from an “all-of” South Asia approach.
  • While it will be impossible for countries to cut themselves off from the global market entirely, regional initiatives will become the “Goldilocks option”.

4) Dealing with the China challenge

  • In dealing with the challenge from China too, both at India’s borders and in its neighbourhood, a unified South Asian platform remains India’s most potent countermeasure.
  • At the border, tensions with Pakistan and Nepal amplify the threat perception from China, while other SAARC members (minus Bhutan), all of whom are Belt and Road Initiative (BRI) partners of China will be hard placed to help individually.
  • Significantly, from 2005-14, China actually wanted to join SAARC.
  • Despite the rebuff, China has continued to push its way into South Asia.

Conclusion

Seen through Beijing’s prism, India’s SAARC neighbourhood may be a means to contain India, with the People’s Liberation Army strategies against India over the LAC at present, or in conjunction with Pakistan or Nepal at other disputed fronts in the future. New Delhi must find its own prism with which to view its South Asian neighbourhood as it should be: a unit that has a common future, and as a force-multiplier for India’s ambitions on the global stage.

Domestic politics and its influence on foreign policy

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Not much

Mains level : Paper 2- India's relations with neighbouring countries

The article examines the issue of intervention in domestic politics by the external powers and the practical utilities of principles of non-intervention in the internal matters of neighbouring countries.

Political turmoil in Nepal and India’s reaction

  • Nepal has been going through political crisis for some days now.
  • India’s reluctance to be drawn into the political turmoil in Kathmandu has drawn much attention.
  • India’s refusal is in contrast to Beijing’s active effort to preserve the unity of the ruling communist party in Kathmandu.

The principles of sovereignty and non-intervention and its violations

  • India and China always insist that other countries should stop interfering in their respective internal affairs.
  • But big nations always intervene in other nations but fend off potential threats to their own sovereignty.
  • That does not prevent others from messing with India and Beijing.
  • Intervention is part of international life; all powers — big and small — frequently violate the principle of sovereignty.
  • The concept of national sovereignty was never absolute.
  • Big nations tend to intervene more, and the smaller ones find ways to manage this through the politics of balancing against their large neighbours.

Analysing the causes of external interventions

  • The pressure for external intervention often comes from major domestic constituencies within.
  • For example, the conflict between Sinhala majority and Tamil minority in Sri Lanka produces political pressure on Delhi to intervene in Sri Lanka.
  • The demand sometimes comes from outside.
  • In Nepal, for example, elite competition sees different factions trying to mobilise external powers.
  • In recent years, we have also seen the intense interaction between domestic power struggles and external powers like India and China.
  • The Maldives is one example.

Factors responsible for intervention

  • Given the nature of South Asia’s political geography, very few problems can be isolated within the territories of nations.
  • There is also the tension between the shared cultural identity in the subcontinent.
  • There is also the determination of the smaller nations to define a contemporary identity independent of India.
  • The bitter legacies of Partition leave the domestic political dynamics of Bangladesh, India and Pakistan tied together.
  • India’s relations with its smaller neighbours are also burdened by the legacy of India’s past hegemony and the emerging challenges to it.

What should be India’s regional policy?

  • India can neither stand apart nor jump into every domestic conflict within the neighbourhood.
  • It is always about political judgement about specific situations.
  • Active and direct intervention in the domestic politics of neighbours must be a prudent exception rather than the rule in India’s regional diplomacy.

Conclusion

The subcontinent has historically been an integrated geopolitical space with a shared civilisational heritage. Equally true is the reality of multiple contemporary sovereignties within South Asia. In dealing with these twin realities, the principles guiding India’s engagement should be based on  “mutual respect and mutual sensitivity”.

Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

India’s New Deal moment

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Marginal propensity to consume

Mains level : Paper 3- Economic recovery and India's New Deal Moment

The article explains the opportunity presented by the budget to steer the economy out of the uncertain territory.

3 characteristics of India’s economic recovery

  • First, India has broken the link between virus proliferation and mobility earlier and more successfully than many countries.
  • Second, the employment rate gradually improved till September but has weakened since then, even as the economy has progressively opened up.
  • CMIE’s labour market survey still reveals 18 million fewer employed (about 5 per cent of the total employed) compared to pre-pandemic levels.
  • A third phenomenon is large firms have endured the crisis better and are gaining market share at the expense of smaller firms.
  • To the extent there is a migration of activity from the informal/SME firms to larger firms, tax collections and Sensex/Nifty earnings should get a boost, even holding the economic pie constant.
  • Greater scale and formalisation undoubtedly augur well for medium-term productivity but could increase near-term labour market frictions and boost pricing power.

Increased prospects of K-shaped recovery

  • Above 3 factors increases prospects of a K-shaped recovery from COVID, a phenomenon playing out globally.
  • Households at the top of the pyramid are likely to have seen their incomes largely protected, and savings rates increased.
  • Meanwhile, households at the bottom are likely to have witnessed permanent hits to jobs and incomes.

3 Implications of K-shaped recovery

  • 1) What we are currently witnessing is pent-up demand from the upper-income households.
  • However, households at the bottom have experienced a permanent loss of income in the forms of jobs and wage cuts, this will be a recurring drag on demand, if the labour market does not heal faster.
  • 2) To the extent that COVID has triggered an effective income transfer from the poor to the rich, this will be demand-impeding in the steady state.
  • This is explianed by the fact that marginal propensity to consume at the bottom is higher than that at the top, just as the marginal propensity to import at the top is higher than at the bottom.
  • 3) If COVID-19 reduces competition or increases the inequality of incomes and opportunities, it could impinge on trend growth in developing economies by hurting productivity and tightening political economy constraints.

Factors that need to be considered to decide the policy response

  • Policy need to look beyond the next few quarters and anticipate the state of the macro economy post this expression of pent-up demand.
  • The key factor is wheather private sector starts re-investing and re-hiring.
  • With manufacturing utilisation rates below 70 per cent pre-COVID, an investment revival, in turn, will depend crucially on the
  • Exports should benefit from strengthening global growth as the world gets progressively vaccinated and more US fiscal stimulus.

Upcoming budget: India’s New Deal moment

  • It’s against this backdrop that the upcoming budget presents India with its New Deal moment.
  • Given the prevailing demand uncertainties, the budget represents an opportune moment for the Centre, in conjunction with the states, to embark on a large physical and social infrastructure push.
  • This will simultaneously boost near-term aggregate demand, crowd in private investment, create jobs to soak up the unemployed, and improve the economy’s external competitiveness.
  • Job creation, health and education, in turn, will be a start to help mitigate COVID-induced inequalities.

How to finance the investment?

  • Gradual near-term consolidation coupled with a credible medium-term fiscal plan will be key to anchoring the bond market and underscoring an adherence to macro stability.
  • How then can public investment increase meaningfully if the headline deficit (projected above 11 per cent of GDP) must come down?
  • Public investment could be increased only if the public investment push is financed by aggressive asset sales-strategic sales, disinvestment, land and infrastructure monetisation.
  • In this manner, expenditure to GDP can actually rise next year — generating an expansionary fiscal impulse to the economy — while automatic stabilisers are used to reduce the headline fiscal deficit.

Conclusion

India’s faster-than-expected rebound is very encouraging. But given labour market pressures and prospects of a K-shaped recovery around the world, the economy will need to be carefully nurtured and stoked. The budget presents a crucial opportunity to make a big down payment towards this end.

Monetary Policy Committee Notifications

Challenges ahead for the RBI

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Taper tantrum

Mains level : Paper 3- Challenges ahead for the RBI in withdrawing expansionary policy measures

With the Indian economy showing green shoots, RBI has to face some fundamental challenges while withdrawing the expansionary measures. 

Expansionary policy as a response to pandemic

  • To manage the financial pressures unleashed by COVID-19, the RBI unleashed several measures.
  • It reduced policy interest rates aggressively.
  • It released an unprecedented amount of liquidity in the market.
  • It instituted a slew of measures for targeted assistance to, especially distressed sectors.

Time to roll back the expansionary monetary policy

  • As the Indian economy is showing the signs of recovery, the RBI must be planning for a non-disruptive exit out of the easy money regime.
  • Reversing a crisis-driven expansionary policy has to be a deliberative process, with the timing and sequencing carefully planned.
  • A big lesson of the global financial crisis is that any missteps on the exit path by way of commission, omission, or importantly communication, can be costly in macroeconomic terms.

Challenges RBI will face on the way out of expansionary monetary policy

1) Restraining inflation while supporting the recovery

  • Inflation remained above the RBI’s target band for the past several months.
  • According to the RBI’s own estimates, inflation is expected to remain above the band for the next several months.
  • Yet, the MPC, in its recent review, decided against any rate action out of concerns for growth and financial stability.
  • The MPC expects inflation to soften on its own in the weeks ahead.
  • That outcome is not inevitable.
  • Inflation could be pressured upwards by several factors even though there could be some apparent softening purely because of base effects.
  • There is the risk that persistent high inflation expectations would result in food inflation getting more generalised.
  • Core inflation could firm up because of rising input prices.
  • ‘Excessive margins’, among the factors cited by the MPC as one of the causes of high inflation, may not disappear.
  • Equally, there are concerns that the recovery, for all the positive signals, is still fragile. 
  • And there is heightened concern about an aggravated unemployment problem caused by big firms retrenching labour to cut costs.

2) Impact on savings

  • RBI should also be concerned about the plight of savers who are being shortchanged by low-interest rates at a time of high inflation.
  • Low-interest rates, its impact on inflation and economic recovery taken together make a complex cocktail of dilemmas for the RBI as it seeks to normalise the policy rates.

3) Withdraw excess liquidity at right time and to avoid ‘taper tantrum’

  • Another related challenge will be to withdraw the ‘excess’ liquidity in good time.
  • Banks are routinely depositing trillions of rupees with the RBI every day, evidencing that all the money that the central bank injected into the system is not doing much good anymore.
  • Every financial crisis can be traced back to mispricing of risk.
  • Mispricing of risk results when there is too much liquidity sloshing around the system for too long.
  • It will drive investors into dodgy ventures and threaten financial stability.
  • As the RBI seeks to guard financial stability by normalising liquidity, it will have to contend with possible market tantrums.
  • The lesson from the taper tantrums in the U.S. is that the RBI will have to manage its communication as carefully as it does the liquidity withdrawal.

4) Stability of the rupee

  • Next challenge for the RBI will be to restrain the rupee from appreciating out of line with fundamentals.
  • Here, the RBI is confronted with a classic case of ‘the impossible trinity’.
  • The impossible trinity deals with allowing free capital flows while simultaneously maintaining a stable exchange rate and restraining inflation.
  • The current account surplus this year together with massive capital flows has meant an excess of dollars in the system putting upward pressure on already overvalued rupee.
  • The RBI has absorbed nearly $90 billion this fiscal year to prevent exchange rate appreciation and to maintain the competitiveness of the rupee.
  • The RBI’s ability to continue to intervene in the forex market will be constrained by its anxiety about how the resultant liquidity might aggravate inflation and the risk to financial stability.

Consider the question “What are the challenges ahead for the RBI while winding down the expansionary monetary policy measures that were announced to deal with the economic disruption of caused due to pandemic and subsequent lockdown.

Conclusion

It is better to be rough right, as Keynes said, than be precisely wrong. That should be the guiding principle for RBI as it navigates its way out of the crisis driven easy money policy.


Back2Basics: What is taper tantrum?

  • Taper tantrum refers to the 2013 collective reactionary panic that triggered a spike in U.S. Treasury yields, after investors learned that the Federal Reserve was slowly putting the breaks on its quantitative easing (QE) program.
  • The Fed announced that it would be reducing the pace of its purchases of Treasury bonds, to reduce the amount of money it was feeding into the economy.
  • The ensuing rise in bond yields in reaction to the announcement was referred to as a taper tantrum in financial media.

Poverty Eradication – Definition, Debates, etc.

Social sector: the post-Covid priority

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Social sector expenditure as percentage of GDP

Mains level : Paper 2- Need to invest more in the social sector in the post pandemic world

The article highlights the need for more focus on the social sector in the post-Covid society and suggest ways to do the same.

Why focus on social sector

  • No country has progressed without investing in the social sector.
  • India is committed to achieving the Sustainable Development Goals (SDGs) by 2030, and social sector development is important in reaching them.
  • Progress in this sector has intrinsic (for its own sake) and instrumental (for higher growth) value.
  • It is needed even to build a $5 trillion economy faster.

India’s social sector expenditure

  • India’s progress in the social sector has been much slower compared to its GDP growth.
  • In the social sector expenditure, the share of education as a percentage of GDP has been stagnant around 2.8-3 per cent during 2014-15 to 2019-20.
  • In the case of health, the expenditure as a percentage of GDP increased from 1.2 per cent to 1.5 per cent.
  • This is lower than the required 2-3 per cent of GDP.
  • An increase in health expenditure is also important to take care of the present and future pandemics.
  • There are supply side problems regarding the health infrastructure.
  • It is essential to have a huge increase in public expenditure on health and provide accessible, affordable and quality health coverage to all.

Following are some key issues in the social sector India needs to focus on.

1) The problem of undernutrition

  • The NFHS-5 report shows that malnutrition level has reduced marginally in a few states and has worsened in some other states between 2015-16 and 2019-20.
  • We can’t have a society with 35 per cent of our children suffering from malnutrition.
  • Apart from undernutrition, obesity seems to be increasing in both rural and urban areas.
  • There is a need to raise allocations for ICDS and other nutrition programmes.
  • The determinants of nutrition are agriculture, health, women’s empowerment, including maternal and child practices, social protection, nutrition education, sanitation and drinking water.
  • The Poshan Abhiyan is a good programme, but has to cover all these determinants with a multi-pronged approach to reduce undernutrition.

2) Quality education

  • Quality education is key for raising human development.
  • The pandemic has enhanced inequalities in education and has revealed the widening digital gap.
  • Equality of opportunity in terms of quality education is the key for raising human development and for reducing inequalities in the labour market.
  • Several committees have recommended that public expenditure on education should be at 6 per cent of GDP.

3) Social safety nets

  •  It is known that migrant workers were the most affected during the pandemic and that they do not have any safety nets.
  • There is a need to have safety nets like an employment guarantee scheme for the urban poor and facilities for migrants.
  • Similarly in rural areas, allocations to MGNREGA have to be increased because of the reverse migration.

4) Programs for vulnerable section need to be continued

  • The government has done well in providing cooking gas through Ujjwala Yojana and electricity through Saubhagya Yojana, introducing programmes such as Swachh Bharat Abhiyan and initiatives for housing, financial inclusion and providing loans to the self-employed.
  • These programmes have helped the vulnerable sections, particularly women.
  • Another initiative of the government was to facilitate direct benefit transfers (DBT) for welfare schemes.
  • These initiatives have to be continued.

Way forward

  • The government should give more focus to the social sector with better policies and implementation.
  • It has to work closely with the states in revitalising the social sector as major expenditures particularly on health and education are met by them.
  • The 15th Finance Commission also seems to have mentioned that health expenditure should be increased to 2.1 per cent of GDP.
  • The Commission may also suggest some incentives for states to increase health expenditure.
  • Both Centre and states should have a five-year vision on the social sector.

Consider the question “No country has progressed without investing in the social sector. In the post pandemic world India needs to chart the plan to invest more in the sector. In light of this, examine the challenges in the social sector and suggest the ways to deal with them.

Conclusion

India, aspiring to be a global power, should have a harmonious and inclusive social sector development. This is also important for achieving the SDGs, reducing inequalities and building a $5 trillion economy faster.

Women empowerment issues – Jobs,Reservation and education

Salary to women for domestic work

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Idea of universal basic income

Mains level : Paper 2- Remuneration to women for domestic work and issues with it

Recently, a political party promised salaries to housewives as a part of its electoral campaign in Tamil Nadu. This led to the debate on the issue. The article deals with the issue.

Salary for housework: Historical background

  • Demand for wages against housework was first raised at the third National Women’s Liberation conference in Manchester, England.
  •  In 2012, the then minister for Women and Child development announced that the government was considering mandating a salary for housework to wives, from husbands.
  •  The purpose, once again, was to empower women financially and help them live with dignity.

Recognising the value of unpaid domestic work

  • Time-use data from 2019 gathered by the National Sample Survey Organisation revealed that only about a quarter of men and boys above six years engaged in unpaid household chores, compared to over four-fifths of women.
  • Every day, an average Indian male spends 1.5 hours per day in unpaid domestic work, compared to about five hours by a female.
  • Housework demands effort and sacrifice, 365 days a year, 24/7.

Issues with paying for domestic work

  •  Asking men to pay for wives’ domestic work could further enhance their sense of entitlement.
  • It may also put the additional onus on women to perform.
  • There is a risk of formalising the patriarchal Indian family where the position of men stems from their being “providers” in the relationship.

Way forward

  • Despite a legal provision, equal inheritance rights continue to be elusive for a majority of women.
  • More than creating a new provision of salary for housework, we need to strengthen awareness, implementation and utilisation of other existing provisions.
  • Starting from the right to reside in the marital home, to streedhan and haq meher, to coparcenary and inheritance rights as daughters and to basic services, free legal aid and maintenance in instances of violence and divorce.
  • Women should be helped to reach their full potential through quality education, access and opportunities of work, gender-sensitive and harassment-free workplaces and attitudinal and behaviour change within families to make household chores more participative.

Conclusion

Just like we do not want women to commodify their reproductive services because of their inherently exploitative nature — we have, therefore, banned commercial surrogacy in the country — let us not allow commodification of housework and personal care.