Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much
Mains level: Paper 3- Floods in Uttarakhand and its mitigation
The article explains the relationship between development activities in Uttarakhand and the devastating floods.
Cause of recent flash flood in Uttarakhand
- According to Planet Labs, ice along with frozen mud and rocks fell down from a high mountain inside the Nanda Devi Sanctuary, from a height of 5,600 m to 3,300 m.
- This created an artificial lake within the sanctuary in Rontigad, a tributary of Rishi Ganga.
- Within eight hours, this lake burst open and its water, laden with mud and stones, rushed through the Rishi Ganga gorge which opens near Reni.
- Studies say that the current winter season has seen little rain and snow, with temperatures being highest in the last six decades.
- So, the effects of chemical weathering were much more active in the higher Himalayas.
- There is a possibility of more such events this year.
Factors responsible
1) Development with no regard for the environment
- As a mountain system, the Himalayas have had earthquakes, avalanches, landslides, soil erosion, forest fires and floods, and these are its natural expressions, parts of its being.
- Except for earthquakes, humans have directly contributed towards aggravating all the other phenomena.
- The Ravi Chopra committee formed by the SC recommended closure of all the 24 hydro projects in question by Wildlife Institute of India.
- The SC also formed another committee to look at the impact of the Chaardham road project.
- Road and hydro projects are being operated in the Himalayas with practically no rigorous research on the ecological history of the area, cost-benefit analysis and many other aspects including displacement of communities, destruction of biodiversity, agricultural land, pastures as well as the cultural heritage of the area.
Dilution of Environmental Impact Assessment rules
- Earlier, while independent experts carried out the Environmental Impact Assessment (EIA), today it is assigned to a government agency, which does the work for other government departments.
- Furthermore, during the lockdown, the government changed the EIA rules and diluted labour laws (most of the workers in both the affected projects belong to unorganised sector) in the name of pandemic measures.
2) Climate change
- Another factor which cannot be overlooked is that of climate change.
- Studies have suggested that the pace of this change is faster in mountains and fastest in the Himalayas.
- While earthquakes and weathering work at their own pace, climate change can contribute towards altering their natural speed.
Need for studying the 2013 calamity
- We can look back at the terrible calamity of 2013, and see how it washed away the encroachments in river areas-dams, barrages, tunnels, buildings, roads.
- The communities paid a much heavier price than what they received in compensation.
- Further, the 2013 calamity has to be studied and understood in all the other regions and river valleys of Uttarakhand, Western Nepal and Himachal.
- It was not specific to Kedarnath, although much of the focus was directed there.
- Till date, we don’t have any white paper on this calamity.
- The India Meteorological Department failed in its prediction and wrongly announced at the end of the first week of June that the monsoon will reach Uttarakhand by June 27-28.
- It reached on June 16-17 with 300-400 per cent more rain, a record never heard of before.
- 24 big and small hydro projects were destroyed.
- The muck created by these projects was also the cause of their destruction.
- The road debris, always dumped in rivers, was another cause.
- The smaller rivers were more aggressive in 2013.
Consider the question “What are the factors responsible for the devastating floods in the Uttarakhand? Suggest the measures for disaster mitigation.”
Conclusion
The Himalayas have been giving us life through water, fertile soil, biodiversity, wilderness and a feel of spirituality. We cannot and should not try to control or dictate the Himalayas.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: IT Act
Mains level: Paper 2- Section 69A of IT Act and issues with it
What is the faceoff about
- Recently, Indian government issued direction to Twitter, ordering it to shut down user accounts connected with farmers’ protests.
- The government has to exercise powers under Section 69A of the Information Technology Act to block user accounts critical of the farm bills.
- The accounts which were sought to be censored are back online.
- This is due to Twitter’s evident refusal to comply with the directions after a constitutional appraisal.
- It has, as per press statements, cited the doctrine of proportionality in its defence.
Concerns with the directive
- This direction presents a clear breach of fundamental rights but also reveals a complex relationship between the government and large platforms on the understanding of the Constitution of India.
- The specific legal order issued is secret.
- This brings into focus the condition of secrecy that is threshold objection to multiple strands of our fundamental rights.
- It conflicts against the rights of the users who are denied reasons for the censorship.
- Secrecy also undermines the public’s right to receive information, which is a core component of the fundamental freedom to speech and expression.
- This is an anti-democratic practice that results in an unchecked growth of irrational censorship but also leads to speculation that fractures trust.
- The other glaring deficiency is the complete absence of any prior show-cause notice to the actual users of these accounts by the government.
- This is contrary to the principles of natural justice.
- This again goes back to the vagueness and the design faults in the process of how directions under Section 69A are issued.
Constitutionality of Section 69A of IT Act
- The secrecy clause represents a failure on the part of the Union executive, which framed the process for blocking websites in 2009.
- he Supreme Court also failed to substantively examine the clause.
- This is despite the opportunity offered by its celebrated judgment Shreya Singhal v. Union of India, when it struck down Section 66A of the IT Act as unconstitutional.
- At the same time, the court stated in Shreya Singhal, that an aggrieved party could approach a court for remedy if their website or user account was blocked under Section 69A.
- More recently, the court, when adjudicating the constitutional permissibility of the telecommunications shutdown in Jammu and Kashmir by its judgment in Anuradha Bhasin v. Union of India directed pro-active publication of all orders for internet shutdowns.
- After this, a decent argument may be made that directions for blocking now need to be made public.
- However, several state governments are actively refusing compliance on the publication of orders on internet shutdowns.
Consider the question “Use of Section 69 of the IT Act to suspend the account of the users on a social media platform has raised concern. Examine these concerns.”
Conclusion
The episode leaves a sense of confusion and wonder about why our own government formed under the Constitution may be failing to fulfil its obligations when strangers who trade in our data for profit are seemingly more eager.
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From UPSC perspective, the following things are important :
Prelims level: Glacial burst
Mains level: Paper 3- Floods in Uttarakhand and steps need to be taken to deal with such disasters
The article discusses the factors that could explain the cause of the recent flash floods in Uttarakhand and suggest the immediate steps to deal with such disasters.
What makes Uttarakhand vulnerable
- Days after a glacier burst in the Chamoli district of Uttarakhand caused flash floods, the scientific community is still struggling to understand what triggered the disaster.
- Uttarakhand is located in the midst of young and unstable mountains and is subject to intense rainfall.
- For years experts have voiced their fears about an impending disaster due to climate change, rapid and indiscriminate construction activities, and the subsequent ecological destruction in the region.
- Studies have shown that widespread settlements, farming, cattle grazing and other anthropogenic activities could destroy the natural barriers that control avalanches and floods, thereby enhancing the possibilities of a glacial lake outburst flood.
- The Hindu Kush Himalaya Assessment Report (2019) had pointed out that one-third of the Hindu Kush Himalaya’s glaciers would melt by 2100 and potentially destabilise the river regime in Asia, even if all the countries in the region fulfilled their commitments under the Paris Agreement.
Possible causes of the current glacial outburst
- The current glacier burst was loosely attributed to erosion, a build-up of water pressure, an avalanche of snow or rocks, landslides or an earthquake under the ice.
- A rock mass, weakened from years of freezing and thawing of snow, may have led to the creation of a weak zone and fractures leading to a collapse that resulted in flash floods.
Issue of construction activity
- Experts and activists have incessantly asked for scrutiny into the construction of hydroelectric power projects in Uttarakhand.
- There have also been allegations about the use of explosives in the construction of dams and other infrastructure.
- In 2014, an expert committee led by Dr Ravi Chopra, instituted to assess the role of dams in exacerbating floods, provided hard evidence on how haphazard construction of dams was causing irreversible damage to the region.
7 Immediate steps
- 1) Investing in resilience planning, especially in flood prevention and rapid response.
- 2) Climate proofing the infrastructure such as by applying road stabilisation technologies for fragile road networks and strengthening existing structures like bridges, culverts and tunnels.
- 3) Strengthening embankments with adequate scientific know-how
- 4) Reassessing development of hydropower and other public infrastructure.
- 5) Investing in robust monitoring and early warning system.
- 6) Establishing implementable policies and regulatory guidelines to restrict detrimental human activities, including responsible eco- and religious tourism policies.
- 7) Investing in training and capacity building to educate and empower local communities to prevent and manage risks effectively.
Consider the question “What are the factors that make Uttarakhand vulnerable to natural disasters? Suggest the measures to prevent and deal with the disasters”
Conclusion
India needs to urgently rise up to the challenge by applying innovative and inclusive solutions that support nature and marginalised communities, to restore and rebuild a resilient future for Uttarakhand.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much
Mains level: Paper 2- Foreign policy challenges India faces
The article explains the various choices India faces in the geopolitical landscape shaped by emergence of two Asian giants.
New challenges and hard choices on geopolitical front
- As it moves to becoming the third largest economy in the world, India needs to have a clear-eyed world view and strategy as it makes hard choices.
- It needs to reject the developing country regional mindset that has shaped India’s national aims and foreign policy.
- We have a “special and privileged strategic partnership” with Russia which provides more than three-quarter of India’s military equipment and a “comprehensive global strategic partnership” with the U.S.
- India’s relationship with the U.S.-led Quadrilateral Security Dialogue (Quad), where the others are military allies, has rightly been cautious, as U.S. President Joe Biden sees China as a ‘strategic competitor’ rather than a ‘strategic rival’.
- Realism dictates that India does not need to compromise on its strategic autonomy.
- India faces two sides of the China conundrum: Defining engagement with its neighbour which is consolidating an expanding BRI while remaining involved with the strategic, security and technological concerns of the U.S.
China’s dominance in financial sphere
- In the financial sphere, there is the real possibility of the Chinese renminbi becoming a global reserve currency or e-yuan becoming the digital payments currency.
- China is the world’s largest trading economy.
- It could soon become the world’s largest economy.
- China has stitched together an investment agreement with the EU and with most of Asia.
- Relative attractiveness will determine when the dollar goes the way of the sterling and the guilder.
- China, facing technological sanctions from the U.S., may well put in the hard work to make this happen soon.
China: Partner, competitor, and economic rival
- Some form of the EU’s China policy of seeing the emerging superpower as a partner, competitor, and economic rival depending on the policy area in question is going to be the global norm.
- This broad perspective is also reflected in India’s participation in both the Shanghai Cooperation Organisation, designed to resist the spread of Western interests, and in the U.S.-led Quad, with its anti-China stance.
- Within the United Nations, India’s interests have greater congruence with China’s interests rather than the U.S.’s and the EU’s.
- Sharing the COVID-19 vaccine with other countries distinguishes India, and China, from the rest.
India’s engagement with the U.S.
- The congruence between India and the U.S. lies in the U.S.’s declared strategic objective of promoting an integrated economic development model in the Indo-Pacific as a credible alternative to the BRI, but with a caveat.
- Instead of an alternate development model, India should move the Quad towards supplementing the infrastructure push of the BRI in line with other strategic concerns in the region.
- For example, developing their scientific, technological capacity and digital economy, based on India’s digital stack and financial resources of other Quad members, will resonate with Asia and Africa.
India’s role in global governance
- Another area where India can play a ‘bridging role’ is global governance.
- President Xi Jinping’s “community with shared future for mankind”, and Prime Minister Narendra Modi’s “climate justice” and asking how long India will be excluded from the UN Security Council, challenge the frame of the liberal order without providing specific alternatives.
- With respect to digital data, India has recently expressed that there must be reciprocity in data sharing, and this is the kind of ‘big idea’ for sharing prosperity that will gain traction with other countries.
India’s growing influence
- India’s recent policies are gaining influence at the expense of China and the West, and both know this trend will accelerate.
- The steps to a $5 trillion economy, shift to indigenous capital military equipment, and a new Science, Technology and Innovation Policy underline impact, capacity and interests.
- ASEAN remains keen India re-join its trade pact to balance China.
- It is being recognised that India’s software development prowess could shape a sustainable post-industrial state different to the U.S. and China model.
Consider the question “Examine how India’s foreing policy priorities and its role in global governance is shaped by China’s rise.”
Conclusion
As in the historical past, Asia is big enough for both Asian giants to have complementary roles, share prosperity and be independent of each other and of the West.
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From UPSC perspective, the following things are important :
Prelims level: National Rail Plan in the Budget
Mains level: Paper 3- National Rail Plan
The Budget unveiled the National Rail Plan 2030.
Key provision in the Budget for railways
- First, there is a National Rail Plan (NRP) for 2030.
- Second, the Western dedicated freight corridor (DFC) and the Eastern DFC will be commissioned by June 2022.
- Parts of DFC will be in public-private partnership (PPP) mode.
- Third, there will be an East Coast corridor (Kharagpur to Vijaywada), an East-West corridor (Bhusaval to Kharagpur/Dankuni) and a North-South corridor (Itarsi to Vijayawada).
- Fourth, all broad-gauge routes will be electrified by December 2023.
- Fifth, there will be safety and passenger amenity measures.
National Rail Plan provisions
- The NRP is meant to increase the share of railways in freight, rectifying the pre-Independence and post-Independence bias
- It also aims to develop capacity that will cater to demand in 2050.
- It provides for mapping of the existing railway network on a GIS platform.
- The primary value addition of the NRP is an analysis of the existing network, with expected additions (such as the National Infrastructure Pipeline) also built in.
- NRP bases decision making on objective criteria.
Pricing and cross-subsidy issue
- In 2018-19, as per the NRP, India’s operating ratio (OR) was 0.59 for freight and 1.92 for passenger traffic.
- The problem is low passenger fares and artificially high freight rates required to cross-subsidise those.
- This is not the complete picture since normally, freight and passenger trains share common sections of track and passenger trains are given preference over goods trains in getting a path (route from point A to point B).
- Therefore, the average speed of a freight train is 24 km/hour — average speed is a surrogate indicator.
- A superior indicator is transit time — the time taken for a consignment to reach from one point to another.
Need for decreasing the cost and increasing the average speed
- Indian Railways has a system of HDN and HUN identification for the present network.
- HDNs are high-density routes.
- HUNs are highly-used networks with multiple origins and destinations and no clear single haul corridor.
- HUNs are primarily for passengers.
- For freight, HDNs are important.
- HDNs and HUNs carry 80 per cent of the traffic and there are sections where capacity utilisation is more than 100 per cent.
- With traffic increasing, capacity utilisation will worsen.
- If the intention is to increase rail share in the total freight carried to 44 per cent, the average speed must increase and costs must decline.
- With the Western and Eastern DFCs, both should happen.
Consider the question “What are the factors responsible for preventing the railways from realising its contribution in the development of the country. How far will the National Rail Plan help railways deal with these factors?”
Conclusion
The implementation of the NRP will help railways deal with the issues faced by it.
Back2Basics: Operating Ratio
- The operating ratio shows the efficiency of a company’s management by comparing the total operating expense of a company to net sales.
- An operating ratio that is decreasing is viewed as a positive sign, as it indicates that operating expenses are becoming an increasingly smaller percentage of net sales.
OR = (Operating Expenses + Cost of Goods Sold)/ Net sales
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From UPSC perspective, the following things are important :
Prelims level: Judicial scrutiny of the laws
Mains level: Paper 2- Need for strict scrutiny of the laws by the Parliament
Farmers’ protests against the farm laws and staying of implementation of these laws by the judiciary have once again brought into focus the process followed in the passage of laws by the parliament. This article highlights the importance of parliamentary committees.
Need for introspection on the role of parliament
- The Supreme Court’s order on the farm laws staying their implementation crossed the line of separation between the legislature and judiciary.
- The order should trigger introspection in Parliament.
- Since 2019, the constitutionality of statutes passed by it, like the abrogation of Article 370, the Citizenship Amendment Act and recently the farm laws, has been challenged before the SC.
- The highest lawmaking body should be asking itself whether it rigorously scrutinises the constitutionality of bills.
Three mechanisms to examine the constitutionality
- Parliament has three mechanisms for examining whether a government bill adheres to constitutional principles.
- First, any member of the Parliament can oppose the introduction of a bill by stating that it initiates legislation outside the legislative competence of the Parliament.
- Second, MPs also get an opportunity to discuss a bill’s constitutionality while debating it in the Lok Sabha and Rajya Sabha.
- But on both these occasions, the strength of the argument does not determine the legislative outcome.
- The Parliament’s decision depends on the numbers that the treasury and opposition benches command on the house floor.
- Third, the opportunity for probing a bill’s constitutionality arises when a parliamentary committee is examining it.
Advantages of scrutiny of the bill by parliamentary committee
- The most important opportunity of the above mentioned three opportunities is scrutiny by the parliamentary committee.
- In the past too, the parliamentary committees have subjected the bills to strict scrutiny on the issue of constitutionality.
- For example, the committee examining the land acquisition bill 2011 was concerned about the bill infringing upon the state governments’ power.
- Similarly, during the deliberations on the Citizenship Amendment Bill 2016, the joint committee explicitly asked the government whether the bill would violate the spirit of Articles 14 and 25 of the Constitution.
- The committee process also has the advantage of drawing on constitutional expertise outside of the law ministry.
- The government has also fielded the attorney general to appear before parliamentary committees.
Weakness of parliamentary committee process
- Our parliamentary committee process has a fatal flaw.
- Government bills do not automatically go to committees for examination.
- Ministers get an option to refer their bill to a select committee, they often don’t exercise this option.
- While countries like Sweden and Finland pass their bills through two parliamentary committees.
- One committee looks at the technical aspects of a proposed law, and a specialised committee focuses on a bill’s constitutional validity.
Consider the question “Several laws passed by the government have been challenged before the judiciary on the ground of unconstitutionality. This highlights the importance of strict scrutiny of the bills by the Parliament. In light of this, examine the role played by the parliamentary committees in the scrutiny of the bills.”
Conclusion
Lack of robust scrutiny processes weakens Parliament’s image as the highest legislative institution and encourages judicial encroachment on its powers. After all, lawmaking should not be a mechanical stamping of the government’s legislative proposals but their careful examination by the Parliament.
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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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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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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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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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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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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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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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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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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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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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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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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
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- 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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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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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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