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Type: Op-ed

  • Address the silent crisis of India’s gender deficit

    The recently released Gener Gap Report paints a grim picture for India. The deal with this issue.

    Where India Stands

    • The World Economic Forum’s (WEF) Global Gender Gap Report 2021 was released last week.
    • The report lays bare our silent crisis of gender inequality, aggravated by the covid pandemic.
    • India has slipped 28 places to 140th position among 156 countries on the WEF’s Global Gender Gap Index.
    • The country is now 37.5% short of an ideal situation of equality, by its index, last year it was a 33.2% deficit on the whole.
    • Back in 2006, we were almost 40% short, but even the slight progress made over the past 15 years has been highly uneven.
    • Gains were made on the education and political empowerment of women, we slid sharply on health and economic parameters.

    Factors to consider

    • Though pandemic has been responsible for the decline to a significant extent, many of our deficiencies are pre-covid.
    • Some of the drop in India’s international rank over the past two years, for example, has to do with regression in the field of political power.
    • The proportion of women ministers more than halved to 9.1% of the total, though our count of female Parliamentarians did not budge from its long stagnancy.
    • Our performance over the past decade-and-a-half has been poor on women’s economic opportunities and participation.
    • Indian workforce has been turning more predominantly male.
    • Senior managerial positions in the corporate sector have not seen sufficient female appointees.
    • At the aggregate level, our income disparity is glaring.
    • Women earn only a fifth of men, which puts India among the world’s worst 10 on this indicator.
    • We fare worse on women’s health and survival, with India beaten to the last rank only by China.

    Why proportionally fewer Indian women in jobs?

    • One explanation is that sociocultural attitudes go against women going out to work, unless the family lacks sustenance, and deprivation has been in decline for decades.
    • Another is that families prefer educated mothers to invest time in teaching their kids.
    • Both these motives are said to be influenced by upward income mobility and a quest for better lives.
    • Yet, the covid setback to both family incomes and gender progress would suggest the reasons are mostly attitudinal.

    Way forward

    • If the reasons are attitudinal, tax incentives and other schemes are unlikely to get women taking up more jobs.
    • What we need are new forms of social persuasion, which must go with credible assurances of gender equity in every sphere.

    Conclusion

    A country’s economic progress is inextricably linked to empowered women. So, India needs to act on the silent crisis of India’s gender deficit to move up the economic ladder.

  • India & NATO

    India has jettisoned many of its foreing policy shibboleths of late, however, avoiding NATO is not one of them. The article suggests engaging NATO to be in sync with the changing geopolitics.

    Why India avoided engagement with NATO in the past

    • India’s real problem is not with NATO, but with Delhi’s difficulty in thinking strategically about Europe.
    • Through the colonial era, Calcutta and Delhi viewed Europe through British eyes.
    • After Independence, Delhi tended to see Europe through the Russian lens.
    • The fall of the Berlin Wall and the collapse of the Soviet Union demanded a fresh approach to Europe.
    • But Delhi could not devote the kind of strategic attention that Europe demanded.
    • The bureaucratisation of the engagement between Delhi and Brussels and the lack of high-level political interest prevented India from taking full advantage of a re-emerging Europe.
    • In the last few years, Delhi has begun to develop an independent European framework, but has some distance to go in consolidating it.

    Ending political neglect of Europe

    • India has certainly sought to end prolonged political neglect of Europe.
    • The deepening maritime partnership with France since 2018 is an example.
    • Joining the Franco-German Alliance for Multilateralism in 2019 is another.
    • India’s first summit with Nordic nations in 2018 was a recognition that Europe is not a monolith but a continent of sub-regions.
    • India’s engagement with Central Europe’s Visegrad Four also highlighted the fact that Europe is not monolith.

    Why India should engage NATO

    • During the Cold War, India’s refusal was premised on its non-alignment.
    • That argument had little justification once the Cold War ended during 1989-91.
    • An India-NATO dialogue would simply mean having regular contact with a military alliance, most of whose members are well-established partners of India.
    • If Delhi is eager to draw a reluctant Russia into discussions on the Indo-Pacific, it makes little sense in avoiding engagement with NATO.
    • If Delhi does military exercises with China and Pakistan — under the rubric of the Shanghai Cooperation Organisation (SCO), why should talking to NATO be anathema?
    • To play any role in the Indo-Pacific, Europe and NATO need partners like India, Australia and Japan.
    • Delhi, in turn, knows that no single power can produce stability and security in the Indo-Pacific.
    • India’s enthusiasm for the Quad is a recognition of the need to build coalitions.
    • A sustained dialogue between India and NATO could facilitate productive exchanges in a range of areas, including terrorism, changing geopolitics; the evolving nature of military conflict, the role of emerging military technologies, and new military doctrines.
    • More broadly, an institutionalised engagement with NATO should make it easier for Delhi to deal with the military establishments of its 30 member states.
    • On a bilateral front, each of the members has much to offer in strengthening India’s national capabilities.

    What about Russia

    • Russia has not made a secret of its allergy to the Quad and Delhi’s growing closeness with Washington.
    • Putting NATO into that mix is unlikely to make much difference.
    • Delhi, in turn, can’t be happy with the deepening ties between Moscow and Beijing.
    • As mature states, India and Russia know they have to insulate their bilateral relationship from the larger structural trends buffeting the world today.
    • Meanwhile, both Russia and China have intensive bilateral engagement with Europe.

    Consider the question “India has to end its prolonged political neglect of Europe and engage a major European institution like NATO. In light of this, examine the factors restraining India’s engagement with the Europe.“

    Conclusion

    India’s continued reluctance to engage a major European institution like NATO will be a stunning case of strategic self-denial and we should avoid it.

  • Understanding the issues with bond market in India

    What explains the Indian government borrowing at a higher interest rate than the interest rates for a home loan? The answer lies in the structural shortage in demand for government bonds. 

    How the government’s cost of borrowing matter

    • Interest on government debt is a transfer from taxpayers to savers who own government bonds.
    • As the government bondholders are primarily domestic, interest paid by the government is just a transfer from one hand to the other within the economy.
    • However, the government’s cost of borrowing does matter.
    • The large increase in interest costs limits the government’s ability to spend elsewhere.
    • But more importantly, this rate also affects the cost of borrowing for large parts of the economy.

    Understanding the term premium and credit spread

    • The RBI sets the repo rate, which is the short-term risk-free rate.
    • That is, the loan must be repaid in a few days and there is almost no risk of default.
    • The rate at which the government borrows is the long-term risk-free rate.
    • But the lender wants higher returns given the longer duration of the loan.
    • The difference between the repo rate and government’s borrowing cost, say on a 10-year loan, is called the term premium.
    • When a private firm takes a 10-year loan, it would have some credit risk too, which means a credit spread is added to the 10-year risk-free rate.

    Challenge posed by term premium

    • From an average rate of 73 basis points since 2011 (one basis point is one-hundredth of a per cent), and 120 basis points in 2018 and 2019, the 10-year term premium is currently 215 basis points.
    • In other words, the interest rate for a 10-year period borrowing is 2.15 per cent higher than the current repo rate.

    How this is related to dysfunction in bond market in India

    • Financial markets are forward-looking, and as the collective expression of the views of thousands of participants, efficient ones can occasionally “predict” what comes next.
    • But the Indian bond market is not one such: The view some hold, that the rise in term premium reflects future rate hikes by the monetary policy committee (MPC), is mistaken.
    • The Indian bond market is still too illiquid and not diverse enough to predict future trends.
    • Even though some pandemic-driven measures are being withdrawn, the MPC continues to be accommodative, and for several months at least, headline inflation is unlikely to force an abrupt change.
    • In any case, the spurt in yields after the budget points to the causality being fiscal instead of inflation-related.
    • But even the fiscal rationale seems weak.
    • The Centre’s tax collection for FY2020-21 has been substantially ahead of target, and state governments have also borrowed Rs 60,000 crore less than expected.
    •  Also, the14 states, accounting for three-fourths of all state deficits, have budgeted FY2021-22 deficits at 3.3 per cent, far lower than the 4 per cent average expected earlier.
    • Just these factors suggest that total bonds issued by the central and state governments should be lower than what the market had feared before the union budget was presented.
    • And yet, government borrowing costs have not returned to pre-budget levels.
    • This reflects dysfunction in the market.
    • Why else would a government be borrowing at a higher cost than a mortgage on a house?

    What is the reason for dysfunction in bond market

    • Dysfunction can be traced to residential mortgages being among the most competitive of loan categories.
    • On the other hand, there is a structural shortage in demand for government bonds.
    • In such a market where there is a structural shortage in demand the marginal buyer holds all the cards, and as any buyer would, demands higher returns.
    • Over 15 years,  the share of banks in the ownership of outstanding central government bonds has fallen from 53 per cent to 40 per cent now.
    • But no alternative buyer of size has emerged to fill the space vacated.
    • The RBI sometimes buys bonds to inject money into the economy, but of late this space has been used to buy dollars to save the rupee from appreciation.

    Solutions

    • The solution to the problem of bond market may lie in getting new types of buyers.
    • The RBI opening up direct purchases by retail investors is a step in this direction, though it may not become meaningful for a few years.
    • That leaves us with tapping foreign savings.
    • The limit on share of government bonds that foreign portfolio investors (FPIs) can buy has been raised steadily.
    • But without Indian bonds being included in global bond indices, these flows may not be meaningful, and would be volatile, as they have been over the past year.
    • To enable inclusion in bond indices, the RBI and the government have earmarked special-category bonds which are fully accessible (FAR) by foreign investors.
    • The FTSE putting India on a watch-list for “potential future inclusion” in the Emerging Markets Government Bonds Index is a step forward, and, one hopes, triggers similar actions by other index providers.

    Consider the question “How the lack of retailness in the bond market affects the cost of borrowing of the government as well as the private borrowers? Suggest the measures to deal with the issues.”

    Conclusion

    The issues with bond markets in India highlights the urgency to find new buyers for government bond as it has implications not just for the government’s own fiscal space, but also for the cost of borrowing in the economy.

  • E-commerce policy is needed for speedy, inclusive growth

    The article highlights the untapped potential of the e-commerce sector in the transformation of the Indian economy and suggests factors to take into account in the new e-commerce policy.

    How pandemic contributed to the growth of e-commerce

    • A celebrated McKinsey study has revealed that we have covered a ‘decade in days’ in the adoption of digital during the pandemic.
    • Behavioural changes have been witnessed in most areas like work, learning, health, travel, entertainment, etc.
    • But the biggest surge has been in e-commerce, both in goods and services.

    Significance of the sector for India

    • E-commerce is one of India’s fastest-growing sectors, for attracting FDI and creating jobs, and providing a pan-India market for lakhs of SMEs, and facilitating exports.
    • India has a vibrant retail sector, bubbling with energy and a bright future.
    • E-commerce can rope in lakhs of MSMEs in cross-border trade and multiply turnover and revenues enormously.
    • Its role in facilitation of exports with linkages and access to overseas markets can also help inject competitiveness in our products and creating a lot of jobs and market opportunities, adding to inclusive growth.

    Issues faced by the sector

    • The digital interface during e-commerce processes with multiple agencies has resulted in a plethora of compliances.
    • These compliances include Income Tax Act 1961, Information Technology Act 2000, Consumer Protection Act 2019, FEMA Act 2000, Competition Act 2002, Companies Act 2013, Anti-Piracy Law, GSTN, DGFT, etc.
    • In addition, handling, generation and protection of humongous data is a major issue under data protection laws.
    • At times, there are requirements of compliances with various local and state laws, and during exports, adherence to foreign laws, many of which could be quite complex and rigorous.

    E-commerce policy to aid Inclusive growth

    • Inclusive growth being an important objective of the proposed e-commerce/FDI policy, it should recognise and support new business models in both product and service segments.
    • The policy should be aimed at improving consumer experience and providing gainful employment to regular and gig workers with improved earnings.
    • India, in fact, is the first country to extend protections to workers including the new-age gig and platform workers, which is being viewed with interest globally.
    • With the passage of the Code on Social Security 2020, policymakers have focused on financial and social security associated with employment to contemporary socio-economic realities.
    • The role of platform workers amidst the pandemic has presented a strong case to attribute a more robust responsibility to platform aggregator companies and the State.
    • This has cemented their role as public infrastructures who also sustain demand-driven aggregators and e-commerce platforms.
    • This role of the platform workers may help in higher productivity and more sustainable employment, when many of them could potentially become mini-entrepreneurs.
    • This, however, would need to be facilitated by concerned public and private institutions as also the multiple regulators in the e-commerce ecosystem.
    • In an online services market place and to provide full support to regular and gig professionals rendering services on the platform, it must be imperative on the service platform to build their capacity through training, technology and access to high-quality consumables and tools.

    Consider the question “Examine the role e-commerce can play in India’s pursuit of inclusive growth? What are the issues faced by the sector in India?” 

    Conclusion

    We are in for exciting times, as we enter this decade, rightly called the ‘Techade’; 2020 has accelerated technology infusion in all segments of life and activity. The world is looking at India with expectations and we owe it to our nation.

    Source: https://www.financialexpress.com/opinion/e-commerce-policy-needed-for-speedy-inclusive-growth/2226729/

  • Should Petroleum be brought within the ambit of GST?

    The article deals with the issues of demand for the inclusion of fuel oils in the GST regime and its implications for the revenue of the states and the Centre.

    How much tax we pay on petrol and diesel

    • The Union and state levies put together account for roughly 55 per cent and 52 per cent of the retail price of petrol and diesel respectively.
    • These work out to around 135 per cent and 116 per cent of the base prices of the two products respectively.
    • The central levy on petrol and diesel works out to around 36 per cent of the retail price while the state component is around 20 per cent (diesel) to 28 per cent (petrol).
    • Of the total central levies on petrol and diesel, Rs 1.40 per litre and Rs 1.80 per litre is the basic excise duty for the two fuels, and Rs 11 per litre and Rs 18 per litre is the special additional excise duty.
    • Both these components form part of the divisible pool of taxes i.e. 42 per cent of which (approximately Rs 52,000 crore) goes to the states.
    • The remaining portion of Rs 18 per litre in both cases is the Road and Infrastructure Cess and Rs 2.50 per litre and Rs 4 per litre is the Agriculture Infrastructure and Development Cess which are retained by the Centre.

    How other countries tax fuel oils

    • Being demerit goods, fuel oils and liquor are almost universally subject to a dual levy by countries that implement any kind of VAT or GST.
    • The levy is a mix of GST at a fixed percentage of the price which qualifies for credit in the value chain and a fixed amount or percentage of the price which is not creditable and is thus outside GST.
    • Punitive taxes of this order are levied primarily to discourage consumption of environmentally degrading fossil fuels and to garner revenues to fund infrastructure, while the creditable component enables offsetting of taxes on basically capital inputs.
    • These products are subjected to a plethora of levies like VAT, excise duty, storage levies, security levies and environmental taxes in the EU and the total incidence of such taxes ranges from around 45 per cent to 60 per cent.
    • The US is an exception in these matters since it imposes taxes at rates as low as around 15 per cent.

    Including fuel oils in the GST regime

    • the 122nd Constitution Amendment Bill in 2014 for GST adopted the delayed choice approach.
    • Under the delayed-choice approach, petroleum products would be subjected to GST with effect from such date as the council may recommend.
    • Accordingly, sections 9(2) and 5(2) of the CGST/SGST Act and the IGST Act respectively, explicitly provide for levy of GST on these products with effect from such date as the Council may recommend.
    • Thus, bringing the aforesaid petro-products under GST is not within the reach of the central government alone.

    How much will be the loss of revenue

    • A 28 per cent levy of GST on the base price would fetch around Rs 5.40 per litre on petrol and around Rs 5.45 on diesel to the central and each of the state governments.
    • Contrast the above with the current yield of Rs 32.90 per litre on petrol and Rs 31.80 per litre on diesel to the Centre alone and an average of around Rs 20 per litre and Rs 15 per litre on petrol and diesel, respectively, to each of the states.
    • This, however, would bring down the prices of petrol and diesel to around Rs 55 per litre.
    • This would translate into a revenue loss of around Rs 3 lakh crore on account of petrol and around Rs 1.1 lakh crore on account of diesel to the Centre and the states, at current volumes.

    Consider the question “What are the various levies contributing to the prices of petrol and diesel in India? Examine the rationale for the heavy taxing of these products in India.”

    Conclusion

    Clearly, bringing petro-products under GST would not lower fuel oil prices by itself, unless the Union and the state governments are willing to take deep cuts in their revenues.

  • Time to undo the RTE bias against private non-minority institutions

    The article highlights the issues with the exemption of aided and non-aided minority institutions from the Right to Education Act.

    Is RTE enforceable against individuals?

    • Most fundamental rights are enforceable against the state, not against private individuals.
    • Certain rights, however, are horizontally enforceable too, that is, they can be enforced against individuals.
    • The Right to Free and Compulsory Education Act or RTE falls in the latter category.
    • The right to education was initially mentioned in Article 45 as a part of the Directive Principles.

    Evolution of Article 21A

    • The Supreme Court in 1992 held in Mohini Jain v. State of Karnataka that the right to education was a part of the right to life recognised in Article 21.
    • The next year, the court in Unnikrishnan JP v. State of Andhra Pradesh held that the state was duty-bound to provide education to children up to the age of 14 within its economic capacity.
    • The court also acknowledged that private educational institutions, including minority institutions, would have to play a role alongside government schools.
    • The right to education was finally given the status of a fundamental right by the 86th constitutional amendment in the year 2002 by the addition of Article 21A in the Constitution.
    • The Supreme Court held in P. A. Inamdar case that there shall be no reservation in private institutions and that minority and non-minority institutions would not be treated differently.

    Impact of 93rd amendment

    • In 2005, the Constitution was amended by the 93rd amendment to include Clause(5) to Article 15 which dealt with the fundamental right against discrimination.
    • The clause permitted the state to provide for advancement of “backward” classes by ensuring their admission in institutions, including private institutions.
    • The clause, however, excluded both aided and unaided minority educational institutions thus overruling the Supreme Court’s judgment in P.A. Inamdar case.

    Discrimination in RTE

    • When the RTE Act was subsequently enacted in 2009, it did not directly discriminate between students studying in minority and non-minority institutions.
    • Subsequently, the provision of 25 per cent reservation in private institutions was however challenged in Society for Unaided Private Schools of Rajasthan v. Union of India where the court upheld the validity of the legislation exempting only unaided minority schools from its purview.
    • In response to the judgment, the RTE Act was amended in 2012 to mention that its provisions were subject to Articles 29 and 30 which protect the administrative rights of minority educational institutions.
    • So, the onus on private unaided schools was much higher than that on government schools, while even aided minority schools were exempt.
    • But the constitutional provision enabling the RTE Act, that is, Article 21, does not make any discrimination between minority and non-minority institutions.

    Issues

    • The above provisions of RTE made it violative of Article 14 and also economically unviable for many private schools.
    •  Not only has RTE unreasonably differentiated between minority and non-minority schools without any explicable basis, there is also no rational nexus between the object of universal education sought to be achieved by this act and the step of excluding minority schools from its purview.
    • Given the doctrine of harmonious construction of fundamental rights, it is unclear why the court granted complete immunity to minority institutions when several provisions of RTE would not interfere with their administrative rights.
    • RTE has provisions such as prevention of physical/mental cruelty towards students as well as quality checks on pedagogical and teacher standards which children studying in minority institutions should not be deprived of and to that extent be discriminated against.

    Way forward

    • The Kerala High Court held in Sobha George v. State of Kerala that Section 16 of RTE, which forbids non-promotion till the completion of elementary education, will be applicable to minority schools as well. 
    • The bench said that the courts must examine whether provisions such as Section 16 of RTE are statutory rights or fundamental rights expressed in a statutory form.
    • If the latter, then the Pramati case judgement will not be fully available to minority institutions.
    • The Supreme Court should take inspiration from the prudent decision delivered by the Kerala High Court and overrule its own judgment delivered in the Pramati Educational Society.

    Consider the question “What are the issues with the exemption of aided and non-aided minority institution from the RTE Act.”

    Conclusion

    RTE as legislation may be well-intentioned, but the time has come to relook at the discriminatory nature of RTE against private non-minority institutions, and to that extent, undo the damage done by 93rd Amendment and the subsequent SC judgments.

  • Land record Modernisation in India

    Updated land record system could help the landowner in many ways. However, there is a lack of an updated land record system in India. There are several factors responsible for it. The article highlights these factors.

    Need for updated land record

    • For a significant section of the rural poor, land is both an asset and a source of livelihood.
    • With livelihoods affected, the importance of land ownership for access to formal loans as well as government relief programmes became even more evident.
    • But the relatively poor availability of clear and updated land titles remains a hurdle.
    • The government of India’s Digital India Land Records Modernisation Programme (DI-LRMP) scheme is the most recent effort in encouraging updating of land record.

    Reasons for lack of updated land record data

    The National Council of Applied Economic Research made a pioneering effort in this direction by launching NCAER Land Records and Services Index (N-LRSI) in 2020.

    Following are the finding of NCAER about the poor state of land records.

    • The dismal state of land records is due to the failure of the Indian administration to evolve from British-era land policies.
    • In addition, land record regulations and policies vary widely across Indian states/union territories.
    • Though DI-LRMP provides a common framework for reporting the progress of land record management by states/UTs, the heterogeneous nature of regulations/guidelines for land record management in India makes the progress non-uniform.
    • One of the major roadblocks in ensuring continuous updation of land records is the lack of skilled manpower in land record departments in states.
    • Another dimension relates to the poor synergy across land record departments.
    • There is a lack of synergy between the revenue department as the custodian of textual records, the survey and settlement department managing the spatial records and the registration department, which is responsible for registering land transactions.
    • The swiftness of the process of updating ownership as the result of the registration of a transaction is commonly known as mutation.
    • The information obtained from all the state/UT sources in this regard revealed that no state/UT has the provision for online mutation on the same day as the registration.

    Way forward

    • With poor inter-departmental synergy, aspiring for updated and accurate records will always be a distant goal and states/UTs should take necessary actions to have the appropriate systems in place.
    • The improved system of land records is likely to facilitate the efforts that some states/UTs are making to ease land transactions — like lowering stamp duties by the Maharashtra government.
    • Finally, these efforts are going to be instrumental for the health of India’s rural economy.

    Consider the question “How an updated and functional land record system could help transform the rural economy? What are the hurdles in creating the updated land record system?”

    Conclusion

    The governments need to take measures to remove the hurdles in the creation of a robust land record system so as to help the landowners access institutional channels of credit.

  • Still no recognition of the third tier

    The article highlights the issues with the Fifteenth Finance Commission recommendations with regard to the third tier of the local governments.

    Significance of Finance Commission recommendations for local government

    • The primary task of the Union Finance Commission is to rectify the vertical and horizontal imbalances in resources and expenditure responsibilities between Union and States including the third tier of local governments.
    • Part IX and Part IX-A were incorporated into the Constitution by the 73rd and 74th Constitutional Amendment.
    • Part IX and Part IX-A mandate the Union Finance Commission to supplement the resources of panchayats and municipalities on the basis of the recommendations of the State Finance Commission.
    • Now, nearly 2.5 lakh local governments and over 3.4 million elected representatives form the real democratic base of the Indian federal polity.

    Increase in vertical devolution

    • The Fifteenth Finance Commission has raised the vertical devolution recommended to local governments to 4.23% with a reasonably estimated amount of ₹4,36,361 crore.
    • Compared with the Fourteenth Finance Commission there is a 52% increase in the vertical share.
    • Even if we deduct the grant of ₹70,051 crore earmarked for improving primary health centres, the share is still an all-time high of 4.19%.
    • All the Commissions since the Eleventh Commission have tied specific items of expenditure to local grants and the Fifteenth Finance Commission has raised this share to 60% and linked them to drinking water, rainwater harvesting, sanitation and other national priorities in the spirit of cooperative federalism.

    Reduction in performance-based  grants

    • The Fifteenth Finance Commission has reduced the performance-based grant to just ₹8,000 crore — and that too for building new cities, leaving out the Panchayati Raj Institutions (PRIs) altogether.
    • The performance-linked grants were introduced by the Thirteenth Finance Commission and covered a wide range of reforms.
    • The transformative potential in designing performance-linked conditionalities for improving the quality of decentralised governance in the context of indifferent states is missed.

    Encouraging standardisation of accounting system

    • An important recommendation of the Fifteenth Finance Commission is the entry-level criterion to avail the union local grant (except health grant) by local governments.
    • For panchayats, the condition is the online submission of annual accounts for the previous year and audited accounts for the year before.
    • For urban local governments, two more conditions are specified: fixation of the minimum floor for property tax and improvement in its collection.
    •  It is not clear why gram panchayats are left out from this.
    • Although Finance Commissions, from the Eleventh to the Fourteenth, have recommended measures to standardise the accounting system and update the auditing of accounts, the progress made has been halting.
    • Therefore, the entry-level criteria of the Fifteenth Finance Commission are timely.

    Missed opportunity to ensure minimum public services

    • The Fifteenth Finance Commission failed to carry policy choices forward systematically.
    • Articles 243G, 243W and 243ZD read along with the functional decentralisation of basic services like drinking water, public health care, etc., mandated in the Eleventh and Twelfth schedules demand better public services and delivery of ‘economic development and social justice’ at the local level.
    • A good opportunity to ensure comparable minimum public services to every citizen irrespective of her choice of residential location has not been taken forward in an integrated manner.

    Missing equalisation principle for the local government

    • The Fifteenth Finance Commission claims that it seeks to achieve the “desirable objective of evenly balancing the union and the states”.
    • It is not clear why there is no recognition of the third tier in this balancing act.
    • It may be relevant to recall that the Alma-Ata declaration of the World Health Organization (1978) which outlined an integrated, local government-centric approach with a simultaneous focus on access to water, sanitation, shelter and the like.
    • There is no integrated approach in the recommendations of the Fifteenth Finance Commission about the local governments (in contrast to the recommendations of the Thirteenth Finance Commission).
    • Although the Fifteenth Finance Commission stresses the need to implement the equalisation principle, it is virtually silent when it comes to the local governments.

    Equity and efficiency sidelined

    • The Fifteenth Finance Commission employed population (2011 Census) with 90% and area 10% weightage for determining the distribution of grant to States for local governments.
    • The same criteria were followed by the Fourteenth Finance Commission.
    • While this ensures continuity, equity and efficiency criteria are sidelined.
    • Abandoning tax effort criterion incentivises dependency, inefficiency and non-accountability.

    Consider the question “Discuss the various aspects of the Fifteenth Finance Commission’s recommendations with regard to local governments.”

    Conclusion

    In sum, if decentralisation is meant to empower local people, the primary task is to fiscally empower local governments to deliver territorial equity. We are far from this goal.

  • US foreign policy has changed, India can’t bank on being its ‘ally’ anymore

    The article highlights the paradigm shift in the U.S. foreign policy in which the U.S. engages with a country on several parallel lines with little or no scope for a trade-off between them.

    Changes in the U.S. foreign policy

    •  US foreign policy is no longer based on old friend-or-foe classification under which transgressions by a “friend” or an “ally” were overlooked if the country was helpful to US self-interests.
    • Instead, the US foreign policy paradigm has shifted to one where a country’s position on an issue — trade, climate change, security, or human rights — is the categorising principle and not the country.
    • Put differently, engagement with countries will be done on issues with little or no trade-off among them.
    • Competition, cooperation, and confrontation can all characterise the US’s bilateral engagement depending on the specific issue.
    • For example, trade will involve competition while climate change and pandemics will necessitate cooperation.
    • Human rights and national security issues could be confrontational.

    Smart sanctions

    • A key instrument of foreign policy will be the now well-honed system of “smart” sanctions.
    • Sanctions in the past were directed at a country as a whole but such sanctions were counterproductive and created anti-US sentiment.
    • In its latest version, smart sanctions do not target countries, but specific individuals, firms, and institutions for a variety of alleged transgressions.
    • US businesses and individuals cannot transact with sanctioned entities.
    • The Magnitsky Accountability Act of 2012, for example, targeted those involved in the death of Russian lawyer Sergei Magnitsky and others responsible for human rights abuses in Russia.
    • When this was found to be successful, an executive order, passed in 2017, extended the provisions in the Magnitsky Act, to all who are corrupt or violate human rights in the world.

    What does this mean for India

    • Unlike in the antiquated rational-actor paradigm where there are imagined trade-offs across issues, in the new framework the US engages with countries on parallel lines.
    • The engagement is multifaceted across trade, intellectual property rights, climate change, security, terrorism, and, importantly, human rights, with limited trade-off across them.
    • Whether cooperation, competition, or confrontation dominate the nature of the engagement will depend on the specifics not whether India is a friend or a foe.

    Conclusion

    This marks the shift in the U.S. foreign policy, if others, including India, do not adapt to this paradigm shift, then they will find engagement with the US starkly different and surprisingly difficult.

  • A new architecture of economic growth is required

    The article highlights the factors to consider in framing the policies for the well being of the people.

    Increase in inequality

    • According to a report released by the World Bank, while India’s stock markets rose during the pandemic the number of people who are poor in India with incomes of $2 or less a day is estimated to have increased by 75 million.
    • This accounts for nearly 60% of the global increase in poverty, the report says.
    • The old global economy was very good for migrant capital, which could move around the world at will.
    • The pandemic has revealed that the old economy was not good for migrant workers, however.
    • Their “ease of living” was often sacrificed for capital’s “ease of doing business”.

    New strategy for growth

    • India urgently needs a new strategy for growth, founded on new pillars. One is broader progress measures.
    • GDP does not account for vital environmental and social conditions that contribute to human well-being and the sustainability of the planet.
    • According to global assessments, India ranks 120 out of 122 countries in water quality, and 179 out of 180 in air quality.
    • Several frameworks are being developed now to measure what really matters including the health of the environment, and the condition of societies: public services, equal access to opportunities, etc.

    Issues with the present frameworks for measurements

    • Most of these frameworks seek to define universally applicable scorecards.
    • The items measured are given the same weightages in all countries to arrive at a single overall number for each country.
    • This ‘scientific’ approach does enable objective rankings of countries.
    • However, as the Happiness Report explains, this ‘objective’ approach misses the point that happiness and well-being are always ‘subjective’.
    • Therefore, countries in which the spirit of community is high, such as the ‘socialist’ countries of Northern Europe, come on top of well-being rankings even when their per capita incomes are not the highest.

    Solutions for well being

    • The universal solution for improving well-being is for local communities to work together to find their own solutions.
    • Locals know which factors in the 17 Sustainable Development Goals matter the most to them.
    • Standard global solutions will neither make their conditions better nor make them happier.
    • Therefore, communities must be allowed to, and assisted to, find their own solutions to complex problems.
    • The philosopher Michael J. Sandel says that the ideology of ‘individualism’ justifies indifference to the conditions of those less well off.
    • It denies that societal conditions are responsible for the difficulties poor people have.
    • It also conveniently hides that societal conditions have contributed substantially to the wealth of those well-off.

    Consider the question “Rising income inequality in the aftermath of the pandemic points to the need for a new architecture of growth. Discuss.” 

    Conclusion

    When only some shine, India does not shine. Therefore, the government has to pursue the policies that result in the well being of the majority and not a few.