Disasters and Disaster Management – Sendai Framework, Floods, Cyclones, etc.

Role of dams in Uttarakhand floods

Note4Students

From UPSC perspective, the following things are important :

Prelims level: How dams exacerbate disasters

Mains level: Paper 3- Role of dams in exacerbating disasters

The article explains the link between the disasters in the Uttarakhand and the construction of dams.

How dams exacerbate disasters

  • The use of explosives has repeatedly been questioned for dam construction, and the construction of other infrastructure projects, such as roads, in the fragile Himalayan State.
  • Other than this, deforestation takes place when dams are constructed.
  • The construction material that is supposed to be dumped on separate land is often dumped into the rivers.

The Chopra Committee report after Kedarnath flood

  • The Chopra Committee report of 2014 brings more clarity on how dams exacerbate a disaster such as floods.
  • Its report mentions how dams exacerbated the 2013 deluge, mainly as riverbeds were already raised from the disposed muck at the dam construction sites.
  • The report presents evidence to prove that dams are not only damaged in floods, they also cause immense damage in downstream areas.
  • This is because as floodwaters damage a barrage, they increase the destructive capacity of the water that flows downstream of the barrage.
  • In an affidavit submitted on December 5, 2014 in the Supreme Court, the Union Ministry of Environment, Forest and Climate Change acknowledged the adverse impact of dams in the 2013 floods.

Impact of climate change and threat of earthquakes

  • Himalayan glaciers are receding and disintegrating as a result of climate change, and the snow cover in the Himalayas is also thinning.
  • Research shows an increase in number and volume of glacial lakes as a result of of increased temperatures.
  • For dams, this means rapid increase or decrease in the reservoir water level.
  • It also means that the projections on the life of a dam reservoir may not stand due to erratic events, such as floods, that could rapidly fill a reservoir with muck and boulders brought along with the floods.
  • In terms of earthquake risk, Uttarakhand lies in Seismic Zone-IV (severe intensity) and Seismic Zone-V (very severe intensity).
  • Ignoring this, many dams have been constructed in zones that are under high risk of witnessing severe earthquakes.

Consider the question “Examine the role played by the dams in exacerbating the disasters in the Himalayan states”

Conclusion

It is clear that dams worsen disasters, and for this to be ignored by the State authorities is unfortunate.

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India’s challenge in dealing with international criticism

Note4Students

From UPSC perspective, the following things are important :

Prelims level: Not much

Mains level: Paper 2- International scrutiny of India's domestic policies and dealing with them

Tweets by international celebrities in support of farmers’ protests and the government’s response to it have brought focus the issue of international scrutiny of India’s policies. The article analyses this issue.

Issue of external criticism of India

  • Recently, India has been at the receiving end of international criticism over its dealing with the farmers’ protests against recently passed farm laws.
  • But neither the negative international scrutiny nor the Indian nationalist rejection of it are new.
  • Mobilising nationalist sentiment and evoking territorial sovereignty in fending off external criticism have been consistent themes in the conduct of independent India’s foreign policy.
  • The intensity of international scrutiny has varied over time and space, but they are unlikely to ever disappear.
  • As India becomes more connected to the world, there will be more global interest in its internal dynamics.
  • At the same time, like all rising powers, India will push back against demands that it must always measure up to external expectations.

Why the Western criticism matters

  • Western power to turn sensible sentiments on democracy and human rights into consistent policies is rather limited.
  • Also, the issue of human rights has never been the sole factor shaping US foreign policy towards other nations.
  • But there is no denying that the Western power to create problems is real.
  • There are also implications of needless political arguments with the US over your domestic politics.
  • Asian realists also know that it is not difficult to neutralise Western liberal critics by emphasising engagement with others that might have commercial and security interests.

Dealing with the criticism in the U.S. Congress

  • In the early 1990s, passing resolutions against India on Punjab and Kashmir in the US Congress was routine.
  • But once Delhi began to engage with US Congress and explained the complexity of the issues involved, the tide began to turn.
  • The Indian diaspora helped by reaching out to their representatives and pressing them to reconsider their positions.
  • Within a decade, supporters of separatism in Punjab and Kashmir could not even move the resolutions in the US Congress.

Domestic polarisation and role of diaspora in international criticism

  • India’s problem is not with external criticism, India’s real challenge is the deepening domestic political divide.
  • India’s internal conflicts have inevitably enveloped the diaspora.
  • Sections of the diaspora that are opposed to Indian policies are actively mobilising the political class in their adopted countries to raise the voice against India.
  • They are also building wider coalitions to put the Indian government on the mat.
  • If the diaspora in the past helped India overcome some difficult problems with the US, it is the counter mobilisation of the diaspora that is shaping the western criticism of India.

Way forward

  • The government’s ability to overcome external criticism depends on rebuilding the national consensus on key policies and healing the multiple social rifts.
  • Without a visible and sincere political effort to promote unity at home, internal divisions will get worse and make India more vulnerable to external meddling.

Consider the question “Recently, India has been at the receiving end of the international criticism for its internal issues. What are the reasons for such criticism? Suggest the strategy to deal with such criticisms.” 

Conclusion

India’s own experience with Sri Lanka and Nepal underlines how hard it is to persuade other societies to accept Delhi’s preferences on the rights of minorities and federalism. In the end, democracy and pluralism can never be foreigner’s gifts. The struggle to construct and preserve democracies remains an internal one.

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Foreign Policy Watch: India-Myanmar

India’s Myanmar dilemma

Note4Students

From UPSC perspective, the following things are important :

Prelims level: Countries bordering Myanmar

Mains level: Paper 2- Coup in Myanmar and India's dilemma in dealing with the situation

The coup in Myanmar poses several challenges for India. For one, it poses a dilemma in India’s dealing with Myanmar’s military. Also, it has implications for the Rohingya issue and containing the insurgency in north-east India.

Implications of the coup in Myanmar

1) Political realignment and role of Aung San Suu Kyi

  • Threat of sanctions from the United States and the West in the wake of the recent coup could lead to unique political realignments in Myanmar.
  • As a result, the international community may not have any alternatives than Aung San Suu Kyi when it comes to pursuing the restoration of democracy in the country.
  • The democratic credentials of Aung San Suu Kyi, remain deeply diminished today due to her justification of the ill-treatment meted out to the Rohingya,
  • Yet the recent events have brought her right back into the centre of the international community’s political calculations in Myanmar.

2) Implications for Rohingya issus

  • International community will have to condone the government’s past actions against the Rohingya in order to highlight Suu Kyi as an anchor of democracy in Myanmar.
  • The case against Myanmar’s conduct during her government’s tenure at the International Court of Justice (ICJ) will most likely be put on the backburner.
  • Increasing global support for Ms. Suu Kyi could potentially negative consequences for the persecuted Rohingya.

3) China factor

  • In the short run, the coup stands to hurt the interests of China, India and even the rest of the international community, all of whom were able to do business with Myanmar in their own unique ways.
  • For China, the coup has complicated its larger regional economic plans in Myanmar.
  • However, the international community’s sharp reactions will likely force the Tatmadaw (Myanmar’s military) to turn to China.
  • International sanctions are unlikely to have a major impact on the country’s largely inward-looking junta and its Generals.
  • However, it Generals would still expect Beijing to give them
  • For China, the coup has complicated its larger regional economic plans in Myanmar.
  • On the positive side for Beijing, decisive western sanctions will force the military to get closer to China.
  • To that extent, China will be its biggest beneficiary of the February coup by default.

India’s dilemma

  • India faces the most challenging dilemma on how to respond to the military coup in Myanmar.
  • The dual power centres of the military and the civilian government that existed in Naypyitaw until recently, suited India.
  • While India’s national interests clearly lie in dealing with whoever is in power in Myanmar, India would find it difficult to openly support the junta given the strong western and American stance.
  • On the other hand, it can ill-afford to offend the junta by actively seeking a restoration of democracy there.
  • While Ms. Suu Kyi was getting cozy with Beijing, it was the Myanmar military that had been more circumspect.

India’s concerns

  • While a friendless Myanmar junta getting closer to China is a real worry for New Delhi, there are other concerns too.
  • For one, Myanmar’s military played a helpful role in helping India contain the north-eastern insurgencies.
  • Equally important is the issue of providing succour to the Rohingya in the wake of the military coup in Myanmar.

Consider the question “Developments in Myanmar have several implications for the regional geopolitics. In light of this, examine the challenges India faces from the development in Myanmar.”

Conclusion

India is left with very few clear policy options. And yet, it must continue to maintain relations with the government in power in Myanmar while discreetly pushing for political reconciliation in the country. In the meantime, the focus must be on improving trade, connectivity, and security links between the two sides.

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Government Budgets

Making Budget work

Note4Students

From UPSC perspective, the following things are important :

Prelims level: Types of fiscal deficits

Mains level: Paper 3- Paradigm shift in the budget and challenges in realising them

The article deals with the marked departures in this year’s Budget and the challenges in realising the changes.

Three paradigm shifts from past in this the Budget

1)Increased infrastructure spending

  • The main theme of the budget is a big thrust on infrastructure spending and public investment.
  • If the budgeted numbers are realised, capex would have grown from 1.6 per cent of GDP pre-COVID to 2.5 per cent in two years.
  • With India’s investment/GDP ratio falling by 5 percentage points over the last decade, a sustained public investment push — with its large multiplicative effects — is a much-needed impetus to reinvigorate growth and create jobs.

Implications of increased spending

  • The certainty sustained public investment is likely to crowdin private investment.
  • The certainty of investment-led employment that is likely to reduce household precautionary savings.
  • However, higher capex spend is being paid for by disinvestment and privatisation.
  • Effectively, non-core public-sector assets that don’t generate positive externalities — and, in fact, potentially distort the sectors they compete in — are expected to be replaced with much-needed physical and social infrastructure.
  • This newly created physical and social infrastructure emanate positive externalities and necessarily suffer from under-provisioning by the private sector.
  • If successfully executed — this will not be a case of selling the family silver to pay a credit card bill.
  • Instead, it will be akin to a productivity-enhancing asset swap on the public sector’s balance sheet.

2) Shift in the way for financing infrastructure

  • In stark contrast to the PPP model, infrastructure will now be financed off public sector balance sheets and, once operational and viable, will be monetised so as to recycle proceeds into the next project.
  • In theory, this is the appropriate division of public-private risk sharing.
  • It combines the public sector’s ability to better mitigate upstream risk while taking advantage of the glut of global liquidity potentially attracted to downstream projects.

3) Shift is towards more conservative and transparent fiscal accounting

  • There has been much focus on bringing the Food Corporation of India (FCI) liabilities back on the budget.
  • Less appreciated is the conservatism with which tax revenues have been budgeted for.
  • Revised estimates peg this year’s gross taxes at 9.9 per cent of GDP.
  • But for that to happen, taxes, net of excise, will need to contract by 20 per cent in the last quarter.
  • So it’s very likely gross taxes will end up 0.5 per cent of GDP higher this year.
  • Not only is this a welcome departure from the past when revenues were consistently over-budgeted, but it sets the base for next year.
  • With nominal GDP expected to grow in double digits, it’s likely taxes, net of excise, will experience a higher-than-unitary-elasticity to growth, especially given the increased formalisation that COVID has spawned.
  • Tax collections are, therefore, likely to exceed budgeted levels in 2021-22.
  • It behooves a very uncertain macroeconomic environment and creates some buffer if crude prices keep rising or other revenues don’t materialise.
  • Credible accounting over time will bring down risk premia in bond yields, and paradoxically generate a stimulative impulse.

Three challenges in realising these changes

1) Execution challenge

  • The budget’s impact on shaping the macroeconomic narrative will depend on the speed and efficacy of simultaneously building and selling public assets.
  • It will be important, for instance, to front-load disinvestment and strategic sales to take advantage of buoyant equity markets before global central banks become more cautious.
  • With debt likely to rise to almost 90 per cent of GDP this year, it’s now incumbent on all stakeholders to consistently deliver the 10 per cent nominal GDP growth that’s needed to first stabilise debt at these levels and then bring it down.
  • Viewed from this lens, it is a budget where execution is vital.

2) Withdrawal of the policy support at appropriate time

  • While fiscal policy is being appropriately counter-cyclical at the moment, it must be equally nimble in the other direction.
  • When the recovery gets more entrenched, policy support should be withdrawn with equal speed and alacrity.

3) Role of monetary policy

  • With fiscal policy playing a primary role, monetary policy must slowly take a back seat.
  • The combination of a more relaxed fiscal path and domestic private sector savings normalising after the COVID surge could result in equilibrium bond market yields rising [fall in the price of bond] — but that is a cost worth incurring for a meaningful public investment push.
  • In the near term, the RBI may focus on ensuring this new equilibrium is reached in a non-disruptive manner.
  • Given the current slack in the economy, it’s understandable if fiscal and monetary are temporarily complementary.
  • But as confidence in the recovery grows, fiscal and monetary must quickly become substitutes — with the RBI progressively normalising liquidity to wardoff financial stability and fiscal dominance concerns — so as to safeguard macroeconomic stability.

Consider the question “This year’s Budget marked many departures from the past Budgets. However, there are several challenges in realising these departures. What are such departures and identify the challenges in realising them?”

Conclusion

The budget must be commended for embarking on important paradigm shifts. But its success, and in turn the sustainability of India’s recovery, will now come down squarely to policy execution and coordination.

 

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Insolvency and Bankruptcy Code

IBC as an enabler

Note4Students

From UPSC perspective, the following things are important :

Prelims level: IBC 2016

Mains level: Paper 3- Analysing the working of IBC

The article analyses whether or not the Insolvency and Bankruptcy Code is delivering on its objectives.

Criticism of IBC

  • The Insolvency and Bankruptcy Code (IBC), 2016 was enacted to resolve the stress of companies.
  • However, the corporate insolvency resolution process (CIRP)  has been criticised as it rescues only about 25 per cent of companies and leads to liquidation for the rest.

Is IBC delivering on its mandate

Let’s analyse how Insolvency and Bankruptcy Code (IBC) 2016 is working towards value maximising outcomes.

1) It enables the market to attempt to resolve

  • The CIRP enables the market to attempt to resolve stress through a resolution plan whereby the company survives.
  • When it concludes that there is no feasible resolution plan to rescue the company, the company proceeds for liquidation.
  • The market usually rescues a viable company and liquidates an unviable one.
  • There are quite a few companies which have negligible assets and/or are defunct when they enter CIRP.
  • Many of these are beyond rescue for a variety of reasons, including creative destruction, and their continuation is a cost to the economy.
  • In such cases, the code enables liquidation to release available resources to alternate uses.
  • It is welcome, as it releases the assets as well as the entrepreneur stuck up in an unviable company, which is a key objective of the code.

2) Look at the total asset value not the number of companies

  • In terms of absolute numbers, 25 per cent of companies were rescued and 75 per cent proceeded for liquidation.
  • In value terms, however, 75 per cent of the assets were rescued and 25 per cent of assets proceeded for liquidation.
  • Of the companies sent for liquidation, 75 per cent were either sick or defunct, and of the companies rescued, 25 per cent were either sick or defunct.

3) Look at the overall impact, not just final numbers

  • Third, the stress that a company suffers is like an illness which can be treated by a variety of options.
  • Normally, recovery is better if diagnosis and treatment start early.
  • Likewise, the health of the company deteriorates if the resolution process is delayed.
  • The percentage of rescue at this later stage may not be significant.
  • The credible threat of CIRP that a company may change hands has redefined the debtor-creditor relationship.
  • Faced with the possibility of the CIRP, a debtor makes all-out efforts to prevent the stress, or resolve it much before it translates into a default, or settles the default.
  • Even after an application is filed, a debtor continues efforts to resolve the financial stress midway through settlement, review, mediation, or withdrawal to avoid the consequences of CIRP.
  • The number of companies that recover before filing the application as a percentage of those that get starts the insolvency process would give the fair idea about the efficacy of the IBC.

Consider the question “The IBC has often been criticised for liquidating the companies rather than rescuing them. Do you agree with this criticism? Give reasons in support of your argument.”

Conclusion

Liquidation or rescue is an outcome of the market forces; the law is only an enabler giving choices and nudging a company towards value maximising outcomes. The “invisible hands” of the market works towards the best outcome, which we should respect and accept.

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Animal Husbandry, Dairy & Fisheries Sector – Pashudhan Sanjivani, E- Pashudhan Haat, etc

Dairy Industry in India : An analysis

Note4Students

From UPSC perspective, the following things are important :

Prelims level: NAIP

Mains level: Paper 3- Use of technology to increase milk production in India

The article highlights the issues facing the dairy sector and explains the utility of IVF technology for crossbreeding.

Importance of dairy sector

  • The dairy sector assumes significance on account two reasons:
  • 1) It has to do with the socio-cultural affinity towards cows and dairy products in large parts of the country.
  • 2) As an industry, it employs more than 70 million farmers.
  • Need of the hour is for us to identify ways in which we can enhance the return on investment for our farmers.

India’s journey from milk deficit country to one of surplus

  • Initiated in 1970, Operation Flood transformed India into one of the largest milk producers.
  • The per capita availability of milk in 2018-19 was 394 grams per day as against the world average of 302 grams.
  • Today with an annual production of 187.75 million tonnes India accounts for about 22% of the world’s milk production.
  • However, India is yet to join the ranks of major milk exporting nations, as much of what we produce is directed towards meeting domestic demands.

Making India milk exporting nation

  • Indigenous cows produce 3.01kgs of milk per cow per day, while the yield of exotic crossbred cows is 7.95kgs.
  • Crossbreeding has taken off in a big way because of the advancements in reproductive technologies like In vitro fertilization (IVF), embryo transfer process, and artificial insemination.
  • Out of these processes, IVF and artificial insemination have proven to be the most popular and effective methods.
  • The NAIP (Nationwide Artificial Insemination Programme) Phase-I was launched in September 2019.
  • Every animal in the programme was assigned a 12-digit unique identification number under the Pashu Aadhar scheme.
  • NAIP Phase-II was initiated on 1 August 2020 with an allocation of 1,090 crore in 604 districts covering 50,000 animals per district and is on track to be completed by the 31 May 2021.
  • Under the programme, 9.06 crore artificial inseminations will be performed and is expected to lead to the birth of 1.5 crore high yielding female calves.
  • Consequently, 18 million tonnes of additional milk will be produced as average productivity will be enhanced from 1,861kg per animal per year to 3,000kg per animal per year.
  • Artificial insemination (AI) technology has been the most used method in India, but its success hinges upon accuracy in heat detection and timely insemination.
  • And this is where In Vitro Fertilization (IVF) technology will prove to be more effective.

Conclusion

In keeping with our ethos of ‘Jai Kisan, Jai Vigyan’ the marriage of rural farming with the latest innovations in technology will usher in unprecedented transformation in our dairy industry.

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

Laws that have distorted agriculture and labour markets need to go

Note4Students

From UPSC perspective, the following things are important :

Prelims level: Essential Commodities Act

Mains level: Paper 3- Ensuring growth while protecting the farmers

The article suggests the two steps to ensure growth while protecting the poor. The first is the creation of social safety net and next is factor market reforms.

Issue of farmers’ income

  • An Indian engaged in industry or any aspect of the services sector (this includes a waiter in a restaurant) earns more than an average farmer.
  • This is an anomaly.
  • So, despite all the pro-farmer laws and protection, why do farmers in India earn less?
  • A recent study by RBI showed that across all crops, the farmgate price is 40-60 per cent less than the consumer price.
  • The real challenge is how to encourage growth while protecting the poor.

Encouraging growth while protecting the poor: 2 steps

  • 1) A social safety net needs to be created to provide direct income transfers to the vulnerable.
  • 2) Factor markets involving labour and agricultural land need to be reformed to ensure productivity-enhancing growth.
  • Only way to ensure growth which benefits the poor is through employment creating in the manufacturing and services sector.

1) Social safety nets in India

  • Despite a narrow tax base, India has created a comprehensive social safety net, which can cushion growth-enabling market reforms.
  • Accurate targeting under India’s Food Security Act to the bottom 67 per cent through Aadhaar identification and digital ration cards paired with E-POS machines has considerably reduced the leakage of subsidised grains.
  • The National Social Assistance programme intends to provide direct income support to over 40 million elderly landless agricultural workers, poor women-headed households and families with physically-challenged children.
  • India also provides income support annually to 145 million farmers, paying out Rs 75,000 crore.
  • This benefits all farmers while MSP benefits only 6 per cent of farm produce.

2) Factor market reforms

  • If state support for social safety net has to become sustainable, wide-ranging growth, which will broaden the tax base, is essential.
  • India’s growth itself can be designed to reduce the number of people who need state support.
  • The agriculture and labour reforms recently passed create the conditions for productivity-enhancing growth, benefiting millions of small farmers and unorganised workers.

Let us take a look at what the farm laws achieve and how they will change the status quo

1) Amendment to Essential Commodities Act

  • The stock limits under the Essential Commodities Act do not enable large tur or moong and rice processors to procure in bulk for their entire season’s processing requirements.
  • This restricts large-scale processing units which can run throughout the non-harvest season.
  • This draconian anti-farmer rule has now been done away with.
  • This will enable the expansion of agro-processing and supply chains.
  • A larger share of the produce procured for agro-processing increases its shelf life, enabling the farmer to retain a greater value.
  •  30-40 per cent of the post-harvest value, particularly in vegetables and fruits, is lost due to inadequate storage, processing and transportation facilities.
  • Removal of stock limits and the accompanying contract farming act will bring in investments to tap the wasted resource.

2) APMC regulation

  • The second law, removes another distortion: Only traders registered in APMCs can buy farmers produce.
  • Even though conditions for perfect markets exist, the APMC regulation creates this bottleneck.
  • Intermediaries extract a greater share of value as they are price makers while farmers are price takers.
  • This situation is further aggravated as farmers are restricted to selling within the taluka boundaries or limits of the APMC, and if they have to sell in other APMC, they have to pay the APMC tax.
  • The Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Bill 2020 confines the authority of the APMC to levy fees and give trader licences within the boundary of the market yard.
  • Farmers will continue to have the option to sell in APMCs but any private market/non-APMCs registered trader can also set up an agricultural market and compete with APMCs to buy the same produce.
  • Karnataka implemented the Uniform Market portal in 2014, enabling trade across taluka APMC limits without APMC fees.
  • An analysis by researchers at the MIT Sloan School of Management has shown that prices of many agricultural goods increased by 3.5 to 5.1 per cent.
  • Significantly, profit margins of small farmers increased by more than 36 per cent.

Labour reforms

  • Apart from agriculture, the abundance of labour is the second greatest comparative advantage of India.
  • However, multiple labour laws instead of encouraging employment, have created disincentives for job creation due to high costs of compliance.
  • While India’s employment elasticity with respect to GDP growth is only 0.2, China’s is at 0.44. Even for Bangladesh, the elasticity is 0.38.
  • India’s path-breaking labour reforms leverage the true comparative advantage of the country’s factor endowments to promote growth with higher employment elasticity.
  • The old labour laws protected existing jobs at the cost of preventing new job creation through creative destruction.
  • Bangladesh has shown the way to increase formal jobs by legalising fixed-term employment and banning union activity in FDI industries.
  • Raising the threshold for seeking prior permission for laying off workers will enable capital and land locked in sunset industries to move freely to new sunrise industries.

Consider the question “An Indian engaged in industry or any aspect of the services sector earns more than an average farmer. What are the factors responsible for this anomaly? Suggest ways to achieve growth that could ensure sustainable safety net?”

Conclusion

The need of the hour is to continuously communicate with those unhappy with the reforms to explain how the current status quo is hurting farmers and informal workers.

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Health Sector – UHC, National Health Policy, Family Planning, Health Insurance, etc.

The unmet health challenge

Note4Students

From UPSC perspective, the following things are important :

Prelims level: PMANSY

Mains level: Paper 2- Allocation in Budget for health

The article analyses the allocation for the health sector in the Budget and highlights the need for more allocations.

Need to increase spending on health

  • The Economic Survey argues for the need to increase public spending on healthcare to 2.5-3 per cent of the GDP — it’s about 1.5 per cent currently.
  • The Survey points out that there is not much difference in terms of outcomes and quality between healthcare services in the private sector and such services in public centres.
  • The Economic Survey, therefore, calls for strengthening the National Health Mission (NHM) along with Ayushman Bharat.
  • NHM was initiated in 2005-06 to strengthen public health services.
  • The Ayushman Bharat provide social insurance, thereby financing private sector services with public funds. 
  • The Economic Survey makes a strong pitch for greater regulation of health services in the private sector.

Break-up of allocation in Budget on health (and well being)

  • The finance minister described “health and well-being” as one of the pillars of the budget in her budget speech and announcing a 137 per cent increase in allocations for it.
  • She placed healthcare, water and sanitation and nutrition as the key components of this pillar.
  • However, the figures in the budget documents reveal a different story.
  • There is an absolute increase of 9.6 per cent in allocations for the Department of Health and Family Welfare that includes NHM and Ayushman Bharat.
  • A 26.8 per cent increase for the Department of Health Research and 40 per cent increase for the AYUSH Ministry do not add up to much since each of them are only 3-4 per cent of the total health budget.
  • A Finance Commission grant of Rs 13,000-crore and Rs 35,000-crore for COVID-19 vaccination are one-time allocations and, therefore, do not strengthen the overall system.
  • The core health service and research ministries (H&FW and AYUSH) have together received only an 11 per cent increase.
  • Even in COVID times, the health services get only 2.21 per cent of the total central budget — down from 2.27 per cent in the 2020-21 budget.
  • Computing for inflation, the increase in allocation for health services alone disappears and actually becomes negative.
  • Water and sanitation received a 179 per cent increase from Rs 21,518 crore to Rs 60,030 crore already earmarked for the flagship schemes, Swachh Bharat and Jal Jeevan Mission.
  • But allocation for nutrition decreased by 27 per cent, with the “new” Poshan 2.0 merely combining the poorly performing Supplementary Nutrition Programme and Poshan project.
  • Added together, health, water and sanitation and nutrition make up the claimed 137 per cent increase in allocation to “health” services — with a real decline in healthcare and nutrition.

Pradhan Mantri Atma Nirbhar Swasthya Yojana (PMANSY)

  • Finance Minister also announced a new scheme, the Pradhan Mantri Atma Nirbhar Swasthya Yojana, to support the almost 29,000 health and wellness centres in the country.
  • The scheme also envisages the creation of public health laboratories and critical care hospital blocks and virology institutes.

Concerns with PMANSY

  • PMANSY has an announced allocation of Rs 64,180 crore over six years, but it does not find a place in the present budget documents.
  • But these additional activities could have been slotted in the NHM.
  • Since 2014, the allocation for NHM has been on the wane.
  • Therefore, even the marginal 1.33 per cent increase (from Rs 27,039 crore to Rs 30,100 crore) is a demonstration of the government’s realisation that public services do matter.
  • The allocations of about Rs 10,000-Rs 11,000 crore each year for the PMANSY is not enough for making the public services capable of “universal health coverage”.
  • The High-Level Expert Group on Universal Health Coverage had estimated that by 2020, we need a 114 per cent increase in sub-centres and primary health centres, 179 per cent increase in community health centres and a 230 per cent increase in sub-district and district hospitals.
  • Getting anywhere close to this requires doubling of real allocations every year over a five-year period to reach something like 10 per cent of the budget.
  • In the present budget, it declines to a mere 2.21 per cent.

Way forward

  • If such public provisioning for universal health coverage can’t be done, then effective low-cost rationalised service system options have to be designed.
  • Insurance schemes only create the mirage of affordability of health services while adding to peoples’ expenses.
  • Community and public services are indisputably the most cost-effective for any society.

Consider the question “Examine the benefits of the idea of health and well being under which health, water and sanitation and nutrition are clubbed together.”

Conclusion

Water and sanitation are meaningful for health, but not if it only inflates the allocation to “Health and Wellbeing”. What we need is the real increase in spending on health.

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Foreign Policy Watch: India-Myanmar

The way forward in Myanmar

Note4Students

From UPSC perspective, the following things are important :

Prelims level: Rohingya crisis

Mains level: Paper 2- Factors to consider while dealing with the situation in Myanmar

The article discusses the five lessons from past experiences as the international community frames its response to the military coup in Myanmar.

Coup in Myanmar

  • After Aung San Suu Kyi’s National League for Democracy (NLD) swept the polls by winning almost 80% of the vote, Myanmar’s military staged a coup and declared a state of Emergency for a year.
  • Myanmar, which started a fragile transition to democracy 10 years ago after decades of brutal military dictatorship, is back in the hands of the Generals.

Lessons for the international community

1) Benefits of sanctions

  • The developments in Myanmar will invariably bring back the old debate around the prudence of sanctions.
  • Notwithstanding the western sanctions before 2010 [during military rule], China, Thailand and Singapore were the key trading partners of Myanmar.
  • The present reality is no different.
  • Singapore was reportedly the largest foreign investor in Myanmar in 2020, accounting for 34% of the overall approved investment.
  • Given that the military has been able to economically withstand sanctions by striking deals with Asian countries in the past, sanctions are unlikely to bring any major political change.

2) Accountability for crime against humanity

  • As political changes got underway in 2010, many generals were on the radar of the international community for perpetuating a regime of human rights abuses, quietly vanished from the scene.
  • This bred a culture of impunity.
  • During the 2017 Rohingya crisis, senior military officials brazenly exploited social media to mobilise public support for brutality against Rohingyas.

3) China’s influence

  • Three, a critical international player in Myanmar is China.
  • The international community, particularly the West, has to factor in China’s multi-layered influence on Myanmar.

4) Revival of past international mechanisms

  • Many international mechanisms comprising Western and Asian countries that were formed to coordinate strategies on Myanmar were disbanded after the 2015 election.
  • That the changes in Myanmar were irreversible was the standard thinking.
  • Relevant actors should be brought on a common platform by reviving past mechanisms.

5) Increasing the engagement with domestic stakeholders

  • The expectation that Myanmar will see a nationwide protest against the military after the coup should be examined with the geographical extent of Bamar, Myanmar’s largest ethnic group, who support the National League for Democracy.
  • The minorities in the country form around 35% of the population.
  • In the current scenario, the military will continue to exploit ethnic and religious fault lines.
  • Engagement with domestic stakeholders, including ethnic minorities, especially from the north, should be pursued by the international community.

Consider the question “As military hinders Myanmar’s transition to democracy, what are the factors that should be considered by the international community as it form the response to the situation in the country.”

Conclusion

There is one consistent lesson, that no change is irreversible, particularly in a context where military leadership scripted the meaning of democracy, and domestic forces and geopolitics continuously fail to deter its actions and impulses to rule.

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Coronavirus – Health and Governance Issues

No to vaccine nationalism, yes to global cooperation

Note4Students

From UPSC perspective, the following things are important :

Prelims level: COVAX project

Mains level: Paper 2- Vaccine nationalism

India has been supplying vaccines to other countries even as its first phase of vaccination covers the health care workers. At the same time, the selfishness of the advanced countries has been on full display by amassing the approved vaccines. The article deals with the issue of vaccine nationalism.

What is vaccine nationalism

  • When a country manages to secure doses of vaccines for its own citizens or residents and prioritises its own domestic markets before they are made available in other countries it is known as ‘vaccine nationalism’.
  • This is done through pre-purchase agreements between a government and a vaccine manufacturer.
  • The advance purchase contracts made by some advanced countries for potential vaccines would vaccinate their population many times: the European Union, two times, the United States and the United Kingdom, four times, and Canada, six times.

Impact on the SDGs

  • The reversal of progress on many Sustainable Development Goals, or SDGs, such as SDG 3 (“Ensure healthy lives and promote well-being for all at all ages) could affect the health of the world population, and global growth itself.
  • Even before COVID-19, projections have shown that 6% of the global population would be in extreme poverty, which has gone up by 71 million, thereby causing enormous challenges to SDG 1 (“End poverty in all its forms everywhere”).
  • According to estimates by the International Monetary Fund, over 50% of emerging markets and developing economies that were converging toward advanced economies per capita income over the last decade are expected to diverge over the 2020-22 period.

India’s important role

  • While advanced countries have turned their back on the need of poor countries, India has taken a position that a significant percentage of the approved doses will be permitted for exports.
  • While its exports to neighbouring counties will be under grant mode, initial shipment of vaccines to least developed countries will be free of cost.
  • Brazil has received 2 million doses of vaccine from India (as of January 23).
  • While India is in its first phase of vaccination to cover health-care workers, exports from India are helping other countries also in initiating phase one of their vaccination programme — a gesture well-appreciated globally.
  • The ability to produce large volumes of vaccine at an affordable cost underlines India’s importance to developing countries when it comes to drug access.

Need for coordinated global efforts

  • Due to the vaccine nationalism, the arguments of public good and global cooperation have been widely neglected.
  • Nevertheless, India’s approach only reinforces the need of having coordinated global efforts in bringing COVID-19 under control.
  • This response manifests India’s unstinted commitment to global development and has consolidated its name as the world’s pharmacy.

COVAX Project: Unique case of global cooperation

  • The COVAX project is a global risk-sharing mechanism for pooled procurement and fair distribution of COVID-19 vaccines.
  • It is based on funding from high and middle-income countries.
  • Since high and middle-income countries are buying up large amounts of the vaccine directly from suppliers, the promise by COVAX to deliver 2 billion doses by the end of 2021 seems to face new challenges.
  • Since most of the vaccines are purchased from the global south [specifically, India and China] for developing nations, the COVAX project can draw new pathways for global development.
  • Most of these vaccines are cost-effective and affordable to the global south.

Consider the question “What is vaccine nationalism? Examine the role played by India against the backdrop of vaccine nationalism.” 

Conclusion

The development of vaccines is a classic story of global cooperation between the North and the South. Unfortunately, the increasing nationalist tendencies of the democratic World during the pandemic have challenged the positive narrative on global cooperation.

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Government Budgets

Government set for fiscal push, RBI needs to do more

Note4Students

From UPSC perspective, the following things are important :

Prelims level: Incremental Capital output ratio

Mains level: Paper 3- Highlights of the Budget 2021-22

The article analyses the key features of the Union Budget, including the increase in overall expenditure and jump in capital expenditure in FY22.

Explaining the Rs 4.1 lakh crore jump in expenditure in FY21

  • The budget has moved clearly from off-balance-sheet funding [borrowing by FCI and arrears of fertiliser subsidy] to headline-deficit funding.
  • That possibly explains the surge in fiscal deficit in the current fiscal at 9.5 per cent of GDP.
  • However, by excluding such off-balance-sheet funding, the headline-fiscal deficit declines to 8.6 per cent of GDP. 
  • A closer look at the food subsidy, juxtaposed with outstanding FCI liabilities shows that Rs 1.2 lakh crore (0.6 per cent of the GDP) is a pure accounting shift, while the rest Rs 1.9 lakh crore is new spending this fiscal.
  • Hence, the incremental spending in FY21 comes to around Rs 2.9 lakh crore (net of Rs 1.2 lakh crore/ 1.5 per cent of the GDP).
  • Interestingly, the government has also spent an additional Rs 62,638 crore on fertiliser subsidy, the entire amount of which has been front-loaded.

Focus on capital expenditure in FY22

  • Increase in the expenditure in FY22 is noticeable as the pie has decisively shifted towards capital expenditure.
  • The budgeted raise in FY22 is 4.6 times larger than the trend increase in the last two decades. 
  • The proposed capital expenditure amounts to 3.4 per cent of the GDP if we also include allocation for capital expenditure for autonomous bodies.
  • Assuming an Incremental Capital Output Ratio (ICOR) of 4.5, one can expect a GDP growth contribution of 0.8 per cent on account of the capital expenditure.
  • The other number in the budget that deserves admiration is the significant decline in extra budgetary resources of the government and PSUs. All this augurs well even for rating agencies if we go by purely fiscal transparency as a rule.

Steps to clean up NPAs in the banking sector

  • The most notable development in the financial system is announcement of setting up an Asset Reconstruction Company (ARC) and an Asset Management Company (AMC).
  • The approach is to set up an AMC, which in partnership with an ARC, takes over large stressed assets ( approximately Rs 3.5 lakh crore) spread across multiple banks that have a clear potential for turnaround.
  • An operational turnaround of the asset creates value for the overall system.
  • The AMC/AIF-led approach could enable a move towards true price discovery, consolidating debt into one single entity ensuring faster decision-making, freeing up blocked capital/funds and an operational turnaround of assets.
  • A better price discovery could be ensured by having an independent investment committee comprising of senior management professionals.

Increase in FDI limit in insurance sector

  • The Union budget also has a proposal to increase the FDI limit in insurance companies to 74 per cent from the present 49 per cent, with Indian management control.
  • It is expected that fresh capital will bring a new wave in technical know-how, innovation, and new products to the advantage of consumers, pushing up insurance penetration in the country.
  • However, we must ensure that foreign investors become interested in the Indian insurance sector as the current FDI used limit is at 33.8 per cent in private insurers.

Role of RBI

  • With the government set for a fiscal push, the baton has passed to the RBI.
  • Overall, monetary and fiscal policies need ideal co-ordination for macroeconomic management.
  • If the central bank pursues its monetary objectives by not accommodating debt financing in its strategy, the macroeconomic outcome may be worse for both the fiscal and monetary authorities, as well as for the economy.
  • Fortunately, the RBI and government have worked in perfect harmony during the pandemic.
  • As it continues, we can have a stable interest rate regime which will be rewarding for all, particularly the government.

Conclusion

The Union Budget for FY22 is a budget to consolidate (C), spend (S) and revive (R) and shows that the government is set for fiscal push. Now, the baton has passed to the RBI.


Back2Basics: What Is the Incremental Capital Output Ratio (ICOR)?

  • The incremental capital output ratio (ICOR) is a frequently used tool that explains the relationship between the level of investment made in the economy and the consequent increase in the gross domestic product (GDP).
  • ICOR indicates the additional unit of capital or investment needed to produce an additional unit of output.

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Government Budgets

The Budget bids goodbye to fiscal orthodoxy

Note4Students

From UPSC perspective, the following things are important :

Prelims level: Interest Rate-Growth Differential

Mains level: Paper 3- Departure from fiscal conservatism

A whopping fiscal deficit at 9.5% of GDP for FY21 highlights departure of India’s fiscal policy from the path of fiscal consolidation. The article highlights the issues related to such departure.

Important departure

  • With its fiscal deficit at 9.5% of GDP for FY21 and 6.8% in FY22 Budget for 2021-22 seems to signal “spend like there is no tomorrow”.
  • For well over a decade-and-a-half, we have tried attaining deficit targets set out in the Fiscal Responsibility and Budget Management (FRBM) Act (2003).
  • In this Budget, target of FRBM Act has not been adhered to.
  • The Budget thus marks an important departure from one of the key tenets of the Washington Consensus that was based on macroeconomic stability.
  • In previous years, Medium Term Fiscal Policy cum Fiscal Strategy Statement would give the indicators for the past two years as well as the projections for the next two years.
  • In this year’s Budget, the yearly projections are missing.
  • The Finance Minister has promised to introduce an amendment to the FRBM Act to formalise the new targets.

The theoretical basis for departure

  • The Economic Survey laid the groundwork for a departure from rigid adherence to fiscal consolidation. 
  • It has a quote from economist Olivier Blanchard, “If the interest rate paid by the government is less than the growth rate (IRGD), then the intertemporal budget constraint facing the government no longer binds.”
  • The “intertemporal budget constraint” means that any debt outstanding today must be offset by future primary surpluses.
  • The Survey argues that in India, the growth rate is higher than the interest rate most of the time. 
  • The Survey says that, in the current situation, expansionary fiscal policy will boost growth and cause debt to GDP ratios to be lower, not higher.

Key concerns

  • An important factor for adhering to the fiscal constraint in the past was the fear that the rating agencies would downgrade India if total public debt crossed, say, 10%-11% of GDP.
  • That is a risk that cannot be wished away unless the rating agencies have decided to toe the IMF-World Bank line on fiscal deficits.
  • Another concern is that a large fiscal deficit can fuel a rise in inflation.
  • A third concern is that, with the tax to GDP ratio not rising as expected, the sale of public assets has become crucial to reduction in fiscal deficits in the years ahead. This is a high-risk strategy.
  • A large-scale privatisation almost always involves substantial FDI.
  • In South East Asia and Eastern Europe, privatisation of banks meant a large rise in foreign presence in the domestic economies.

Consider the question “The Budget 2021-22 is characterised by its departure from the path of fiscal consolidation. Examine the theoretical basis for such departure. What are the key concerns?”

Conclusion

If the nation’s political economy came in the way of our meeting the FRBM targets, it is also likely to pose an obstacle to large-scale privatisation. A departure from fiscal orthodoxy is welcome. But the government needs to think of ways to make it more sustainable.


Back2Basics: Interest Rate Growth Differential

    • A key indicator of an economy’s long-run debt sustainability is the differential between interest paid on government debt and the economy’s nominal growth rate.
    • When the cost of raising debt is lower than the gross domestic product (GDP) growth rate, public debt comes with low fiscal costs.
    • In such a situation, the debt-to-GDP ratio of the economy declines as debts are rolled over.

 

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

Bringing transparency in Budget in agri-food sector

Note4Students

From UPSC perspective, the following things are important :

Prelims level: Union Budget

Mains level: Paper 3- Transparency in the Budget, bias towards subsidies and neglect of RD in allocation to agriculture sector

The article analyses the Union Budget and highlights the emphasis on transparency by showing the borrowing of the FCI and arrears of the fertiliser companies in the Budget.

Transparency in food subsidy and arrears of fertiliser industry

  • Year after year, a substantial part of the food subsidy was being put under the carpet by increasing the Food Corporation of India’s (FCI) borrowings.
  • The amount had crossed Rs 3 lakh crore.
  • The revised estimate (RE) for FY 2020-21 is 3.66 times the budgeted figure, indicating that almost all borrowings of FCI have been cleared.
  • This is indeed a historic step towards introducing transparency in the Union Budget.
  • The Budget also cleared off the fertiliser industry’s arrears.
  • Against the budgeted figure of Rs 71,309 crore for FY 2020-21, the revised estimate is Rs 1,33,947 crore, an increase of Rs 62,638 crore.

Neglect of R&D

  • From a policy perspective one must point to the huge bias towards subsidies as compared to investments, especially research and development.
  • The allocation for agri-R&D is a meagre Rs 8,514 crore in FY 2021-22 against a RE of Rs 7,762 crore in FY 2020-21.
  • The marginal returns in terms of agri-growth from expenditures on agri-R&D are almost five to 10 times higher than through subsidies.
  • India spends not even half of what a private global company like Bayer spends on agri-R&D — almost Rs 20,000 crore every year.
  • This is why growth momentum in agriculture remains subdued and India keeps spending on freebies with sub-optimal results.

Subsidies needs a rethink

1) Food subsidy

  • The FCI’s economic cost of rice is Rs 37/kg and of wheat about Rs 27/kg.
  • This economic cost is roughly 40 per cent higher than the procurement price.
  • This calls for giving the public distribution system’s beneficiaries the choice of direct cash transfers.
  • This could create a more diversified demand which, in turn, will support diversification in agriculture.
  • Further, in food subsidy, it is time to revise the issue prices for beneficiaries except for the antyodaya (most marginal) category.
  • Percentage of population covered by the food subsidy should be brought down to 40 per cent.

2) Fertiliser subsidy

  • Massive subsidisation of urea, to the tune of almost 70 per cent of its cost, is leading to its sub-optimal usage.
  • It is time to move towards direct cash transfers to farmers based on a per hectare basis and free up prices of fertilisers.
  • This will help reduce leakages and imbalance in NPK (nitrogen, phosphorus, potassium) usage and lead to efficiency, equity and environmental sustainability.

Consider the question “If one looks at India’s Union Budget, it is easy to notice huge bias towards subsidies and neglect of the research and development in agriculure in the allocation for agriculture sector. What are the implications of such bias?” 

Conclusion

Overall, the expenditure on agri-R&D needs to be doubled or even tripled in next three years, if growth in agriculture has to provide food security at a national level and subsidies on food and fertilisers need to be contained. At the same time, food subsidy and fertiliser subsidy needs rationalisation.

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Government Budgets

Budget is constructive, but lack of income support continues

Note4Students

From UPSC perspective, the following things are important :

Prelims level: Budget

Mains level: Paper 3- Lack of income support in the Budget

The article takes broad overview of the Budget and highlight the recovery led by the goverment spending.

Faster and sharper recovery

  • The economy has been recovering sharply and faster in the last two quarters than suggested by official growth numbers.
  • Official growth number remain based on antiquated year-on-year comparisons.
  • Comparisons from a year ago have a serious problem in that they depend on what happened four quarters earlier and tell us very little about growth momentum.
  • J.P. Morgan estimates suggest that, on a quarterly basis, India’s GDP plunged 25 per cent in the second quarter of 2020 and grew 21.5 per cent in the third quarter of the same fiscal year.
  •  This is a narrative markedly different from that portrayed by the official numbers.

What is the basis of optimis

  • The economy is likely to have grown another 10.5 per cent in the fourth and is expected to deliver a growth rate of negative 6.5 per cent for the full fiscal year and then rise by 13.5 per cent in FY 2022.
  • The basis of this optimism is two-fold.
  • First, by accident or design, India has managed to break the link between infection and mobility.
  • The second is the recent shift in the government’s fiscal stance.
  • After delaying for nearly six months, the government began to speed up spending in September.

Government spending to boost economy

  • With the economy recovering and the equity market surging, taxes and privatisation would reasonably be expected to rise.
  • The revenue increase could be used to reduce the deficit while keeping spending broadly at its current share of the Gross Domestic Product (GDP).
  • This would allow spending to grow 17-18 per cent, in line with the nominal GDP.
  • The choice really boiled down to where to spend.

Higher fiscal deficit

  • For this year, the Budget pegged the deficit at 9.5 per cent of GDP, much higher than market estimates of around 7 per cent and a 5 per cent-point rise over the previous year.
  • Instead of funding food procurement through off-balance-sheet borrowing by the Food Corporation of India (FCI), as has been the case in the last few years, this year’s Budget has rightly brought some of that spending back on its accounts.
  • Excluding subsidies and interest payments, the increase in the deficit is just 2 percentage points of GDP.

Continues lack of income support

  • In the details, while there is a welcome emphasis on public health, infrastructure projects, and on privatisation, the glaring omission is the continued lack of income support.
  • This lack of income support is important.
  • Underlying the strong headline recovery in growth, imbalances in the economy have widened significantly.
  • The scarring in the labour market is extensive and the likely damage to household and SME balance sheets substantial.
  • While a debt moratorium and other regulatory forbearance have concealed the extent of the damage, these measures simply postpone the eventual reckoning.
  • A key risk is that not only is medium-term growth impaired because of the scarring, but also that banks turn risk-averse and do not extend credit exactly when the recovery is expected to gather strength once mobility fully normalises.

Consider the question “While the Budget for 2021-21 rightly health, infrastructure and privatisation, the lack of income support could threaten the prospects of recovery. Comment.”

Conclusion

While the Budget is constructive and has helped to allay fears of excessive fiscal tightening, it did not go far enough to mitigate the tail risk that the current economic recovery does not turn into a “dead cat bounce”.

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Finance Commission – Issues related to devolution of resources

Municipal finance reform through Finance Commission recommendations

Note4Students

From UPSC perspective, the following things are important :

Prelims level: Finance Commission

Mains level: Paper 2- Transformation of financial governance of municipalities

Transforming the financial governance of India’s municipalities

  • Interim report of the Fifteenth Finance Commission of India (XV FC) indicates that it could fundamentally transform the financial governance of India’s municipalities.
  • Final report for FY 2021-22 to FY 2025-26 is expected to be tabled along with the forthcoming Budget 2021-22.
  • Building on the track record of previous finance commissions, the XV FC Commission has significantly raised the bar on financial governance of India’s municipalities in the interim report in at least four specific ways.

4 Provisions in the interim report

1) Increase in the outlay for municipalities

  •  It has set aside Rs 29,000 crore for FY 2020-21 and indicated the intent to raise the share of municipalities in the total grants’ of local bodies including panchayats gradually over the medium term, from the existing 30 per cent to 40 per cent.
  • This could result in the outlay over five years being in the range of Rs 1,50,000-Rs 2,00,000 crore compared to Rs 87,000 crore during the XIV FC period.

2) Ensuring financial accountability through conditions

  • Two very important entry conditions have been set for any municipality in India to receive FC grants:
  • 1) Publication of audited annual accounts.
  • 2) Notification of floor rates for property tax.
  • These two entry conditions lay strong foundations for financial accountability of municipalities and own revenue enhancement respectively.
  • Similarly, the Atmanirbhar Bharat Abhiyan links Rs 50,000 crore of additional borrowing limits for states to reforms in property taxes and user charges for water and sanitation.
  • There is also a thrust on municipal bonds and municipal finance reform conditions under AMRUT.

3) Distinguishing between million-plus urban agglomerations, and other cities

  • The XV FC has adopted an approach of distinguishing between million-plus urban agglomerations, and other cities.
  • This is well-founded, based on the pattern of urbanisation in India, where 53 million-plus urban agglomerations comprising 250-plus municipalities account for approximately 44 per cent of the total urban population.
  • The remaining 4,250-plus municipalities comprise 56 per cent of the total urban population.
  • Of the remaining 56 per cent, there is a “long tail” of approximately 3,900 municipalities with 33 per cent of the total urban population.
  • The XV FC has now provided for 100 per cent outcome-based funding of approximately Rs 9,000 crore to 50 million-plus urban agglomerations (excluding Union Territories) with specific emphasis on air quality, water supply and sanitation and basic grants to the rest of the cities, with 50 per cent of the end-use tied to water supply and sanitation.
  • For the first time, there is also an acknowledgement of the metropolitan area as a unified theatre of action to solve complex challenges of air quality, water and sanitation, with implicit emphasis on inter-agency coordination.

4) Common digital platform for municipal accounts

  • The report recommends a common digital platform for municipal accounts, a consolidated view of municipal finances and sectoral outlays at the state level, and digital footprint of individual transactions at source, the FC has broken new ground and demonstrated farsightedness.

Role of the state governments

  • The ultimate responsibility for municipal finance reforms remains with state governments.
  • Constitutional bodies such as the finance commission can, at best, prepare the ground and provide incentives and disincentives.
  • We need municipal legislation to reflect progressive and enabling financial governance of our cities through five reform agendas:
  • 1) Fiscal decentralisation including strengthening state finance commissions.
  • 2) Revenue optimisation to enhance own revenues.
  • 3) Fiscal responsibility and budget management to accelerate municipal borrowings.
  • 4) Institutional capacities towards an adequately skilled workforce.
  • 5) Transparency and citizen participation (for democratic accountability at the neighbourhood level).
  • The first step needs to be predictable fiscal transfers from state governments to municipalities and other civic agencies on a formula-based approach as against the present practice of ad hoc, discretionary grants.
  • State finance commissions would need to emulate the XV FC and its predecessors, and emerge as credible institutions.
  • State governments need to ensure that state finance commissions are constituted on time, resourced right, and their recommendations taken seriously.

Consider the questions “Financial governance of our cities faces several challenges. Discuss the reforms that could transform the financial governance of municipalities”

Conclusion

The state government must act on these reform agenda and ensure the transformation of financial governance of their municipalities.

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How PFMS is ensuring transformation via digital inclusion

Note4Students

From UPSC perspective, the following things are important :

Prelims level: PFMS

Mains level: Paper 2- Role of PFMS in improving governance

The article highlights the role played by the Public Financial Management System (PFMS) in promoting the good governance.

About PFMS

  • With the objective of bringing in transformational accountability and transparency and to further promote good governance, the Indian government envisioned Public Financial Management System (PFMS).
  • PFMS has evolved as an end to end solution for Processing, Monitoring, and reconciling financial flows of Central Govt.
  • Today, PFMS has empowered governance to become more responsive, accountable, and transparent.

Mandate of PFMS

  • Through Cabinet decision, PFMS has been mandated the following:
  • It acts as a financial management platform for all plan schemes and allows for efficient and effective tracking of fund flow to the lowest level of implementation for the planning scheme of the Government.
  • It is mandated to provide information on fund utilization leading to better monitoring, review, and decision support system to enhance public accountability in the implementation of plan schemes.
  • To result in effectiveness and economy in Public Finance Management through better cash management for Government transparency in public expenditure and real-time information on resource availability and utilization across schemes.

Achievements of PFMS

  • PFMS can be credited to the transformation of Direct beneficiary transfers space in financial governance in India.
  • An estimated 102 crore DBT transactions were done through PFMS in FY 19-20 amounting to about 2.67 lakh crore.
  • Through efficient use of technology, PFMS is estimated to have saved about 1 lakh crore in direct beneficiary transfers.

4 Factors that could determine the successful evolution of PFMS in future

  • Agility in terms of Onboarding/Integrating all Govt. accounts: Only after ensuring significant coverage, the true execution of the concept will take place.
  • Effective data management capabilities: PFMS will have to add significant data management capabilities in order to ensure better monitoring/review to deliver on the idea of a decision support system for effective cash management or management of idle float in the system.
  • Constantly upgrading: Adaption to rapid changes in technology is another key area that would call for a considerable amount of focus both in terms of gradation and monitoring.
  • Collaboration with the banking system: Lastly, one of the most critical factors for the successful execution of PFMS is its integration with the banking systems.
  • The Banks and PFMS will have to actively partner to ensure faster coverage/integration of all the Govt. entities.

Consider the question “Governance in India has long been marred with structural challenges like transparency, lack of accountability and sustainable and inclusive growth. In light of this, discuss the role played by the Public Financial Management System in tackling these challenges.” 

Conclusion

The PFMS has revolutionized the ways public finances are managed in the country. With constant improvement and increasing coverage, the scope of PFMS is ever-increasing. Going ahead, PFMS will not only be seen as a tool for managing planned expenditure but will also add new meanings to Direct Beneficiary transfers, data-driven cash management, and e-Governance in India.

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Government Budgets

An overview of Economic Survey 2020-21

Note4Students

From UPSC perspective, the following things are important :

Prelims level: Terms used in Economic Survey

Mains level: Paper 3- Overview of the Economic Survey 2020-21

The pandemic has been leaving its imprint various aspects of our lives and Economic Survey is no different. This year’s Economic Survey focuses on the recovery path of the economy disrupted by the pandemic. The article takes an overview of the survey and also mentions the missing areas.

Focus on a recovery path

  • The Economic Survey analyses the broad trends at the macro level and the profiling of the initiatives across various economic activities.
  • This year, the Economic Survey focuses on the recovery path after initial derailment and the losses suffered by the Indian economy due to the pandemic.
  • The recovery is expected to follow a V-shaped path.
  • The Survey advocates countercyclical fiscal policies based on the premise that growth leads to debt sustainability.
  • The Survey brings together various relevant factors that have both a short and long-term impact on the economy and the budget.
  • This year’s Survey focuses on enhanced public healthcare spending and demonstrates how effective it has been in slashing out-of-pocket expenditures in the recent past.
  • It also shows the brilliant performance under the Pradhan Mantri Jan Arogya Yojana (PM-JAY) and the improved outcomes in states that have implemented the programme.
  • With focus on basic needs, the Survey has brought back national attention on the fundamental developmental paradigm.
  • The idea of analysing inequalities in times of recovery is a reassuring premise to move on with.

Comparison with past Economic Surveys

  • If we consider the last two Economic Surveys, the introduction of new concepts and approaches has been quite evident.
  •  In the Survey for 2018-19, the idea of “nudge” helped provide recognition of the importance of social behaviour change for any policy to succeed.
  • This led to the adoption of transformative approach in the Swachh Bharat Mission and Beti Bachao Beti Padhao initiative that integrated behavioural insights.
  • Another powerful idea has been using technology to run and monitor welfare schemes.
  • The Economic Survey 2019-20 talked overwhelmingly about the importance of wealth creation, entrepreneurship, and financial markets in the economic development.

What the Survey misses

  • The Survey should have focussed on a new narrative for trade.
  • Apart from explaining the missing value chains and integration with South and Southeast Asia, the survey should have analysed the high cost of tariffs when 38 per cent of our exports are import-dependent.

Consider the question “In the wake of economic disruption caused by the pandemic, India needs a new narrative for trade. However, India faces the challenge of missing value chains and lack of integration with South and Southeast Asia. In light of this, suggest the policies India should adopt as new narrative for trade.

Conclusion

Besides trade, FDI inflows and the accumulation of foreign exchange reserves has been remarkable this year. It is expected that India will emerge as an important link in the global value chain sector which has been visibly disrupted by the pandemic

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Important Judgements In News

POCSO Act

Note4Students

From UPSC perspective, the following things are important :

Prelims level: POCSO Act

Mains level: Paper 2- Interpretation of Section 7 of POCSO Act

In a recent judgement, Section 7 of POCSO Act was interpreted in a controversial way by the Nagpur Bench of the Bombay High Court. 

Issue of the definition of sexual assault under POCSO Act

  • Recently, the Nagpur Bench of the Bombay High Court held that skin-to-skin contact is essential to constitute the offence defined under Section 7 of the Protection of Children from Sexual Offences Act, 2012 (POCSO Act).
  • Section 354 of the Indian Penal Code, 1860, which deals with outraging modesty of women and which provides for a lesser sentence, was held to be applicable in such cases.
  • This ruling raises several concerns.
  • The National Commission for Protection of Child Rights had asked the Maharashtra government to appeal this decision in the Supreme Court.
  • The Supreme Court has currently stayed the acquittal of the accused under this judgement.

Concerns with the judgement

  • The Court held that the stringent nature of punishment provided for the offence required stricter proof and serious allegations.
  • The court said the punishment should be proportionate to the seriousness of the crime.
  • Nevertheless, while adjudging the seriousness of the offence the court has not given consideration to the fact that the victim, a minor, is entitled to greater protection.
  • The major concern is that the interpretation of the court seems to defeat the purpose of the POCSO Act.
  • Section 7 of POCSO defines sexual assault as “Whoever, with sexual intent touches the vagina, penis, anus or breast of the child or makes the child touch the vagina, penis, anus or breast of such person or any other person, or does any other act with sexual intent which involves physical contact without penetration is said to commit sexual assault.”
  •  The court has concluded that the touching of the breast without skin-to-skin contact is not similar to the abovementioned acts and, therefore, does not fall within this definition.
  • The court seems to have followed a rather pedantic approach to reach this conclusion.
  • The fact that the trauma of the child whose breasts were groped through a cloth could be of the same nature and severity as direct touching of the breast is not discussed.
  • And if the trauma is the same, the mere existence of cloth should not affect the applicability of the POCSO Act.

Legislative history and object of POCSO Act

POCSO Act

  • The POCSO Act was enacted with the specific intention of protecting children from sexual assault and sexual harassment.
  • It took into consideration the standards prescribed by the Convention on the Rights of the Child adopted by the General Assembly of the United Nations to which the Indian government acceded to on December 11, 1992.
  • The Act acknowledges the special vulnerability of children and that special protection, above and beyond that provided in the IPC, is required when the victim is a child.

Conclusion

If such an interpretation is followed, there is a threat that the POCSO Act in itself might become redundant as a wide range of sexually violative activities would be excluded from its ambit due to lack of skin-to-skin contact.

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Net Neutrality & The Debate Around It

Global antitrust and the challenge of Big Tech

Note4Students

From UPSC perspective, the following things are important :

Prelims level: Positive Externality

Mains level: Paper 3- Challenge of Big Tech

The article deals with the issue of checking the misuse of monopoly power by the Big Tech while encouraging their positive externalities.

Worldwide Investigations against Big Tech

  • Big Tech firms, especially Facebook and Google have been investigated worldwide, including in the European Union and the United States, on the abuse of monopolistic power.
  •  Comparisons are drawn with investigations in the U.S. on the telecom industry and the break-up of the AT&T.
  • However, there are important differences this time around.
  •  First, the information good that is being provided by the Internet firms of today, is largely non-rival.
  • Second, Internet firms operate globally, therefore, it is often difficult to lay down international rules of obligation and fulfilment.
  • Third, while it is debatable whether the goods and services provided by the Internet firms are excludable.
  • It is this factor that was leveraged by the Internet firms to provide search, navigation, and social connectivity with no charge to the consumers, and, consequently, making these services non-excludable.

Monetisation model of Big Techs and isseus with it

  • Public goods should be provided by governments, but the information goods as described above are being provided by private firms.
  • This arrangement poses several problems.
  • First, private firms need to have monetisation models to cover the costs of providing their services.
  • So,  the Internet firms have resorted to personalised advertisements and third-party sharing of the personal data of their users for monetisation purposes.
  • Second, the strong network effects present in these Internet platforms warrant increasing the subscriber base and garnering as much market share as possible.
  • This results in near-monopoly of some firms in their defined markets.
  • These firms may resort to anti-competitive behaviour including acquiring rivals to vertically integrate; erecting entry barriers by refusing to interconnect and inter-operate with competing firms, and leveraging their capital base, thereby engaging in predatory pricing, and driving out competitors.

Positive externalities and consumer surplus

  • Network effects create a huge consumer surplus.
  • Even without our knowledge, these Internet firms have now become an indispensable part of our lives.
  • There are positive externalities as well, for example, Google Maps Application Program Interface (APIs) is being used by almost all logistic transand port companies.
  • Facebook APIs are used for advertisement by almost all firms across the industry.
  • Google, recently announced that its Search is being expanded to provide accurate and timely information on vaccine distribution to enable quick recovery from the COVID-19 pandemic.

Challenge of regulation

  • The question before policymakers is how to regulate these Internet firms from abusing their monopoly power while encouraging the positive externalities and consumer surplus they create.
  • It is often very difficult to prove that the firms engage in the abuse of their monopoly power.
  • Due to strong network effects, it is not possible to ban or curtail these services.

Way forward

  • A traditional view is to subsidise the good that creates positive externalities.
  • Governments can provide tax subsidy to these Internet firms in return for their orderly behaviour in the marketplace.
  • Governments could explore mandating sharing of Non-Personal Data (NPD) owned by these firms for societal and economic well-being as pointed out in the expert committee on NPD.
  • The other way to control any abusive behaviour of the Internet firms is to use the power of public voice.
  • The huge public outcry and subsequent government actions have delayed the recent changes to privacy policy relating to the sharing of personal information between WhatsApp and its parent firm, Facebook.

Consider the question “Services provided by the Internet firms have become indispensable part of our life, this leads to the problem of checking their monopoly power while encouraging their positive externalities and consumer surplus. In light of this, discuss the challenges posed by the Big Techs and suggest the ways to deal with them.”

Conclusion

While governments and regulators deal with these dilemmas the Internet firms should adhere to core ethical principles in conducting their businesses as firms that aim at super monopoly profits and are greedy to become powerhouses of the world, often end up in the ditch.


Back2Basics:What is positive externality

  • A positive externality exists if the production and consumption of a good or service benefits a third party not directly involved in the market transaction.
  •  For example, education directly benefits the individual and also provides benefits to society as a whole through the provision of more informed and productive citizens.

What is Network Effect

  • The network effect is a phenomenon whereby increased numbers of people or participants improve the value of a good or service.
  • The Internet is an example of the network effect. Initially, there were few users on the Internet since it was of little value to anyone outside of the military and some research scientists.
  • However, as more users gained access to the Internet, they produced more content, information, and services.
  • The development and improvement of websites attracted more users to connect and do business with each other.
  • As the Internet experienced increases in traffic, it offered more value, leading to a network effect.

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Government Budgets

Keep the wheels of economic recovery turning

Note4Students

From UPSC perspective, the following things are important :

Prelims level: New Monetary Framework

Mains level: Paper 3- Economic recovery and challenges ahead

Ahead of the Budget, the article discusses the status of Indian economy and suggests the measures to be adopted in the budget to speed up the recovery.

Estimates of damages and signs of economic recovery

  • The first advance estimates of national income published on January 7 project a contraction of 7.7% for real GDP.
  • The Q2 GDP estimates published by the National Statistical Office had suggested an economic recovery in India.
  • An improvement in the rate of contraction from 23.9% in Q1 to 7.5% in Q2 was seen as the beginning of a sustained recovery.
  • The Ministry of Finance, in its Monthly Economic Review highlighted it as signifying a ‘V’ shaped recovery and as a reflection of the resilience and robustness of the Indian economy.
  • The Monetary Policy Statement of the Reserve Bank of India (RBI) released on December 4, 2020 also projects positive growth in the remaining quarters of the financial year.

State of the economy before pandemic

  • Growth rate of the economy had collapsed from 8.2% in Q4 of 2017-18 to a mere 3.1% in Q4 of 2019-20, sliding continuously for eight quarters.
  • The policy stance against this backdrop was premised on the hope that private corporate investment will pick up momentum sooner than later.
  • The RBI did the heavy lifting through five consecutive lowering of repo rate along with liquidity infusion programmes.
  • However, monetary-fiscal linkages are crucial to catalyse the demand.

Crucial role played by the RBI

  • While being cautious of inflation, the RBI has decided to continue the accommodative stance in its latest monetary policy to support growth.
  • The CPI inflation after crossing 7% has cooled off to 4.6% in December.
  • Still, the real interest rates remain very low.
  • The efficacy of the new monetary framework (NMF) — the agreement between the RBI and Government of India in February 2016 to adopt inflation targeting in India — will be reviewed in March 2021, and we flag the need for revising the framework.
  • The RBI is continuing its liquidity infusion programmes including the on-tap Targeted Long Term Repo Operations (TLTRO).
  • This programme announced on October 9, 2020 for five stressed sectors has been extended to 26 stressed sectors notified under the Emergency Credit Line Guarantee Scheme (ECLGS 2.0).
  • The RBI is also continuing its ‘operation twist’  with Open Market Operations (OMO) of ₹10,000 crore scheduled for December 17, 2020.
  • Nevertheless, the RBI Governor has rightly pointed out that the signs of recovery are far from being broad-based.

Stimulus for targeted state intervention

  • According to the International Monetary Fund’s Fiscal Monitor Database of Country Fiscal Measures, the fiscal stimulus for India is 1.8% of GDP.
  • The IMF, in its Fiscal Monitor, highlights the need to scale up public investment to ensure successful reopening, boost growth and prepare economies for the future.
  • What we need is stimulus not based on “business cycle” but from the perspective of much needed targeted state interventions in public health, education, agriculture and physical infrastructure, and to redress widening inequalities.
  • As private final consumption expenditure is sluggish, contracting 26.7% and 11% in Q1 and Q2, respectively, a “fiscal dominance” is expected in India for sustained economic recovery.
  • However, India cannot afford fiscal stimulus at the rates of advanced economies, due to a lack of fiscal space.

Way forward

  • Plummeting private corporate investment in India is a matter of concern.
  • The fear of financial crowding out emanating from high fiscal deficit is misplaced in the context of India.
  • Economic recovery will be determined by the degree of containment of the pandemic and the sustained macroeconomic policies.
  •  Any abrupt withdrawal of ongoing economic policy support, both by the monetary and fiscal authorities, will be detrimental to growth in times of the pandemic.
  • The fiscal rules at the national and subnational government levels need to be made flexible.

Consider the question “Recovery of Indian economy battered by the pandemic has not been complete. Suggest the fiscal measure to be adopted by the government to speed up the recovery.”

Conclusion

The fiscal stimulus needs to continue in FY 2021-22 to speed up India’s recovery along with the measures suggested above.

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