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  • FDI in Indian economy

    Holding transnational corporations accountable

    op-ed snap | Economics | Mains Paper 3: Indian Economy

    Note4Students

    From UPSC perspective, the following things are important:

    Prelims level: BIT

    Mains level: Paper 3- Using BITs to hold TNCs accountable

    Context

    Given the enormous power that transnational corporations (TNCs) wield, questions about their accountability have arisen often. There have been many instances where the misconduct of TNCs has come to light such as the corruption scandal involving Siemens in Germany.

    Holding TNCs accountable: Background

    • The effort was made at the UN to develop a multilateral code of conduct on TNCs.
    • However, due to differences between developed and developing countries, it was abandoned in 1992.
    • Role of BITs: Aim was to use international law to institutionalise the forces of economic globalisation, leading to the spread of BITs.
    • Asymmetry in BITs: These treaties promised protection to foreign investors under international law by bestowing rights on them and imposing obligations on states.
    • This structural asymmetry in BITs, which confer rights on foreign investors but impose no obligations, relegated the demand for investor accountability.
    • In 2014, the UN Human Rights Council established an open-ended working group with the mandate to elaborate on an international legally binding instrument on TNCs and other businesses concerning human rights.
    • Since then, efforts are being made towards developing a treaty and finding ways to make foreign corporations accountable.
    • The latest UN report is a step in that direction.

    UN report on human rights-compatible international investment agreements

    • The UN working group on ‘human rights, transnational corporations (TNCs) and other businesses’ has published a new report on human rights-compatible international investment agreements.
    • It urges states to ensure that their bilateral investment treaties (BITs) are compatible with international human rights obligations.
    • It emphasises investor obligations at the international level i.e., the accountability of TNCs in international law.

    Using BITs to hold TNCs accountable

    • BITs can be harnessed to hold TNCs accountable under international law.
    • The issue of fixing accountability of foreign investors came up in an international law case, Urbaser v. Argentina (2016).
    • Subjecting corporates to international law: In this case, the tribunal held that corporations can be subjects of international law and are under a duty not to engage in activities that harm or destroy human rights.
    • The case played an important role in bringing human rights norms to the fore in BIT disputes.
    • It also opened up the possibility of using BITs to hold TNCs accountable provided the treaty imposes positive obligations on foreign investors.
    • Recalibrating BITs: In the last few years, states have started recalibrating their BITs by inserting provisions on investor accountability.
    • Issues with BITs: However, these employ soft law language and are hortatory.
    • They do not impose positive and binding obligations on foreign investors.
    • They fall short of creating a framework to hold TNCs accountable under international law.

    Takeaways for India

    • The recent UN report has important takeaways for India’s ongoing reforms in BITs.
    • Best endeavour clauses not enough: India’s new Model BIT of 2016 contains provisions on investor obligations.
    • However, these exist as best endeavour clauses. They do not impose a binding obligation on the TNC.
    • Impose positive binding obligations: India should impose positive and binding obligations on foreign investors, not just for protecting human rights but also for imperative issues such as promoting public health.
    • The Nigeria-Morocco BIT, which imposes binding obligations on foreign investors such as conducting an environmental impact assessment of their investment, is a good example.

    Consider the question ” Ensuring that the bilateral investment treaties (BITs) are compatible with international human rights obligations in the need of the hour. In light of this, assess the progress made globally on this issue and suggest way forward for India in framing its BITs.”

    Conclusion

    Reforms would help in harnessing BITs to ensure the answerability of foreign investors and creating a binding international legal framework to hold TNCs to account.

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  • Insolvency and Bankruptcy Code

    EoDB at risk if issue of appointments to tribunals is not resolved

    op-ed snap | Economics | Mains Paper 3: Indian Economy

    Note4Students

    From UPSC perspective, the following things are important:

    Prelims level: NCLAT, NCLT

    Mains level: Read the attached story

    While hearing a challenge to the Tribunal Reforms Act, 2021, the Supreme Court came down heavily on the government of India for vacancies not being filled on time. This could severely impact the ease of doing business in India, said the court.

    Background

    • The government has lauded the role of the Insolvency and Bankruptcy Code, 2016 (IBC), for improving India’s ranking on the “Ease of Doing Business” index over the last couple of years.
    • However, the SC’s observation is spot-on as vacancies in the tribunals have slowed down insolvency resolution due to the huge pendency of cases.
    • When the SC made its observations, the NCLT had only 30 members against a total strength of 63.

    About NCLAT and NCLT

    • National Company Law Appellate Tribunal (NCLAT) was constituted under Section 410 of the Companies Act, 2013 for hearing appeals against the orders of National Company Law Tribunal(s) (NCLT) in 2016.
    • NCLAT is also the Appellate Tribunal to hear and dispose of appeals against any direction issued or decision made or order passed by the Competition Commission of India (CCI).
    • It is also the Appellate Tribunal to hear and dispose of appeals against the orders of the National Financial Reporting Authority.

    Difference between NCLT AND NCLAT

    NCLT

    NCLAT
    ·         NCLT is established as per Section 408 of companies act, 2013 ·         NCLAT is established as per Section 410 of companies act, 2013
    ·         It holds primary jurisdiction on cases of insolvency and bankruptcy ·         It holds appellate jurisdictions over the cases judged by NCLT
    ·         NCLT accepts and analyzes the evidence from creditors and debtors ·         NCLAT accepts and analyzes the decision made by NCLT
    ·         NCLT collects facts and evidences ·         NCLAT analyzes facts and evidences

    CJI’s reservations over Pendency

    • The NCLAT had a sanctioned strength of a chairperson plus 11 members but its functioning strength was of eight members.
    • Both the NCLT and NCLAT have been without chairpersons for several months respectively.
    • These vacancies are concerning because as of May 31, 13,170 insolvency petitions were pending before benches of the NCLT.
    • Of these, 2,785 petitions have been filed by financial creditors and 5,973 by operational creditors.

    Note: The IBC created an institution called an information utility to be the repository of information on debts and defaults in India.  The sole utility in India at present is the National E-Governance Services Ltd. (NeSL).

    Basis of these cases

    • The financial creditors are facing criticism for taking haircuts as high as 90 per cent against their claims.
    • A longer approval period would entail greater value erosion of a corporate debtor which would be an unattractive proposition for any prospective resolution applicant.
    • This uncertainty can be cured by a faster approval process by the NCLTs by the creation of more benches and filling up of current vacancies.

    Why is the Supreme Court fuming over vacancies?

    (a) Covid impact

    • The Indian economy is recovering from the adverse effects of the Covid-19 pandemic.
    • During the downturn, financial institutions and banks have suffered higher defaults than usual, impacting the robustness of the system.
    • Lending has decreased during this time and can only be encouraged now by shoring up the mechanism under the IBC to inspire confidence in creditors.

    (b) Non-compliance by the govt

    • The SC had granted time to the government till September 13 to take substantial steps in this regard, which was partially complied with by appointing 18 members.
    • The government, however, failed to avoid embarrassment as the CJI expressed his anger at the appointment process which had ignored candidates recommended by the selection committee.

    (c) Burden of pendency

    • There is a real risk of the court taking matters into its own hands by making appointments itself, or by taking harsher steps like transferring jurisdiction under the IBC to high courts.
    • One hopes that the situation is resolved quickly to make strict time-bound insolvency resolutions a reality.

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  • Labour, Jobs and Employment – Harmonization of labour laws, gender gap, unemployment, etc.

    Rising unemployment is yet to receive the attention it deserves from government

    op-ed snap | Economics | Mains Paper 3: Issues relating growth and development, employment

    Note4Students

    From UPSC perspective, the following things are important:

    Prelims level: LFPR

    Mains level: Paper 3- Rising unemployment

    Context

    India’s unemployment rate in August was 8.3 per cent. This was higher than the 7 per cent recorded in July. The month-to-month variations notwithstanding, these are all very high unemployment rates.

    Why inflation gets more attention in India than unemployment?

    • Periodic Labour Force Survey (PLFS) results showed the historically high unemployment rate of 6.1 per cent for 2017-18 (July to June). It was at a 45-year high.
    • New norm at 7-8 per cent: Till then, India was used to recording an unemployment rate of around 3 per cent. 
    • Today, an unemployment rate of 7-8 per cent seems to be the norm and such levels do not seem to matter.
    • The unemployment rate is not the most important labour market indicator for a country like India.
    • Why inflation gets preference: Between inflation and unemployment, the two economic indicators conjoined theoretically by the Phillips curve, it is inflation that wields political power.
    • Inflation hurts almost the entire population.
    • Equally importantly, high inflation rates can upset financial markets that in turn exert pressure on regulators to keep inflation in control.
    • Unemployment directly impacts only the unemployed, who don’t count much.
    • Worse still, society perceives being unemployed as an individual shortcoming, and not an outcome of a macroeconomic malaise.

    What does low labour force participation rate (LFPR) indicate about the labour market in India?

    • The unemployment rate is a measure of the economy’s inability to provide jobs only for those who seek work.
    • But, in India, very often people do not look for jobs in the belief that none are available which is reflected in a low labour force participation rate (LFPR).
    • India’s LFPR is at around 40 per cent when the global rate is close to 60 per cent.
    • It is important that this belief in the futility of a job hunt is overcome by an explosive creation of new good quality formal jobs.

    Why employment rate is a useful indicator for India

    • A useful labour market metric for a country like India is the employment rate.
    • This measures the proportion of the population over 14 years of age that is employed.
    • The definition of employment needs to be changed, at present, engaging in some economic activity for just one hour in any of the past seven days is counted as employment.
    • India’s record in providing employment to its people has been abysmally poor.
    • CMIE’s definition of employment indicates that in 2016-17, only 42.8 per cent of the working-age population was employed.
    •  In the year of the pandemic, it fell to 36.5 per cent.

    Reverse migration in employment from manufacturing to low productivity employment

    • People are moving away from factories as manufacturing jobs shrink, to farms that provide shelter largely in the form of disguised unemployment.
    • It cannot be the desire of a nation to move people away from high productivity, better quality jobs in manufacturing to low productivity employment in agriculture or as gardeners or security guards in the household sector.
    • Employment opportunities need to expand in areas where labour is deployed to deliver higher productivity for enterprise and higher returns to labour.

    Way forward

    • Increase investment: A large part of the solution to this lack of adequate jobs is in increasing investments.
    • Focus on demand size: For this, the investment climate needs to be business-friendly and government interventions must shift away from supply-side support to spurring demand.

    Conclusion

    The government needs to come up with policies for generating employment opportunities and stemming the reverse migration from manufacturing jobs to low productivity employment.

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  • Industrial Sector Updates – Industrial Policy, Ease of Doing Business, etc.

    National Monetization Pipeline shows promise — and limits

    op-ed snap | Economics | Mains Paper 3: Effects Of Liberalization On The Economy, Changes In Industrial Policy and their effects on Industrial Growth

    Note4Students

    From UPSC perspective, the following things are important:

    Prelims level: National Monetization Pipeline

    Mains level: Issues with Asset Monetization in India

    The government of India recently announced an asset monetization plan, wherein existing public assets worth Rs 6 trillion would be monetized by leasing them out to private operators for fixed terms.

    The plan has generated a lot of print so it is worth discussing its pros and cons.

    About NMP

    • The identified assets are primarily concentrated in roads, railways, power, oil and gas, and telecoms.
    • The lease proceeds are expected to be used for new infrastructure investment which, in turn, will contribute to the government’s ambitious Rs 111 trillion infrastructure investment plan.

    Important issues raised by the plan

    [I] How much should the government expect to raise from the plan?

    Revenue Potential

    • In deciding the amount to bid for leasing rights, bidders compute the present discounted value of the annual cash flow from the asset for the duration of the lease.
    • The biggest uncertainty in this calculation surrounds the cash flow on these public assets.
    • Rates of return estimates on public capital in the US have been estimated to be upwards of 15 per cent.
    • However, this is India with its myriad uncertainties regarding pricing, bill collection, asset quality, regulatory framework as well as policy reversals.
    • Hence there is significant uncertainty regarding the revenue potential of the plan.

    [II] Is the plan likely to increase the efficiency of the economy?

    a. Efficiency of the economy

    • The NITI Aayog believes that the private sector is better at managing and operating the identified public assets than the public sector.
    • There is certainly scope for efficiency gains. However, there are significant efficiency impediments too.
    • One set of efficiency issues surrounds usage fees. A second factor related to efficiency is the effect of the plan on competition.

    b. Stressed sectors

    • The identified assets belong to core sectors of the economy spanning transport, energy and communication.
    • Sectors like telecoms and ports have already seen rising concentration of ownership in recent years.
    • An acceleration and extension of this trend to other segments of the infrastructure landscape would be seriously worrying.
    • While some of this could well be rationalized through the stipulation of rules for the allocation of leasing rights, the plan is silent on this.

    c. Financing of the lease bids

    • If bidders finance their bids using domestic savings, there is a clear opportunity cost of the plan since these savings would otherwise have been invested in alternative projects.
    • Moreover, the bidding for scarce domestic savings by prospective investors will also raise domestic interest rates which will put downward pressure on domestic private investment.
    • It would also be worth reminding ourselves that the last round of PPP-based infrastructure funding routed through banks ended up with a heap of NPAs in public sector bank balance sheets.

    Biggest flaw of the NMP

    • No clear objective: The biggest drawback of the plan is that it fails to articulate the reasons for public sector inefficiency in asset management.
    • No focus on management: If it is personnel-related, then privatizing management may be the right answer. If the inefficiency is related to constraints on pricing and bill collection, then the roots of the problem are unlikely to be addressed by leasing out their management to private operators.
    • No clear assessment of underperforming sectors: The plan document also fails to outline whether the identified brownfield assets are the public sector’s highest cash flow assets or the relatively under-performing ones.

    Better alternatives for the govt

    • The way around this is to welcome foreign investors to bid for the assets.
    • But this will require serious political will since entrenching foreign influence on Indian public assets will generate controversy.
    • On this aspect too, the announced plan is low on details.

    Way forward

    • If the private sector is indeed more efficient in running infrastructure assets, the most efficient strategy would be to lease out the worst-performing assets rather than the best performing ones.
    • The NITI Aayog would do the policy landscape a big service by following up the proposal with a white paper that addresses some of these efficiency-related issues.
    • Without that, the monetization plan, while intriguing, is incomplete.

    Conclusion

    • A monetization plan envisages the private sector paying an upfront fee to the government which the government uses for new infrastructure investment.
    • As much as private bidders finance themselves by borrowing, this amounts to the private sector borrowing and handing over the funds to the government to invest in infrastructure.
    • This could enhance efficiency in infrastructure investment only if the government faces higher interest rates in capital markets than the private sector.

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  • Coronavirus – Economic Issues

    Building a resilient economy

    op-ed snap | Economics | Mains Paper 3: Indian Economy

    Note4Students

    From UPSC perspective, the following things are important:

    Prelims level: TRIPS waiver

    Mains level: Paper 3- Sustaining recovery

    Context

    To revive and sustain growth, action is needed both at the international and national levels.

    Hopes of V-shaped recovery of Indian economy

    • The National Statistical Office (NSO) had recently estimated that India’s economic growth has surged to 20.1% in the April-June quarter.
    • In its recently launched Trade and Development Report 2021, UNCTAD has estimated global growth to hit 5.3% in 2021 and growth in India to hit 7.2%.
    • According to the report, India showed strong quarterly growth of 1.9% in the first quarter of 2021, on the back of the momentum of the second half of 2020 and supported by government spending in goods and services.
    • Given the inherent fragilities, India’s growth in 2021 as a whole is estimated at 7.2%, which is one of the fastest compared to most countries in the analysis.
    • But it is still not sufficient to regain the pre-COVID-19 income level.
    • However, going forward, the economy is likely to experience a deceleration of growth to 6.7% growth in 2022.

    Ways to sustain growth

    1) Efforts at the International level

    • To revive and sustain growth, action is needed both at the international and national levels.
    • TRIPS waiver: The report strongly supports India’s proposed temporary suspension of the World Trade Organization TRIPS waiver.
    • Waiver is considered as a necessary step to enable the local manufacture of vaccines in developing countries

    2) Steps to be taken at the national level

    • Resilience: At the national level, COVID-19 has reinforced the idea that resilience is a public good and responsibility of the state.
    • It has to be delivered through a robust public sector with the resources to make the necessary investments, provide the complementary services and coordinate the multiple activities that building resilience involves.
    • Mobilising financial resources: We need a financial system that accords a more significant role to public banks, breaks up and guards against the emergence of megabanks, and exercises stronger regulatory oversight is more likely to deliver a healthier investment climate.
    • Minimum wage:  Wages are a critical source of demand and their growth can stimulate productivity and underpin a strong social contract.
    • Minimum wages and related labour legislation are needed for appropriate protection against abusive practices.
    • Policies for informal sector: Policies targeting informality are of particular importance, especially for a country like India with a large informal economy.

    Conclusion

    It is important to build a healthy, diversified economy. For this, a strong industrial policy focusing on building digital capacities is needed. A resilient economy goes beyond offering a residual category of safety nets designed to stop those left behind from falling further.

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  • Labour, Jobs and Employment – Harmonization of labour laws, gender gap, unemployment, etc.

    E-Shram

    op-ed snap | Governance | Mains Paper 2: Laws, Institutions & Bodies Constituted For The Vulnerable Sections

    Note4Students

    From UPSC perspective, the following things are important:

    Prelims level: E-Shram Portal

    Mains level: National database for workers: Prospects and challenges

    The E-Shram portal has come into existence more than a decade after the passage of the Unorganized Workers’ Social Security Act in 2008.

    E-Shram

    • On August 26, 2021, the Ministry of Labour and Employment (MOLE) launched the E-Shram, the web portal for creating a National Database of Unorganized Workers (NDUW), which will be seeded with Aadhaar.
    • It seeks to register an estimated 398-400 million unorganized workers and to issue an E-Shram card.

    Better late than never move

    • It has come about even after repeated nudging by the Supreme Court of India.
    • It is the result of state apathy.
    • Had the Central and the State governments begun these legally mandated processes on time, much of the distress of lakhs of vulnerable workers would have been avoided.
    • In fact, the political class owe an ‘apology’ to informal workers.

    Issues with E-Shram

    (A) Time constraints

    • Long process: Given the gigantic nature of registering each worker, it will be a long-drawn process.
    • No gestation period: The Government has not mentioned a gestation period to assess its strategy and efficiency.
    • No hasty process: Employers are or required their workers to register even.While the Government can appeal to them, any penal measure will hurt the ease of doing business.

    (B) Pandemic hides

    • Considering the estimated 380 million workers as the universe of registration — debatable as the novel coronavirus pandemic has pushed lakhs of workers into informality.

    (C) Data security

    • Privacy: One of the vital concerns of e-portals is data security, including its potential abuse especially when it is a mega-sized database.
    • No national framework yet: There are also media reports pointing out the absence of a national architecture relating to data security.
    • Local server issues: It has been reported that in some States such as Maharashtra, the server was down for a few days.

    (D) Structural issue

    • Aadhaar seeding: Many workers will not have an Aadhaar-seeded mobile or even a smartphone. Aadhaar-seeding is a controversial issue with political overtones, especially in the North-eastern regions.
    • Eligibility: There are several issues concerning the eligibility of persons to register as well as the definitional issues.
    • Exclusion: By excluding workers covered by EPF and ESI, lakhs of contract and fixed-term contract workers will be excluded from the universe of UW. Hazardous establishments employing even a single worker will have to be covered under the ESI, which means these workers also will be excluded.
    • No benefits for the aged: The NDUW excludes millions of workers aged over 59 from its ambit, which constitutes age discrimination.

    (D) Complex identities of workers

    • Migration: Many are circular migrant workers and they quickly, even unpredictably, move from one trade to another.
    • Mixed work: Many others perform formal and informal work as some during non-office hours may belong to the gig economy, for example as an Uber taxi or a Swiggy employee. They straddle formal and informal sectors.
    • Gig workers: Even though MOLE has included gig workers in this process, it is legally unclear whether the gig/platform worker can be classified first as a worker at all.

    (E) Other impediments

    • Dependence on States: The central government will have to depend on the State governments for this project to be successful.
    • Lack of coordination: In many States, the social dialogue with the stakeholders especially is rather weak or non-existent. The success of the project depends on the involvement of a variety of stakeholders apart from trade unions.
    • Corruption: There is also the concern of corruption as middle-service agencies such as Internet providers might charge exorbitant charges to register and print the E-Shram cards.

    Benefits: No immediate carrot

    • Workers stand to gain by registration in the medium to long run.
    • But the instant benefit of accident insurance upto ₹0.2 million to registered workers is surely not an attractive carrot.
    • The main point of attraction is the benefits they stand to gain during normal and crisis-ridden periods such as the novel coronavirus pandemic now which the Government needs to disseminate properly.

    Way forward

    • E-Shram is a vital system to provide hitherto invisible workers much-needed visibility.
    • It will provide the Labour Market Citizenship Document to them.
    • The govt should go one step further for triple linkage for efficient and leakage-less delivery of all kinds of benefits and voices to workers/citizens: One-Nation-One-Ration Card (ONOR), E-Shram Card (especially bank account seeded) and the Election Commission Card.
    • Last but not least, registrations cannot be a source of exclusion of a person from receiving social assistance and benefits.

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  • Goods and Services Tax (GST)

    How not to deal with recession

    op-ed snap | Economics | Mains Paper 3: Indian Economy

    Note4Students

    From UPSC perspective, the following things are important:

    Prelims level: National Development Council

    Mains level: Paper 3- Dealing with the recession

    Context

    The Centre is facing a serious financial crisis because of the exigencies created by the pandemic and its own policies. However, monetising assets and cutting down funds to states could aggravate the crisis.

    3 Policies aggravating the crisis

    1) NMP and disinvestment

    • Union Finance Minister, while announcing the National Monetisation Pipeline (NMP), said that asset monetisation is based on the philosophy of creation through monetisation and is aimed at “tapping private sector investment for new infrastructure creation”.
    • Loss of dividend: Disinvestment of profitable Navratna companies will result in a loss of dividend, a major source of income for the Centre.
    • Loss due to tax exemptions: Tax exemptions to the investors will take away another major share of income.
    • Central funds will be squeezed and this, in turn, will have a bearing on state finances.
    • NMP will seriously hurt the interests of the country.

    2) Cutting down funds to States

    • Kerala’s case: The state was getting about 3.92 per cent from the divisible pool in the 1970s and 1980s.
    • It came down to 2.66 per cent and 2.34 per cent in the awards of the 12th and 13th Finance Commissions.
    • The 14th Finance Commission award increased it to 2.45 (2.50) per cent.
    • Now, the 15th Finance Commission has reduced it to 1.92 per cent.
    • This arbitrary cut is a result of the adoption of certain new yardsticks by the commission without considering the state government’s views
    • The 15th Finance Commission’s special grant (RD grant) of Rs 19,800 crore for this year will no longer be available in the coming years.
    • Karnataka and many other states have also suffered because of the policy to reduce the divisible pool share.

    3) Tax exemptions and surcharge

    • Exemptions amounting to Rs 99,842.06 crore were extended to corporate houses in 2019-20.
    • Many taxes on goods were reduced because of electoral compulsions. This reduced central revenues.
    • Along with such tax exemptions, the increased use of cesses and surcharges is responsible for the shrinking of the shareable pool.
    • The shareable resources with the Centre was around Rs 6.8 lakh crore in 2019-20 which has come down to Rs 5.5 lakh crore in 2020-21.
    • All the cesses and surcharges that are not shared with states come to about 20 per cent of the total revenues of the Centre.
    • States have been demanding that this money should be shared with them, particularly while fighting a pandemic.
    • States complaining for resources does not augur well for cooperative federalism.

    Way forward

    • Developing basic infrastructure and the production sector is the only way to face an economic crisis.
    • That should not be done by selling or handing over public assets to private individuals and corporations.
    • We need massive public investment that will help people to form cooperatives and collectives in agriculture and industrial production.
    • Parliament, the National Development Council and the GST Council should discuss this unprecedented situation.

    Conclusion

    We need to find a way out collectively. Handing over the rights on public properties to private individuals will take the country back to the colonial era. This must not be allowed.

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  • Goods and Services Tax (GST)

    Centre and states must strike bargain on GST

    op-ed snap | Economics | Mains Paper 3: Indian Economy

    Note4Students

    From UPSC perspective, the following things are important:

    Prelims level: GST

    Mains level: Paper 3- Changes needed in GST

    Context

    After one and a half years of dispute, and with the economy showing signs of recovery, a path forward for the GST finally seems visible. This opportunity needs to be seized to strike the Centre-State bargain.

    How GST performed so far

    •  The contributors are many but the critical one has been simply a lack of revenues.
    • Initially, the GST performed well, with collections soaring to Rs 11.8 lakh crore in the first full year of implementation in 2018-19.
    • But in 2019-20, the growth rate decelerated sharply. And in 2020-21, collections actually fell.
    • As future collections became uncertain, a gap opened up between the amount that the Centre felt it could afford to promise and the minimum that the states felt they needed and were entitled to.
    • More recently, however, confidence in GST has improved.
    • Collections have revived, averaging Rs 1.1 lakh crore in the first five months of the current fiscal year, exceeding even pre-pandemic levels.

    What explains the weak revenue performance of the GST?

    • Slowing economy: The GST’s past performance now seems much better than it once did.
    • We now know that after 2018-19, nominal GDP growth slowed from 10.5 per cent in 2018-19 to 7.8 per cent the next year and -3 per cent in 2020-21.
    • Effective rate cuts: The RBI has pointed out, the effective tax rate has fallen by nearly 3 percentage points because of rate cutting in 2019, in which both the Centre and states were complicit.
    • Thus the weak revenue performance of the GST now seems attributable to wider economic difficulties and policy actions, rather than problems with the tax itself.

    Necessary changes: Opportunity for striking bargain for Centre and States

    1) Principle of compensation must be re-cast: Create revenue buffer

    • As the GST was a new tax, so states were guaranteed against the teething troubles that would inevitably arise for the next five years.
    • Five years on, this logic is less compelling.
    • The GST as tax reform has reached maturity, well understood by producers, consumers, and tax officials.
    • At the same time, the last few years have exposed the vulnerability of the states to shocks such as Covid-19 pandemic.
    • Way forward: To prevent this situation from recurring, the authorities should create a revenue buffer that could be tapped in a time of need.
    • In sum, there is a bargain waiting to be struck: The states give up their demand for an extension of the compensation mechanism, while the Centre offers a new counter-cyclical buffer.
    • As the figure shows, in good economic times, GST revenues will be robust but it is against downturns that states need protection.
    • The shift to revenue insurance, in turn, should allow the compensation cess to be abolished. 

    2) The GST structure needs to be simplified and rationalised

    • The GST structure needs to be simplified and rationalised, as recommended by the Fifteenth Finance Commission and the Revenue Neutral Rate report.
    • New rate structure: A new structure should have one low rate (between 8 and 10 per cent), one standard rate (between 16 and 18 per cent) and one rate for all demerit goods.
    • The single rate on demerit goods also requires eliminating the cesses with all their complexity.

    3) The GST Council’s working needs changes

    • Consensus-based decision making in GST Council can be sustained only if there is a shared sense of participatory and inclusive governance. 
    • Nearly two decades ago, when the VAT was being introduced, Yashwant Sinha established a culture of consensual discussions on indirect taxes.
    • He did this by requiring the Empowered Committee of State Finance Ministers to be headed by a finance minister from an Opposition-run state government.
    • The spirit of this idea could be translated to the GST Council.

    Consider the question “Inherent importance of GST and its significance for the cooperative federalism underline the necessity for the Centre and the States to strike the win-win bargain. In light of this, examine the issues with the GST and suggest the way forward to deal with these issuef.”

    Conclusion

    Cooperative federalism is not a gesture or one-off outcome. It is, above all, a disposition, resulting from quotidian democratic practice. By rehabilitating cooperative federalism’s finest achievement — the GST — the Centre and states can help restore India’s broader economic prospects.

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  • Higher Education – RUSA, NIRF, HEFA, etc.

    NEET

    op-ed snap | Governance | Mains Paper 2: Health & Education

    Note4Students

    From UPSC perspective, the following things are important:

    Prelims level: Not much

    Mains level: Issues with the NEET

    The Tamil Nadu Assembly has passed a bill exempting the State from the National Eligibility-cum-Entrance Test (NEET) for admission to undergraduate (UG) medical courses.

    About NEET

    The NEET has replaced the formerly All India Pre-Medical Test (AIPMT).

    It is an all-India pre-medical entrance test for students who wish to pursue undergraduate medical (MBBS), dental (BDS) and AYUSH (BAMS, BUMS, BHMS, etc.) courses.

    The exam is conducted by National Testing Agency (NTA).

    TN law: Permanent Exemption for NEET

    • The Bill exempts medical aspirants in Tamil Nadu from taking NEET examination for admission to UG degree courses in Indian medicine, dentistry and homeopathy.
    • Instead, it seeks to provide admission to such courses on the basis of marks obtained in the qualifying examination, through “Normalization methods”.
    • The aim of the Bill is to ensure “social justice, uphold equality and equal opportunity, protect all vulnerable student communities from being discriminated”.
    • It seeks to bring vulnerable student communities to the “mainstream of medical and dental education and in turn ensure a robust public health care across the state, particularly the rural areas”.

    Why TN is against NEET?

    • Non-representative: TN opposes because NEET undermined the diverse societal representation in MBBS and higher medical studies.
    • Disfavors the poor: It has favored mainly the affordable and affluent sections of the society and thwarting the dreams of underprivileged social groups.
    • Exams for the elite: It considers NEET not a fair or equitable method of admission since it favored the rich and elite sections of society.
    • Healthcare concerns: If continued, the rural and urban poor may not be able to pursue medical courses.

    Can any state legislate against NEET?

    • Admissions to medical courses are traceable to entry 25 of List III (Concurrent List), Schedule VII of the Constitution.
    • Therefore, the State can also enact a law regarding admission and amend any Central law on admission procedures.

    Views of the stakeholders appointed by TN

    • A majority of stakeholders were not in favor of the NEET requirement.
    • NEET only worked against underprivileged government school students, and had profited coaching centres and affluent students.
    • NEET had not provided any special mechanism for testing the knowledge and aptitude of the students.
    • The higher secondary examination of the State board itself was an ample basis for the selection of students for MBBS seats.

    A move inspired by a SC Judgement

    • This thinking of the State may be due to the observation made by the Supreme Court in the selection process of postgraduate (PG) courses in medicine.
    • The Medical Council of India (MCI) had prescribed certain regulations providing reservations for in-service candidates.
    • The Supreme Court struck down regulation 9(c) made by the MCI on the ground of the exercise of power beyond its statute.

    Not a similar case

    • It must be remembered that the Supreme Court was only dealing with a regulation framed by the MCI.
    • The requirement of NEET being a basic requirement for PG and UG medical courses has now been statutorily incorporated under Section 10D of the Indian Medical Council (IMC) Act.
    • When the Tamil Nadu government issued an order in 2017 providing for the reservation of 85% of the seats for students passed out from the State board it was struck down by the Madras High Court.
    • The introduction of internal reservation for government school students is under challenge before the Madras High Court. Similarly, NEET as a requirement is also pending in the Supreme Court.
    • Unless these two issues are decided, NEET cannot be removed by a State amendment.

    The bill cannot be passed

    • The present move to pass a fresh Bill on the same lines is most likely to meet the same fate.
    • The President refused to give his assent to this bill.
    • It is significant that no other State in India has sought an exemption from NEET and, therefore, exempting Tamil Nadu alone may not be possible.
    • Even among the seats allotted to the State, there is no bar for students from other States from competing or selecting colleges in Tamil Nadu.

    The bigger question

    • The question is not whether the State government can amend a law falling under the Concurrent List.
    • The question is whether the State government can exempt Section 10D of the IMC Act, which is a parliamentary law that falls under the Central List (Entry 66).
    • Moreover, the Supreme Court has also upheld NEET as a requirement.
    • Mere statistics highlighting that a majority of the stakeholders do not want NEET in Tamil Nadu is not an answer for exempting the examination.

    Again, it is State and Centre are at crossroads

    • Normally, a Bill requires assent from the Governor to become a law. Stalin’s contention is that this Bill deals with education, which is a Concurrent List subject.
    • Admissions to medical courses fall under Entry 25 of List III, Schedule VII of the Constitution, and therefore the state is competent to regulate the same.
    • Yet, as far as matters relating to the determination of standards for higher education are concerned, the central government has the power to amend a clause or repeal an Act.
    • So, just the passing of the Bill doesn’t enable the students to get exempted from writing NEET.
    • Already, Union Higher Education Secretary Amit Khare has held that if any State wants to opt out of the exam, it has to seek permission from the Supreme Court.

    Options for Tamil Nadu

    • Data is necessary only when there is power to legislate on the subject concerned.
    • Since the Bill, which will become an Act only after the President’s nod, will come into effect only from the next academic year, the battle for and against the NEET requirement will continue in courts.
    • Hopefully, the courts will determine the legality and have a definite solution to the question of medical admissions within the next year.
    • Till such time, students who wrote NEET will fill the seats under the State quota.

    Way forward: Preventing Commercialization of Medical Education

    • The time may also have come to examine whether NEET has met its purposes of improving standards and curbing commercialization and profiteering.
    • Under current norms, one quite low on the merit rank can still buy a medical seat in a private college, while those ranked higher but only good enough to get a government quota seat in a private institution can be priced out of the system.
    • The Centre should do something other than considering an exemption to Tamil Nadu.
    • It has to conceive a better system that will allow a fair admission process while preserving inter se merit and preventing rampant commercialization.

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  • Slide in democratic values, India must work to fix it

    op-ed snap | Governance | Mains Paper 2: Executive & Judiciary,Governance, Transparency & Accountability, Citizens Charters

    Note4Students

    From UPSC perspective, the following things are important:

    Prelims level: V-Dem rating

    Mains level: Paper 2- Declining democratic values

    Context

    India has performed poorly in every major global democracy report in the past few years.

    India’s declining performance

    • The Freedom House Index for 2021 pushed India down four points from last year, bringing its score from 71 to 67.
    • V-Dem, the world-renowned think-tank from Sweden, has similarly downgraded India.
    • It has labelled India an “electoral autocracy”.
    • The Economist Intelligence Unit (EIU) study has shown India’s ranking has taken a nosedive from 27 to 53 out of 167 countries.
    • The Reporters without Borders’ Press Freedom Report has placed India 167th out of 183 countries.
    • Freedom House has also given India a score of 2 out of 4 in terms of press freedom.

    Factors pointed out by the rating agencies

    • The country has seen increased pressure being put on human rights organisations and civil rights groups.
    • Journalists and activists have been intimidated and incarcerated, and minorities have been specifically targeted.
    • Hate and polarisation are rampant.
    • The most worrying trend has been the crackdown on freedom of speech, with statistics showing a 165 per cent increase in sedition cases between 2016 and 2019.

    Issues with rejecting of global democratic indexes

    • Indian government sought to challenge the rating of EIU after it released its 2021 report earlier this year.
    • An offer made by the Indian government to supply ‘accurate’ data pertaining to the democratic index was firmly refused by the EIU.
    • Shooting the messenger: This seeming retraction of Indian democratic values in global reports and the Indian indignation regarding it seems to be a clear case of shooting the messenger.
    • Harming democracy: The Indian refusal to acknowledge and remedy them is irreparably harming its democracy.
    • Trying to influence the rating agencies to doctor data to suit us is reprehensible.
    • Difficulty for policymakers: Kaushik Basu, formerly the chief economist of the World Bank, commenting on this episode has said that the tendency of fabricating data to present an alternative image has beset the Indian administration.
    • Not showcasing actual data is making it difficult for policymakers to attempt to remedy the situation.

    Way forward

    •  A committee of secretaries’ meeting on January 30, 2020 discussed how India fared on various important parameters based on 32 internationally recognised indices in order to improve the performance on these indices.
    • The desire to introspect and analyse what needs to be done to improve is correct and laudable.
    •  Let NITI Aayog and all concerned organisations focus on improving our performance in all the declining indicators.

    Consider the question “Ranking of the various agencies shows the declining trend of democratic values in India. What are the reasons for such decline?vSuggest the steps to arrest this decline.” 

    Conclusion

    Instead of denying these rankings and the reports of these agencies, India must work on fixing them.

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