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  • Freedom of Speech – Defamation, Sedition, etc.

    Big tech regulation and problems

    op-ed snap | Governance | Mains Paper 2: Governance, Transparency & Accountability, Citizens Charters,Government Scheme/Policies

    Note4Students

    From UPSC perspective, the following things are important:

    Prelims level: Not much

    Mains level: Paper 2- Regulation of Big tech and challenges

    Article highlights the issues with the growing dominance of social media giants and challenges involved in regulating them.

    Issues to consider

    1) Conflict of interest

    • Many of the big tech companies were not, as they claimed, mere platforms.
    • This is because they began to curate and generate their own content, creating possible conflicts of interest.

    2) Monopoly power

    • There is a suspicion that big tech companies were acquiring more monopoly power leading to lack of free competition.
    • There is a conjunction of technology and finance here.
    • The more companies were valued, the more they needed monopoly rent extraction to be able to justify those valuations.

    3) Lack of accountability in algorithms

    • There was an irony in an opaque algorithm being the instrument of a free, open and equitable society.

    4) Mixed implications for distribution of wealth

    • While the companies had immense economic impact, their distributive implications were more mixed.
    • They empowered new players, but they also seem to destroy lots of businesses.
    • These companies themselves became the symbol of inequality of economic and political power.

    5) Lack of accountability and standards in regulating free speech

    • Big tech companies set themselves up almost as a sovereign power.
    • This was most evident in the way they regulated speech, posing as arbiters of permissible speech without any real accountability or consistency of standards.
    • The prospect of a CEO exercising almost untrammelled authority over an elected president only served to highlight the inordinate power  these companies could exercise.

    6) Effects of big tech on democracy and democratisation

    •  The social legitimacy of California Libertarianism came from the promise of a new age of democratic empowerment.
    • But as democracies became more polarised, free speech more weaponised, and the information order more manipulated, greater suspicion was going to be cast on this model.
    • All democracies are grappling with this dilemma.

    Big tech in Indian context

    • India will justifiably worry about its own economic interests.
    • India will be one of the largest bases of internet and data users in the world.
    • The argument will be that this should be leveraged to create iconic Indian companies and Indian value addition.
    • India can create competition and be more self-reliant in this space.
    • Pushing back against big tech is not protectionism, because this pushback is to curb the unfair advantages they use to exploit an open Indian market.
    • India can also justifiably point out that in China keeping out tech companies did not make much of a difference to financial flows or investment in other areas.

    The real challenge

    • It will be important to distinguish between regulations that are solving some real problems created due to Big tech, and regulation that is using this larger context to exercise more control.
    • It will be easier to address those issues if the government showed a principled commitment to liberty, commitment to root out crony capitalism, an investment in science and technology commensurate with India’s challenges, and a general regulatory independence and credibility.

    Consider the question “What are the challenges posed by the dominance of social media giants? Suggest the measures to deal with these challenges.”

    Conclusion

    We should not assume that just because big tech is being made to kneel, the alternative will be any better.

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  • Climate Change Impact on India and World – International Reports, Key Observations, etc.

    India Inc must follow global example, take affirmative action on climate change

    op-ed snap | Enviro & Biodiversity | Mains Paper 3: Conservation, Environmental Pollution & Degradation, Eia

    Note4Students

    From UPSC perspective, the following things are important:

    Prelims level: Not much

    Mains level: Paper 3- Making businesses recognise their carbon footprint

    The article explains the global trend in investors and lendors are demanding companies to recognise their impact on environment and act on it.

    Accountability on climate change: global trend

    • There is a wave of investors pushing large corporations from across sectors, to recognise their carbon footprint and take affirmative action.
    • Aviva, the British insurance company announced it would divest stock and bond holdings in 30 of the biggest corporate emitters of carbon, if their boards failed to take affirmative action over climate change.
    • MPs in the United Kingdom called on the Bank of England to ratchet up environment standards in its pandemic stabilising, corporate bond programme.
    • Swedbank AB, Sweden’s biggest mortgage bank, has taken a decision not to provide fresh loans to new oil and gas projects.

    Companies realising social and environmental impacts

    • Several large and growing companies, especially in Europe, are realising their social and environmental impacts and making it a boardroom agenda even without investor guns on their heads.
    • Schneider Electric, the energy management and automation company, has embedded environmental, social and governance (ESG) considerations into every facet of its activities.
    •  The company climbed from 29th to number 1 rank in the 2021 Global 100 ranking in the Corporate Knights index of the world’s most sustainable companies.
    • Only one company from India, Tech Mahindra, has made it to the world’s 100 most sustainable list.

    Indian scenario

    • Indian institutional lenders and investors are simply not demanding enough on sustainability.
    • A majority of Indian companies are only meeting compliance norms set out by various state or city authorities.
    • Rarely do they go beyond rule-based compliances and implement environment, social and governance or ESG goals with purpose and passion like their European counterparts.

    Way forward

    • SEBI is putting the final touches on the Business Responsibility and Environment Reporting (BRSR) guidelines.
    • The new ESG reporting norm will apply to the top 1,000 listed companies on Indian exchanges.
    • Under BRSR reporting guidelines, companies will have to declare their R&D spends on improving environmental and social outcomes. 
    • They will have to disclose energy and water consumed to turnover ratios, and the percentage of recycled or reused input materials, among many other social and governance disclosures such as CSR, employee skilling and gender diversity.
    • It’s time for lending institutions and investors to align with SEBI and use their muscle to drive a deeper change.

    Consider the question “Indian institutional lenders and investors are  not demanding enough on sustainability from the companies. Rarely do they go beyond rule-based compliances and implement environment, social and governance or ESG goals with purpose and passion like their European counterparts. In light of this, suggest the measures to nudge the businesseses to act on their environmental responsibilities.” 

    Conclusion

    Stepping up green standards to meet Paris Climate Agreement goals cannot be the government’s responsibility alone. Businesses must be part of the movement, or the target of containing global warming to less than 1.5 degrees of pre-industrial levels, will remain elusive.

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  • Finance Commission – Issues related to devolution of resources

    15th Finance Commission could catalyse accountability, effective governance at grassroots

    op-ed snap | Polity | Mains Paper 2: Constitutional Bodies

    Note4Students

    From UPSC perspective, the following things are important:

    Prelims level: Not much

    Mains level: Paper 2- Catalysing accountability and creative governance in local government

    The article explains the innovative approach adopted by the Fifteenth Finance Commission in devolution of funds.

    Steep hike in grants

    • Local governments are the closest to the people at the grassroots level. 
    • They provide critical civic amenities such as roads, water and sanitation, and primary education and health.
    • With this in view, the Fifteenth Finance Commission (FFC) has recommended grants of Rs 4,36,361 crore from the Union government to local governments for 2021-26.
    • This is an increase of 52 per cent over the corresponding grant of Rs 2,87,436 crore by its predecessor for 2015-20.

    Innovation in recommendations

    1) Scaling of capacities in municipalities

    • The Commission has recommended Rs 8,000 crore as performance-based grants for incubation of new cities and Rs 450 crore for shared municipal services.
    • This is designed to foster innovations in urban governance to transform our cities with speed and scale.
    • There is an urgent need for synergistically combined area-based development to spur economic growth and job creation, and decongesting through the development of satellite townships.
    • Separately, the massive scaling of capacities in municipalities, particularly the 4,000-odd smaller ones, cannot be done by building capacities in each one of them, but through institutional and technological innovations, without compromising their autonomy.
    • The shared municipal services model, with mobile internet, maps, platform thinking, and outsourced services all taken together, can help us fast-track the creation of municipal capacities at scale.
    • This is one of the innovations in the FFC recommendations.

    2) Allocation covers all three tiers of panchayats

    • Of grants for all local governments with 90 per cent weightage on population and 10 per cent on area remains unchanged from the Fourteenth Finance Commission.
    • For panchayats, the FFC allocations cover all the three tiers — village, block, and district — as well as the Excluded Areas in a state exempted from the purview of Part IX and Part IX-A of the Constitution.
    • Funds to all three can improve functional coordination and facilitate the creation of assets collectively across smaller jurisdictions.
    • This is the second new aspect of the FFC recommendations.

    3) Focus on metropolitan governance

    • The FFC calls for a focus on urban agglomerations (UAs) that include urban local bodies, census towns and outgrowths.
    • In 2011, out of the total urban population of 377 million, 61 per cent lived in UAs.
    • The FFC has emphasised the need to focus on the complex challenges of air quality, drinking water supply, sanitation, and solid waste management in the million-plus UAs and cities.
    • Thus, for 2021-26, there is a Million-plus Challenge Fund of Rs 38,196 crore that can be accessed by million-plus cities only through adequate improvements in their air quality and meeting service level benchmarks for drinking water supply, sanitation, and solid waste management.
    • This focus on metropolitan governance through substantive but 100 per cent outcome-based grants is the third innovation.
    • For ULBs other than the million-plus category, the total grants are Rs 82,859 crore.
    • The grants to local governments, both urban (less than a million category) and rural, contain a mix of basic, tied as well as performance grants.

    4) Entry-level conditions

    • The efficiency, smooth functioning and accountability of local bodies have been plagued by:
    • (i) lack of readily accessible and timely audited accounts,
    • (ii) absence of timely recommendations of State Finance Commissions and suitable actions thereon,
    • (iii) inadequate mobilisation of property tax revenues (especially in ULBs).
    • Finance Commissions in the past have drawn pointed attention to these issues, but with limited success.
    • These entry-level conditions for availing any grants and their applicability to all local governments is the fourth innovation.

    Consider the question “Examine the innovative approach adopted by the Fifteenth Finance Commission for the devolution of funds to panchayats and municipal bodies.”

    Conclusion

    Hopefully, over the next five years, through a partnership among the Union, states, and local governments, in the spirit of cooperative federalism, these recommendations and innovations will catalyse progress in the accountability and effectiveness of local governments in India.

     

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

    Drafting labour code keeping in mind the realities of informal sector workers

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

    Note4Students

    From UPSC perspective, the following things are important:

    Prelims level: Not much

    Mains level: Paper 3- Issues of the informal workforce

    The article highlights the vulnerabilities of workers in the informal sector and also highlights the issues in the draft rules in the labour codes.

    Context

    • The budget referred to the implementation of the four labour codes.
    • There is also a provision of Rs 15,700 crore for MSMEs, more than double of this year’s budget estimate.

    Impact of pandemic on informal workers

    • India’s estimated 450 million informal workers comprise 90 per cent of its total workforce, with 5-10 million workers added annually.
    • Nearly 40 per cent of these employed with MSMEs.
    • According to Oxfam’s latest global report, out of the total 122 million who lost their jobs in 2020, 75 per cent were lost in the informal sector.
    • The National Human Rights Commission recorded over 2,582 cases of human rights violation as early as April 2020.

    Issues with the draft rules in labour code

    • The rush to clear the labour codes and form the draft rules shows little to no intent on part of the government to safeguard workers.
    • The draft rules envisage wider coverage through the inclusion of informal sector and gig workers, at present the draft rules apply to manufacturing firms with over 299 workers.
    • This leaves 71 per cent of manufacturing companies out of its purview.
    • The draft rules mandate the registration of all workers (with Aadhaar cards) on the Shram Suvidha Portal to be able to receive any form of social security benefit.
    • This would lead to Aadhaar-driven exclusion and workers will be unable to register on their own due to lack of information on the Aadhaar registration processes.
    • A foreseeable challenge is updating information on the online portal at regular intervals, especially by the migrant or seasonal labour force.
    • It is also unclear as to how these benefits will be applicable in the larger scheme of things.

    Neglect of informal sector

    • The draft rules fail to cater to the growing informal workforce in India.
    • The growing informal nature of the workforce and the lack of the state’s accountability makes it a breeding ground for rising inequality.
    • The workers face the risk of violations of their human and labour rights, dignity of livelihood, unsafe and unregulated working conditions and lower wages.

    Consider the question “Assess the impact of covid pandemic on workers in the informal sector. Also examine the issues with the draft rules in the labour code.”

    Conclusion

    The Code on Social Security was envisaged as a legal protective measure for a large number of informal workers in India but unless the labour codes are made and implemented keeping in mind the realities of the informal sector workers, it will become impossible to bridge the inequality gap.

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  • Minimum Support Prices for Agricultural Produce

    Farm laws must reflect regional and crop diversities

    op-ed snap | Agriculture | Mains Paper 3: Issues Related To Farm Subsidies & Msp

    Note4Students

    From UPSC perspective, the following things are important:

    Mains level: Paper 3-

    The article argues for consideration of the regional variation in the conditions of farmers and their concerns in the context of recently introduced farm laws.

    Argument against diversification

    • In Punjab, Haryana and western UP, minimum support price (MSP)-based agriculture has a logic.
    • Not all regions must diversify.
    • The region has great alluvial soil, good irrigation and almost a century-long tradition of the application of science to agriculture.
    • In south Punjab, with less irrigation, and parts of Haryana not covered by the Indira Gandhi Canal, some diversification to pulses, cotton etc. could work but the solid specialisation in this region remains.

    Issue of middlemen

    • Arhtiyas (middlemen) are important in Indian agricultural markets.
    • They are a part of the supply chain in north-west India.
    • Here they are not like the middlemen elsewhere.
    • They function simply as agents of the procurement agencies.
    • This was done by the past government to reduce overhead costs of procurement.

    Steps need to be taken

    • The e-markets, forwards and farmer-managed companies are not the dominant mode of rural organisations.
    • Agriculture is the one good sector in otherwise dismal year.
    • So, we need to strengthen it, not feed off on its glory, even outside north-west India.
    • We have the largest spread of agricultural markets in the world according to spatial maps.
    • But they are not APMCs.
    • With weak markets (outside of grains) and without first-stage processing and other infrastructure, the farmer knows he is at the mercy of the trader and comes out on the streets when that is not understood.

    Evolution of MSP

    • The MSP played a crucial role in the days of compulsory procurement and zonal restrictions.
    • Each crop had its own report then.
    • Later separate reports were replaced by two reports, one for kharif and another one for rabi, apart from one for sugarcane (an annual crop).
    • The 1982 rabi report stated that relative prices and, in that context, MSP had the role of an intervention mechanism when markets failed, outside the compulsory procurement area.
    • Later, the concept of transport costs and managerial costs became important.

    Way forward

    • The Essential Commodities Act should be ditched.
    • Good laws are good because progress starts with them, but not all laws are good everywhere.
    • A modified version of the laws with a roadmap can be on the agenda — not everywhere, but most places outside the lands of the five rivers.

    Conclusion

    The amended laws should be considered in the context of regional variation in the country and necessary changes should be made to address the concerns of the farmers.

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  • Finance Commission – Issues related to devolution of resources

    In difficult times, Fifteenth Finance Commission rose to the challenge

    op-ed snap | Polity | Mains Paper 2: Constitutional Bodies,Parliament & State Legislatures

    Note4Students

    From UPSC perspective, the following things are important:

    Prelims level: Finance Commission

    Mains level: Paper 2- Recommendations of Fifteenth Finance Commission

    The article analyses the various recommendations of the Fifteenth Finance Commission and their impact.

    Unique challenges

    • Many new and unique demands were placed on the 15th Finance Commission.
    • The major challenge being addressing the issue of the 2011 population census evoking a sharp response from the southern states.
    • Other issues include the non-lapsable defence fund and the use of certain parameters for performance incentives.
    • The Commission was also required to perform the task of assessing and projecting the fiscal roadmap for the Union and state amid an uncertain domestic environment due to shortfall in the GST collection, further accentuated in the year 2020 by the global pandemic.

    Key recommendations

    The Commission, in its final report, recommended vertical devolution at 41 per cent, adjusting 1 per cent for the erstwhile state of Jammu and Kashmir.

    1) Horizontal distribution

    • For horizontal distribution, the commission has tried to harmonise the principles of expenditure needs, equity and performance.
    • This is achieved by the introduction of efficiency criteria of tax and fiscal efforts and by assigning 12.5 per cent weight to demographic performance.
    • Consideration of demographic performance will help in resolving the demographic debate and incentivising states in moving towards the replacement rate of population growth.

    2) Principles governing grant-in-aid

    • Grants are important as they are more directly targeted and equalise the standards of basic social services to some extent.
    • The Commission has recommended a total grant of Rs 10,33,062 crore during 2021-26.
    • Grant is broadly characterised into: (a) revenue deficit grants (b) grants for local governments (c) grants for disaster management (d) sector-specific grants and (e) state-specific grants.
    • Many of these grants are linked with performance-based criteria, thereby promoting principles of transparency, accountability, and leading to better monitoring of expenditures.
    • However, the Commission was asked to examine whether revenue deficit grants should be provided at all to the states.
    • Some states stressed that revenue deficit grants have serious disincentives for tax efforts and prudence in expenditure and, hence, these should be discontinued.
    • Fiscally stressed states of Kerala, West Bengal and Punjab are regular recipients of these grants due to high debt legacy.

    3) Conditional grants to local bodies

    • This Commission’s grant for local government is different from that of its predecessors for the set of entry-level conditions:
    • (a) Constitution of State Finance Commissions.
    • (b) Timely auditing and online availability of accounts for rural local bodies coupled with
    • (c) Notifying consistent growth rate for property tax revenue for urban local bodies.
    • Secondly, the recommendations are in alignment with the national programmes of Swachch Bharat Mission and Jal Jeewan Mission.

    4) Incubation of new cities and urban grants

    • It is for the first time that a Finance Commission has recommended Rs 8,000 crore to states for incubation of new cities, granting Rs 1,000 crore each for eight new cities.
    • The focus of urban grants for million-plus cities is improvement in air quality and meeting the service level benchmark of solid waste management and sanitation.

    5) Grants for health and setting up of disaster mitigation fund

    • The commission recommended channelising the health grant of Rs 70,051 crore through local bodies, addressing the gaps in primary health infrastructure.
    • The Commission’s recommendation for setting up the state and national level Disaster Risk Mitigation Fund (SDRMF), in line with the provisions of the Disaster Management Act, is both well-timed and necessary.
    • For the first time, the Finance Commission has introduced a 10-25 per cent graded cost-sharing basis by the states for the NDRF and NDMF which has not been appreciated by the states.

    6) Non-lapsable fund for defence

    • The Commission has recommended setting up of a dedicated non-lapsable fund, the Modernisation Fund for Defence and Internal Security (MFDIS).
    • Objective of the fund is to bridge the gap between projected budgetary requirements and budget allocation for defence and internal security and to provide greater predictability for enabling critical defence capital expenditure.
    • The fund will have four specific sources: (a) Transfers from the Consolidated Fund of India, (b) disinvestment proceeds of DPSEs, (c) proceeds from the monetisation of surplus defence land and (d) proceeds of receipts from defence land likely to be transferred to state governments and for public projects in the future.
    • The total indicative size of the proposed MFDIS over the period 2021-26 is Rs 2,38,354 crore.
    • The Union government has accepted this recommendation in principle.

    Consider the question “Examine the various principles on which the Fifteenth Finance Commission based the horizontal distribution of states share.”

    Conclusion

    The report starts with the famous quote of Mahatma Gandhi: “The future depends on what we do in the present”. It would be interesting to see the impact of these overarching and revolutionary recommendations in the times ahead.

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  • Government Budgets

    Tax regime change

    op-ed snap | Economics | Mains Paper 3: Government Budgeting

    Note4Students

    From UPSC perspective, the following things are important:

    Prelims level: Vivad se Vishwas scheme

    Mains level: Paper 3- Measures adopted for increasing transparency and compliance in taxation.

    Article explains the measures adopted in the Budget 2021-22 for increasing compliance and transparency.

    Maintaining the status quo

    • COVID-19 has upset fiscal maths around the world.
    • It is in this context that the Union budget assumed significance this year.
    • The expectations of tax breaks were rife on the presumption that this could boost economic activity.
    • Whereas others called for a tax on stock market gains.
    • Unyielding to such requests, the budget was based on a pragmatic approach to maintain the status quo.

    Why higher tax rates would not help much

    • Nearly 60 per cent of corporate taxes are paid by the 0.06 per cent of the companies belonging to the top income bracket.
    • On the other hand, among individual taxpayers, only 0.17 per cent report taxable incomes above Rs 25 lakh.
    • Therefore, higher taxes would either yield little revenue or adversely affect economic activity.

    Need to shift focus to compliance and greater transparency

    •  For increasing compliance and transparency, significant proposals have been made:
    • 1) Limited the window for reopening the case to 3 years.
    • 2) The introduction of the requirement for an assessment officer to provide facts on the basis of which he/she re-assesses.
    •  3) The faceless Income Tax Appellate Tribunal (ITAT).
    • By making the process of assessment faceless the major causes for litigation are addressed.
    • The limited window of re-opening cases for small taxpayers and due consideration of risk management strategy and the CAG’s observations in carrying out such assessments marks an improvement in the process.

    Dispute resolution mechanism with better interface

    • The Vivad se Vishwas scheme was launched in 2020 to address piling litigation and it is reported that collections under this scheme have been Rs 85,000 crore for 1,10,000 taxpayers.
    • This is a small fraction as compared to the Rs 4.34 lakh crore in corporate taxes and Rs 4.49 lakh crore in income taxes that are locked in dispute.
    • Therefore, a dispute resolution mechanism that allows for better interface between the taxpayer and the department may, in fact, be relatively beneficial.

    Consider the question “Examine the reasons for small tax base in India. Examine the measures adopted in the Budget 2021-22 for increasing compliance and transparency.”

    Conclusion

    The budget estimates suggest that corporate tax and income tax collections are expected to increase by 22 per cent. With an expected growth rate of 14 per cent in nominal GDP, the remaining gains in taxes are presumably expected from higher compliance or realisation of taxes due. Whether this will pan out remains to be seen.

     

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  • Right To Privacy

    Protecting freedom in era of technological transformation

    op-ed snap | Governance | Mains Paper 2: Government Scheme/Policies

    Note4Students

    From UPSC perspective, the following things are important:

    Prelims level: Not much

    Mains level: Paper 2- How governments are dealing with the dominance of social media

    The article discusses the issue of growing influence of social media companies and response of the governments.

    Issues with the growing influence of social media companies

    • In the US the last two general elections in 2016 and 2020 have seen strong charges of political manipulation by social media companies.
    • But influence of social media companies is not limited ot elections, it envelops a range of domestic and international issues.
    • These issuesincludes: the concentration of economic power, individual rights against the state as well as the corporation, disinformation, the rise of digital geopolitics, and global digital governance.

    How governments are responding

    •  Democratic forces need to consult each other and collaborate in developing new norms for managing the digital world.
    • In the US, both the left and right are demanding that digital behemoths like Amazon, Google, Facebook and Twitter are brought under greater control if not broken up.
    • Last December, the European Commission proposed new rules to promote competition and fairness in digital markets.
    • The EU is likely to approve a Digital Markets Act next year.
    • Australia has decreed that Google must work out an arrangement with Australian newspapers to pay for the use of their content.
    • The current digital giants, however, are not easily amenable to political attack.
    • They are bigger than the biggest we have known.

    3 Issues with business practices of social media companies

    • Governments are now questioning the sharp business practices of the tech giants especially labour rights, taxes and politics.
    • While the tech giants have created a lot of new wealth, some of them have sharply squeezed the labour.
    • In California, trade unions are battling against the success of Uber and Lyft to turn employees into “contract workers” to deny them multiple benefits.
    • Digital giants have been aggressive tax evaders.
    • On the political front recently,Twitter and Facebook shut down President Donald Trump’s accounts.
    • European leaders raised important questions about social media’s actions against Trump.

    Way forward

    • Answer to deal with social media on political front lies in laying down a clear set of obligations and responsibilities for the digital giants.
    • This move will help in building digital sovereignty.
    • The world’s democracies must get together to discuss global digital governance.

    Consider the question “What are the challenges posed by the growing influence of social media companies in the democratic countries?” 

    Conclusion

    As governments push back against big tech, a new challenge presents itself — reining in the growing power of the state in the digital age. The answer lies in democracies modernising their laws to protect freedoms in the era of technological transformation.

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  • Finance Commission – Issues related to devolution of resources

    Finance Commission dips into states’ share for Centre’s expenditure

    op-ed snap | Polity | Mains Paper 2: Constitutional Bodies

    Note4Students

    From UPSC perspective, the following things are important:

    Prelims level: Finance Commission and its recommendations

    Mains level: Paper 2- Fifteenth Finance Commission report and federalism

    The article analyses the recommendations of fifteenth Finance Commission and their implications for the federalism in India.

    Major recommendations accepted by the government

    • Report of the fifteenth Finance Commission (XVFC) was laid before the Parliament.
    • The finance minister announced the acceptance of its recommendation of retaining the share of states in central taxes at 42 per cent.
    • She also stated that on its recommendation revenue deficit grants of Rs 1.18 lakh crore to the states have been provided for in the budget.
    • Some of the recommendations, however, have far-reaching implications on government finances, both of the Centre and the states.
    • Keeping in view the extant strategic requirements for national defence in a global context, XVFC has, in its approach, recalibrated the relative shares of the Union and the states in gross revenues receipts.

    Issues with the recalibration for national defence

    • Recalibration enables the Union to set aside resources for special funding on defence.
    • The states have been made to pay Rs 7,000 crore to bridge [the] Centre’s gap between projected budgetary requirements and budget allocation for defence and internal security defence.
    • But this is an expenditure that the Centre is obliged to fund.
    • For the first time, a finance commission has carved out resources meant for distributable statutory grants and dipped into the states’ revenue share, as against the tax share, in order to finance the Centre’s exclusive expenditure obligation.
    • What has been done is not in line with the system envisaged in the Constitution.
    • This move will eventually put the fiscal federal system under systemic strain.
    • In operational terms, too, this move is a significant departure.
    • So far, the Centre has been used to pre-empting resources from the kitty to be distributed among the states but only to finance expenditures in areas earmarked for states.
    • This was done through the centrally-sponsored schemes, but at least the states’ money was being used in the states, even if on a discretionary rather than a criteria basis.
    • Now, with this move of earmarking and financing of funds for sectors, it is the states’ money that is being used to finance the Centre’s expenditure.
    • This is certainly not cooperative federalism.

    Changes in horizontal distribution: More weightage to efficiency and performance

    • In horizontal distribution, the criteria used by successive finance commissions for devolving taxes across states have always been linked to need — based on equity, tempered by efficiency.
    • From 92.5 per cent of funds to a state being devolved based on need and equity, the XVFC has reduced these two components to 75 per cent.
    • The remaining 25 per cent are to be devolved on considerations of efficiency and performance.
    • This is the lowest weightage for equity, making the XVFC transfers potentially the least progressive ever.

    Structural changes not taken into account

    • The Finance Commission has not even made any serious effort to review the existing scheme of transfers in light of the changed federal landscape.
    • The existing criteria for the devolution have evolved in, and for, a production-based tax system.
    • The XVFC should have reformulated the distributional criteria for a consumption-based tax system [GST].
    • The structural change from production to consumption will make a significant difference to distribution as well as the need, nature and distribution of equalising grants.
    • This is the same manner in which the revenue deficit grants have been carried forward.
    • Ideally, the “gap-filling” approach should have been redesigned in light of the compensation law providing a minimum-guaranteed revenue of 14 per cent to every state.

    Consider the question “For the first time, a finance commission has carved out resources meant for distributable statutory grants and dipped into the states’ revenue share, as against the tax share, in order to finance the Centre’s exclusive expenditure obligation. What are the issues with this move?”

    Conclusion

    The Fifteenth Finance Commission report is not aligned with the new landscape of federalism and does not address the key issues.

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

    Farm lessons from China, Israel

    op-ed snap | Agriculture | Mains Paper 3: Issues Related To Farm Subsidies & Msp

    Note4Students

    From UPSC perspective, the following things are important:

    Prelims level: Not much

    Mains level: Paper 3- Agri-marketing reforms and water accounting to solve the problems of agriculture

    China and Israel offer two important lessons for India to transform its agriculture: agri-market reforms and water accounting.

    Lessons from Israel and China

    • India, China and Israel — started off their new political journey in late 1940s, but today China’s per capita income in dollar terms is almost five times that of India, and Israel’s almost 20 times higher than India.
    • China produces three times more agri-output than India from a smaller arable area.
    • China started off its economic reforms in 1978 by taking up agriculture first.
    • It dismantled its commune system of land holdings and liberated agri-markets that allowed farmers to get much higher prices.
    • As a result, in 1978-84, farmers’ incomes in China increased by almost 14 per cent per annum, more than doubling in six years.
    • Israel cultivates high-value crops for exports (citrus fruits, dates, olives) by using every drop of water and recycling urban waste water for agriculture, by de-salinisation of sea waters.
    • Water accounting in Israel is something exemplary.

    Need for agri-reform in India

    • The average holding size in China was just 0.9 ha in 2016-18, smaller than India’s 1.08 ha in 2015-16.
    • So there is no doubt that small holders can do wonders, if they are given the right incentives, good infrastructure and research support, and the right institutional framework to operate.
    • In India, the 1991 reforms did not include agriculture.
    • Indian agri-food policies remained more consumer-oriented with a view to protect the poor.
    • Export controls, stocking limits on traders, movement restrictions, etc all continued at the hint of any price rise.
    • The net result of all this was farmers’ incomes remained low and so did those of landless agri-labourers.

    Way forward

    • India needs to change its policy framework from being subsidy-led to investment-driven, from being consumer-oriented to producer-oriented, and from being supply-oriented to demand-driven by linking farms with factories and foreign markets, and, finally, from being business as usual to an innovations-centred system.
    • Until India breaks away from the policy of free power for agriculture, there would be no incentive for farmers to save water.
    • In a state like Punjab where almost 80 per cent of blocks are over-exploited or critical, meaning the withdrawal of water is much more than the recharge.
    • Highly subsidised urea and open-ended procurement have become a deadly cocktail that are eating away the natural wealth of Punjab.
    • Out-of-box thinking is needed to break this regressive cycle for a brighter future for Punjab, for our own children.

    Consider the question “What are the implications of subsidy oriented policies for Indian agriculture.”

    Conclusion

    Lessons from China and Israel suggest that India need reform in agri-food policies and water accounting to address several issues plaguing agriculture.

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