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Type: Op-ed

  • Addressing vaccine hesitancy

    The article deals with the issue of vaccine hesitancy and its consequences.

    Why vaccinate?

    • The primary purpose of vaccination is to protect individuals against severe infection.
    • Vaccination also protects populations by providing ‘herd immunity’, if done on a large scale.
    • Globally, vaccinations against polio, small pox, meningitis and so on have seen huge success.

    Need to address the vaccine hesitancy

    • The results of a 2020 Gallup poll, conducted before the vaccine roll-out reveals that 18% of the Indian said that they won’t take the vaccine.
    • But vaccine hesitancy has gone up in India since then, due in part to largely overblown reports of complications or even deaths.
    • The consequences of vaccine hesitancy are disastrous.
    • If herd immunity does not develop, disease outbreaks and pandemics will prevail.
    • The slower the vaccination rate, the wider the spread of infection and the greater the chances of mutations and the emergence of new variants.

    Factors driving vaccine hesitancy

    • The influencing factors include a lack of awareness of the extent of benefits.
    • Fears based on inaccurate information.
    • Lack of access to vaccine.
    • Disinformation, especially on social media.
    • Other factors include civil liberty concepts, cost, cultural issues, and various layers of confidence deficit.

    Way forward

    • To allay vaccine fears, our messaging needs to focus on simple facts.
    • Before attempting to persuade people, we need to understand the basis of their fear, hesitancy and the anti-vax attitude.
    •  By challenging untruths, we inadvertently feed the perception that we are actively suppressing the “real” truth.
    • The objective now should be to reach more people faster with a message that doesn’t just provide more science but includes guidance.
    • Providing practical information through social media, alternatives to apps for those lacking easy access to vaccines, and taking the help of well-informed frontline workers will all help.

    Conclusion

    The possibility of a significant number of people not getting vaccinated thwarts our collective ability to reach the herd immunity threshold against Covid-19. Therefore the issue of vaccine hesitancy needs to be urgently addressed.

  • Fundamental problems facing GST regime

    The article highlights the fundamental challenges the GST faces in the form of trust erosion and politicisation of decision making in GST Council.

    Initial issues with GST

    • The multiple rates structure, high tax slabs and the complexity of tax filings as the problems underpinning India’s GST.
    • These were indeed the initial problems in the way GST was implemented, leading to some of its current woes.
    • However, technical fixes such as simplification of GST rates and tax filing systems will not succeed in addressing the fundamental problems with GST.

    Fundamental problems

    1) Politics influence the decision of GST Council

    • The 43rd meeting of the Goods and Services Tax (GST) Council which consists of 31 States and Union Territorie is to be held on May 28.
    • Ideally, political affiliations should not matter in a Council set up to decide indirect taxes.
    • The GST Council was mandated to meet at least once every quarter, but it had not met for two quarters, due to the pandemic.
    • Several of the 14 members of the groups who belong to parties different from the party ruling in the Centre, requested the Finance Minister to convene the GST meeting to help them manage their finances.
    • None of the 17 members of the ruling group deemed it necessary.
    • Even the need for a meeting to determine tax revenues for States is evidently a political decision.

    2) Lack of trust

    • The GST Council is a compact of trust between the States and the Centre, set in the larger context of India’s polity.
    • The tragedy of the GST Council is that it is afflicted with spite and forced to function under the prevailing cloud of politics.
    • If the functioning of the GST Council is subject to the vagaries of elections and consequent vendetta politics, GST will continue to be just a caricature of its initial promise.

    3) Uncertainty after the guarantee of 14% growth ends

    • The States paid a huge price for GST in terms of loss of fiscal autonomy.
    • GST has endured so far primarily because the States were guaranteed a 14% growth in their tax revenues every year.
    • This minimised the risks of this new experiment for the States and compensated for their loss of fiscal sovereignty.
    • This revenue guarantee ends in July 2022.
    • This can lead to a crumbling of the precarious edifice on which GST stands today.

    Consider the question “What are the challenges faced by the States in the GST regime? What would be the impact on States as a guarantee of 14% growth in tax revenue comes to an end in July 2022?” 

    Conclusion

    The end of India’s grand GST experiment seems inevitable unless there is a radical shift in the tone and tenor of India’s federal politics, backed by an extension of revenue guarantee for the States for another five years.

  • Tackling rural economic distress

    The disruption caused by the second Covid wave has added to the hardship faced by the migrant workers and the rural poor. Dealing with it requires strengthening of  PDS and MGNREGS.

    Distress due to second Covid wave

    • Several States have imposed lockdown amid second Covid wave which will have severe implications for the livelihoods of those in the informal sector.
    • Migrant workers and the rural poor have been facing great distress over the past one year and the crisis for food and work is only going to intensify further.
    • The migrants have again become vulnerable due to the lockdown in different cities.
    • In this context, there is an urgent need to strengthen the public distribution system (PDS) and the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS).

    Steps need to be taken

    • The government announced 5 kg free foodgrains for individuals enlisted under the National Food Security Act (NFSA), for May and June 2021.

    1) Changes in PDS

    • Expand coverage: The government should expand PDS coverage immediately and include all eligible households under the schemes.
    • According to an independent study, about 100 million people are excluded from the ration distribution system owing to a dated database based on the 2011 Census.
    • Extend period: The Centre should also extend the free foodgrains programme to a year instead of limiting it to two months.

    2) Expand MGNREGS

    • The Centre had allocated ₹73,000 crore for 2021-22 for MGNREGS and notified an annual increment of about 4% in wages. 
    • Both these provisions are inadequate to match the requirements on the ground.
    • The central allocation for MGNREGS is about ₹38,500 crore less than last year’s revised estimate.
    • The budget for 75-80 days of employment in the year for 6.5 crore families given the current scale of economic distress.
    • By this rationale, at the current rate of ₹268/day/person, at least ₹1.3 lakh crore will have to be budgeted.
    • The government should also re-consider its decision of a mere 4% increase in MGNREGS wages and hike it by at least 10%.

    Conclusion

    A large population is facing hunger and a cash crunch. The situation is only becoming more dire as the pandemic continues to rage on. Therefore, the Union government should prioritise food and work for all and start making policy reforms right away.

  • Data central to effective climate action

    Article highlights the importance of data driven approach in dealing with the future disruptions and suggests the reforms in the system.

    Managing the disruption through data-driven tools

    • The data-driven tools were used for managing pandemic induced disruption.
    • This offers an opportunity to restructure the data ecosystem for managing the disruptions of the future that are more likely to be driven by climate change.

    Policies for data sharing in India

    • The National Data Sharing and Accessibility Policy (NDSAP), 2012 recognises the importance of data.
    • NDSAP recognised the importance of data in improving decision making, meeting the needs of civil society and generating revenue by permitting access to datasets.
    • In 2012, a government portal, data.gov.in was also established as a unified platform to enable sharing of data available with ministries, departments and other public agencies for wider public use.
    • The sharing of data in this platform, apart from others, is further streamlined through the nodality of Chief Data Officer-CDO in respective ministries.

    Challenges

    • Challenge remains about whether the collected data is usable, accessible and if it captures the details that end users are interested in.
    • Even after years of the portal’s operationalisation, there are multiple data-sets that aren’t updated regularly.
    • Though NITI Aayog has brought indices to track climate actions such as under SDG-13 of SDG India Index, but it remains vague in tracking improvements in climate resilience, by solely using number of lives lost due to extreme weather events.

    Reforms needed in data-ecosystem

    • 1) Complete dataset: There is a need to collect complete datasets required to assess climate risks and vulnerabilities.
    • This involves collection of datasets that are sex-disaggregated and geo-spatial and collect more nuanced dimensions like disaster response capacities.
    • Targeted research: There is a requirement of targeted research for designing better questionnaires and identifying new nodes for data collection.
    • 2) Reliability of data: The data collected has to be made reliable and usable through an accountability framework.
    • Legislation: A separate legislation in this regard would bring in the much-needed consistency in periodic collection of identified datasets and their proactive sharing in designated platforms.
    • 3) Centralisation of data: There is a need for centralising public data that currently exists with different departments and public institutions.
    • The National Data Governance Centre was planned to be set up in 2019 for precisely this objective.
    • But it is yet to be operationalised.

    Consider the question “How data driven approach could help India deal with the future disruptions that are more likely to be from climate change? Suggest the reforms needed in India’s data ecosystem.”

    Conclusion

    It is time that India places itself on track to address the issues around the known unknowns of climate change through data driven apporach.

    Source:

    https://www.financialexpress.com/opinion/data-central-to-effective-climate-action/2258964/

  • One-state solution, the way forward in Palestine

    The article highlights the challenges in the success of a two-state solution to the Israel-Palestine conflict and suggests the one-state solution instead.

    Background of the two-state solution

    • It involves dividing Palestine between the state of Israel and the indigenous population of Palestine.
    • It was first offered by the British in 1937 and rejected by the Palestinians already then.
    •  In 1947 the United Nations insisted that the Palestinians should give half of their homeland to the settler movement of Zionism.
    • The two-state solution, offered for the first time by liberal Zionists and the United States in the 1980s, is seen by some Palestinians as the best way of ending of the occupation of the West Bank .
    • It will also lead to the partial fulfilment of the Palestinian right for self-determination and independence.

    Interpretation of two-state solution

    • The Israeli interpretation, until 2009, was that the two-state solution is another means of having the territories, the West Bank and the Gaza Strip, without incorporating most of the people living there.
    • In order to ensure it, Israel partitioned the West Bank which is 20% of historical Palestine into a Jewish and an Arab part.
    • This was in the second phase of the Oslo Accords, known as the Oslo II agreement of 1995.
    • One area, called area C, which consists of 60% of the West Bank was directly ruled from 1995 until today by Israel.
    • Now, Israel is in the process of officially annexing this area.
    • 40% of the West Bank, areas A and B under Oslo II, were put under the Palestinian Authority.
    • Palestinian Authority calls itself the state of Palestine, but in essence has no power whatsoever, unless the one given to it, and withdrawn from it, by Israel.
    • In 2018 a citizenship law was passed known as the nationality law.
    • As per the citizenship law, the Palestinian citizens who live in Israel proper which is Israel prior to the 1967 occupation of the West Bank and the Gaza Strip and who are supposedly equal citizens of the Jewish state, will in essence become the Africans of a new Israeli Jewish apartheid state.

    Issues with two-state solution

    • The endless negotiation on the two-state solution was based on the formula that once the two states become a reality, Israel will stop these severe violations of the Palestinian civil and human rights.
    • But while the wait continued, more Palestinians were expelled and the Jewish settler community in the West Bank grew in size.
    • The two-state solution is not going to stop the ethnic cleansing; instead, talking about it provides Israel international immunity to continue it.

    Way forward

    • The only alternative is to decolonise historical Palestine.
    • New state should a state for all its citizens all over the country, based on the dismantlement of colonialist institutions, fair redistribution of the country’s natural resources, compensation of the victims of the ethnic cleansing and allowing their repatriation.
    •  Settlers and natives should together build a new state that is democratic, part of the Arab world and not against it, and an inspiration for the rest of the region.

    Conclusion

    The one-state solution is the way forward in Palestine and that should be the state for all citizens.

  • As the US exits, Afghanistan finds itself at the crossroads

    The article highlights the implications of the U.S. exit from Afghanistan for the region.

    Status of the Afghanistan peace process

    • The Afghanistan peace process has been in disarray as the conference to be hosted by the United Nations in Istanbul, remains suspended due to the reluctance of Afghan’s Taliban.
    • Now there is some hope of breaking the impasse as the Taliban have expressed an openness to attend the Istanbul summit.
    • United States President Joe Biden is insistent on withdrawing the troops on September 11, even without any power-sharing deal between the warring parties.
    • Taliban leadership, who may feel the urgency to resuming negotiations than completely abandoning them for fear of losing the international legitimacy they enjoy at the moment.

    How the U.S. exit will affect Pakistan

    • After months of negotiations, the U.S.-Taliban deal was signed in February 2020, and Pakistan took full credit for it.
    • As the U.S. military presence in Afghanistan for almost two decades had kept the U.S. reliant on Pakistan for operational and other support.
    • Pakistan smartly mobilised this factor against India.
    • With the disappearance of this lethal dependence, Pakistan faces an uphill task in conducting a viable Afghan policy.
    • Pakistan cannot keep America invested in it on military, economic, and societal fronts without partnering with the U.S. to ensure a smooth transition of power in Kabul.

    Impact on China

    • The Taliban now draw support from a wide variety of regional powers, including Russia, China and Iran.
    • However, these countries too want the insurgent group to moderate its position.
    • China, which has a beneficiary of the U.S. presence in Afghanistan, seems confused as the American exit looms large.
    • The U.S. exit would leave Beijing vulnerable to its spillover effects particularly in the restive Xinjiang province.
    • That is why China has remained invested in all major regional Afghan-centric negotiations.

    Implications for India

    • India has been the key regional backer of an Afghan-led, Afghan-owned and Afghan-controlled peace process.
    • India is concerned that the Taliban-dominated regime in Afghanistan might allow Pakistan to dictate Afghanistan’s India policy.
    • That is why India has underlined the need for a genuine double peace i.e. within and around Afghanistan.
    • But despite being offered a seat at Istanbul at the U.S.’s behest, India remains a peripheral player.
    • The strategic competition between the China and the U.S.,  China’s growing rivalry with India, and New Delhi’s tense relationship with Islamabad are some of the factors which will certainly affect the situation in Afghanistan as the U.S. leaves the country.

    Consider the question “What are the implications of the U.S. exit from Afghanistan for the region? Examine its impact on India.

    Conclusion

    While the exit would bring the U.S.’s “forever war” to an end, it is unlikely to result in peace if Afghan stakeholders show their utter inability to take the process forward.

  • Why community efforts are essential for real change

    The article highlights the important role played by civil society and suggest the need for the new framework for the participation of community in the solution of problems.

    Important role played by civil society in second wave of Covid

    • We also have to realise that the state or the market cannot be the only provider for what citizens need.
    • Effective social interactions and community participation can play an important role in scaling up some of the actions that have been found useful.
    • During the second wave of Covid infections, communities emerged as resilient entities across the country.
    • Active engagement with civil society: Recently,  the Prime Minister called for an active engagement of civil society in coping with the pandemic.
    • The empowered group of secretaries has also identified the role of civil society during this period of crisis.

    Tasks for NITI Aayog: New framework

    • NITI should engage government institutions that encourage public participation and also support new frameworks for crisis management.
    • This new framework should critically look into the weaknesses and failures of the existing ones in attracting community participation in an effective manner.
    • This would also help in NITI’s own goal of localisation of development as part of its SDG strategy.
    • NITI should create mechanisms for facilitating the creation of required space for community initiatives.
    • It should leverage advanced technologies ABCD — artificial intelligence, blockchain, cloud computing and data analytics for bridging demand-supply gaps.
    • It is time for NITI to apply the institutional framework where it has to, to rationalise select activities of communities and overcome the failure of the state where it is imminent.
    • NITI should partner with willing state governments to explore the launch of platforms that promote cross-learning and experience-sharing to reduce the cost of operations.
    • This may help in scaling up and, in some cases, overcome the asymmetric flow of information.
    • Opportunities for the participation of communities in decision making and their implementation at local levels may be explored.
    • The advantage for NITI is DARPAN, its portal for all voluntary organisations/non-governmental organisations engaged in development activities.
    • Several informal entities, start-ups and others, at times undefined, may also have to be engaged.

    Initiatives and micro-models

    • Several micro-models are coming up, but few have a larger footprint.
    •  In Nandurbar, for instance, a district collector could achieve what now seems a rare coordination between beds, number of critical patients and supply of oxygen.
    • At the end of the day, they had more beds with oxygen than required.
    • Breathe India and HelpNow represent an array of options, these apps have facilitated access to oxygen concentrators, hospitals and ambulances.
    • There are several such initiatives that are taking place across the country with little connection with each other.
    • These micro-models need to be scaled up.

    Consider the question “The role played by the civil society during the second covid wave highlighted its importance. What we need is a new framework for community participation. In light of this, discuss the important aspects of such framework.”

    Conclusion

    Solutions to any social problem call for an effective collective action that coordinates the aspirations of several groups of stakeholders. The present situation underlines the necessity of combined efforts to face this challenge.

    B2BASICS

    What is civil Society?

    • The society considered as a community of citizens linked by common interests and collective activity is a civil society.
    • It is the aggregate of non-governmental organizations and institutions that manifest interests and will of citizens.
    • It is referred to as the third sector of the society distinct from government and business.

  • COVID & Economic Inequality

    Pandemic hit hard the lives, livelihood and the economy. It has also worsened income inequality. The article deals with the issues of impacts of pandemic and suggests ways to revive growth the deal with income inequality.

    Need to address growth and inequality issue

    • The second wave of the pandemic is spreading to rural areas also.
    • It is known that rural areas have poor health infrastructure.
    • Similar to the first wave, inequalities are also increasing during the second wave.
    • The country has to address the issue of rising inequalities for achieving higher sustainable growth and the well-being of a larger population.
    • According to the State of Working in India 2021 report of the Azim Premji University, the pandemic would push 230 million people into poverty.
    • CMIE data shows a decline in incomes and rising unemployment during the second wave.
    • U-shaped impact: The recent RBI Bulletin says that the impact of the second wave appears to be U-shaped.
    • In the well of the U are the most vulnerable — blue collar groups who have to risk exposure for a living and for rest of society to survive.

    K-shaped recovery and rising inequality

    • The recovery seemed to be K-shaped during the first wave.
    • The share of wages declined as compared to that of profits.
    • A large part of the corporate sector managed the pandemic with many listed companies recording higher profits.
    • On the other hand, the informal workers including daily wage labourers, migrants, MSMEs etc. suffered a lot with loss of incomes and employment.
    • The recovery post the second wave is also likely to be K-shaped with rising inequalities.

    Policies needed for higher growth and reduction in inequality

    1) Vaccination and healthcare facilities

    • An aggressive vaccination programme and improving the healthcare facilities in both rural and urban areas is needed.
    • Reducing the health crisis can lead to an economic revival.
    • Vaccine inequality between urban and rural areas has to be reduced.
    • The crisis can be used as an opportunity to create universal healthcare facilities for all, particularly rural areas.
    • Other states can learn from Kerala on building health infrastructure.

    2) Investment in infrastructure

    • The budget offered some good announcements relating to capital investment in infrastructure.
    • The Development Financial Institution (DFI) for funding long-term infrastructure projects is being established.
    • This can revive employment and reduce inequalities.
    • The government has to fast track infra investment.

    3) Safety net for vulnerable

    • The informal workers and other vulnerable sections including MSMEs have been dealt back-to-back blows due to the first and second waves.
    • A majority of workers have experienced a loss of earnings.
    • Therefore, the government has to provide safety nets in the form of free food grains for six more months, expand work offered under MGNREGA in both rural and urban areas.
    • The government also need to undertake a cash transfer to provide minimum basic income.

    Policies for growth

    • Focus on demand: On economic growth, the RBI Bulletin says that the biggest toll of the second wave is in terms of a demand shock as aggregate supply is less impacted.
    • Investment: In the medium term, the investment rate has to be increased from the present 30 per cent of GDP to 35 per cent and 40 per cent of GDP for higher growth and job creation.
    • Export: It is one of the main engines of growth and employment creation.
    • There is positive news on exports as the global economy is reviving.
    • Protectionist trade policy: In recent years India’s trade policy has become more protectionist and the country has to reduce import tariff rates.
    • Role of fiscal policy: In the near term, fiscal policy has to play a more important role in achieving the objectives of growth, jobs and equity by expanding the fiscal space by restructuring expenditure, widening the tax base and increasing non-tax revenue.

    Consider the question “Two waves of the Covid pandemic have worsened the inequality. India has to address the issue of rising inequalities for achieving higher sustainable growth and the well-being of a larger population. Suggest the policies that India should follow for higher growth and reduction in inequality.”

    Conclusion

    Vaccination, expansion in rural healthcare and cash transfers should be part of the strategy to boost demand and address inequalities.

  • challenges the second Covid wave poses to India’s path to fiscal consolidation.

    The article highlights the challenges the second Covid wave poses to India’s path to fiscal consolidation.

    Recalibration to growth projection due to second Covid wave

    • The growth projections of different national and international agencies and the fiscal projections of Centre’s 2021-22 Budget require recalibration.
    • The International Monetary Fund (IMF) had forecast real GDP growth for 2021-22 at 12.5%.
    • The Reserve Bank of India (RBI) had forecast real GDP growth for 2021-22 at 10.5%.
    • The Ministry of Finance’s Economic Survey had forecast real GDP growth for 2021-22 at 11.0%.

    Growth rate of 8.7% to keep GDP at same level as in 2019-20

    • Moody’s has recently projected India’s GDP growth in 2021-22 at 9.3%.
    • Benchmark growth rate: 9.3% is close to the benchmark growth rate of 8.7% which would keep India’s GDP at 2011-12 prices at the same level as in 2019-20.
    • This level of growth may be achieved based on the assumption that the economy normalises in the second half of the fiscal year.
    • The 2019-20 real GDP was ₹145.7-lakh crore at 2011-12 prices.
    • It fell to ₹134.1-lakh crore in 2020-21, implying a contraction of minus 8.0%.
    •  At 8.7% real growth, the nominal GDP growth would be close to 13.5%, assuming an inflation rate of 4.5%.
    • This would be lower than the nominal growth of 14.4% assumed in the Union Budget.
    • At 13.5% growth, the estimated GDP for 2021-22 is ₹222.4-lakh crore at current prices.
    • Impact: This will lead to a lowering of tax and non-tax revenues and an increase in the fiscal deficit as compared to the budgeted magnitudes.

    How much the gross tax revenue would be impacted?

    • The budgeted gross and net tax revenues for 2021-22 were ₹22.2-lakh crore and ₹15.4-lakh crore, respectively.
    • The assumed buoyancy for the Centre’s gross tax revenues (GTR) was 1.2.
    • If, however, the buoyancy of 1.2 proves optimistic and instead a buoyancy of 0.9, which is the average buoyancy of the five years preceding the COVID-19 year, is applied, the nominal growth of GTR would be 12.2%.
    • This would lead to the Centre’s GTR of about ₹21.3-lakh crore.
    • The corresponding shortfall in the Centre’s net tax revenues is estimated to be about ₹0.6 lakh crore.
    • The budgeted magnitudes for non-tax revenues and non-debt capital receipts at ₹2.4-lakh crore and ₹1.9-lakh crore, respectively, may also prove to be optimistic.
    • In these cases, the budgeted growth rates were 15.4% and 304.3%, respectively.
    •  The excessively high growth for the non-debt capital receipts was premised on implementing an ambitious asset monetisation and disinvestment programme.
    • Together with the tax revenue shortfall of nearly 0.6 lakh crore, the total shortfall on the receipts side may be about ₹2.1-lakh crore.

    Impact on fiscal deficit estimates

    • Two factors will affect the fiscal deficit estimate of 6.76% of GDP in 2021-22.
    • First, there would be a change in the budgeted nominal GDP growth.
    • Second, there would be a shortfall in the receipts from tax, non-tax and non-debt sources.
    • Together, these two factors may lead to a slippage in fiscal deficit which may be close to 7.7% of GDP in 2021-22 if total expenditures are kept at the budgeted levels.
    • This would call for revising the fiscal road map again.
    • Protecting total expenditures at the budgeted level is, however, important given the need to support the economy in these challenging time.

    Vaccination policy and role of Central government

    • Positive externalities: COVID-19 vaccination is characterised by strong inter-State positive externalities, making it primarily the responsibility of the central government.
    • The entire vaccination bill should be borne by the central government.
    • If the central government is the single agency for vaccine procurement, the economies of scale and the Centre’s bargaining power would keep the average vaccine price low.
    • The central government may transfer the vaccines rather than the money that it has budgeted for transfer.
    • Some of the smaller States may find procuring vaccines through a global tender to be quite challenging.

    Conclusion

    Protecting total expenditures at the budgeted level and mass vaccination are important in India’s pandemic situation.

    Back2basics: Tax buoyancy

    • There is a strong connection between the government’s tax revenue earnings and economic growth.
    • Tax buoyancy explains this relationship between the changes in government’s tax revenue growth and the changes in GDP.
    • It refers to the responsiveness of tax revenue growth to changes in GDP.
    • When a tax is buoyant, its revenue increases without increasing the tax rate.
    •  In 2007-08, everything was fine for the economy, GDP growth rate was nearly 9 per cent.
    • Tax revenue of the government, especially, that of direct taxes registered a growth rate of 45 per cent in 2007-08.
    • We can say that the tax buoyancy was five (45/9).

    What is tax elasticity?

    • It refers to changes in tax revenue in response to changes in tax rate.
    • For example, how tax revenue changes if the government reduces corporate income tax from 30 per cent to 25 per cent indicate tax elasticity.

  • Benefits of environmental fiscal reforms

    The article highlights the advantages of environmental fiscal reforms in India.

    Status of  out-of-pocket spending on health in India

    • As per WHO data, in 2011,  17.33% of the population in India made out-of-pocket payments on health that was more than 10% of their income.
    • The percentage was higher in rural areas compared to urban areas.
    • Globally, 12.67% of the population spent more than 10% of their income (out of their pocket) on health.
    • In Southeast Asia, 16% spent more than 10% of their household income on health.
    • Similarly, 3.9% of the population in India made more than 25% of out-of-pocket payments on health, with 4.34% of it in the rural areas.

    Alternate source of health financing: Eco tax

    • The Economic Survey of India 2019-20 has outlined that an increase in public spending from 1% to 2.5-3% of GDP, can decrease out-of-pocket expenditure from 65% to 30% of overall healthcare expenses.
    • The National Health Policy of 2017 also envisages increase in public spending from 1% to 2.5-3% of GDP.
    • This is where the importance of alternate sources of health financing in India needs to be stressed.
    • Fiscal reforms for managing the environment are important, and India has great potential for revenue generation in this aspect.

    Environmental tax reforms

    • Environmental tax reforms generally involve three complementary activities:
    • 1. Eliminating existing subsidies and taxes that have a harmful impact on the environment;
    • 2. Restructuring existing taxes in an environmentally supportive manner;
    • 3. Initiating new environmental taxes.
    • Taxes can be designed either as revenue neutral or revenue augmenting.
    • Revenue augmenting model: In case of revenue augmenting, the additional revenue can either be targeted towards the provision of environmental public goods or directed towards the overall revenue pool.
    • In developing countries like India, the revenue can be used to a greater extent for the provision of environmental public goods and addressing environmental health issues.

    Eco tax

    • The success of an eco tax (environment tax) in India would depend on its architecture, that is, how well it is planned and designed.
    • It should be credible, transparent and predictable.
    • Ideally, the eco tax rate ought to be equal to the marginal social cost arising from the negative externalities associated with the production, consumption or disposal of goods and services.
    • This would include the adverse impacts on the health of people, climate change, etc.
    • The eco tax rate may, thus, be fixed commensurate to the marginal social cost so evaluated.
    • There is also a need to integrate environmental taxes in the Goods and Service Tax framework.

    In India, eco taxes can target three main areas

    • One, differential taxation on vehicles in the transport sector purely oriented towards fuel efficiency and GPS-based congestion charges.
    • Two, in the energy sector by taxing fuels which feed into energy generation.
    • Three, waste generation and use of natural resources.

    Benefits of implementation of eco taxes

    • The implementation of an environmental tax in India will have three broad benefits: fiscal, environmental and poverty reduction.
    • Finance basic public services: Environmental tax reforms can mobilise revenues to finance basic public services when raising revenue through other sources proves to be difficult or burdensome.
    • Reduce distorting taxes: It can can also help to reduce other distorting taxes such as fiscal dividend.
    • Finance research: Environmental tax reforms help internalise the externalities, and the said revenue can finance research and the development of new technologies.

    Impact

    • Environmental regulations may lead to slow productivity growth and high cost of compliance in private sector.
    • This could result in the possible increase in the prices of goods and services.
    • However, the European experience shows that most of the taxes also generate substantial revenue and there is no evidence on green taxes with sustainable development goals leading to a ‘no growth’ economy.
    • Negligible impact on GDP: Most countries’ experiences suggest negligible impact on the GDP, though such revenues have not necessarily been used for environmental considerations.
    • The negligible impact on the GDP may be a temporary phenomenon.

    Conclusion

    This is the right time for India to adopt environmental fiscal reforms as they will reduce environmental pollution and also generate resources for financing the health sector.