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Type: Op-ed

  • The unmet health challenge

    The article analyses the allocation for the health sector in the Budget and highlights the need for more allocations.

    Need to increase spending on health

    • The Economic Survey argues for the need to increase public spending on healthcare to 2.5-3 per cent of the GDP — it’s about 1.5 per cent currently.
    • The Survey points out that there is not much difference in terms of outcomes and quality between healthcare services in the private sector and such services in public centres.
    • The Economic Survey, therefore, calls for strengthening the National Health Mission (NHM) along with Ayushman Bharat.
    • NHM was initiated in 2005-06 to strengthen public health services.
    • The Ayushman Bharat provide social insurance, thereby financing private sector services with public funds. 
    • The Economic Survey makes a strong pitch for greater regulation of health services in the private sector.

    Break-up of allocation in Budget on health (and well being)

    • The finance minister described “health and well-being” as one of the pillars of the budget in her budget speech and announcing a 137 per cent increase in allocations for it.
    • She placed healthcare, water and sanitation and nutrition as the key components of this pillar.
    • However, the figures in the budget documents reveal a different story.
    • There is an absolute increase of 9.6 per cent in allocations for the Department of Health and Family Welfare that includes NHM and Ayushman Bharat.
    • A 26.8 per cent increase for the Department of Health Research and 40 per cent increase for the AYUSH Ministry do not add up to much since each of them are only 3-4 per cent of the total health budget.
    • A Finance Commission grant of Rs 13,000-crore and Rs 35,000-crore for COVID-19 vaccination are one-time allocations and, therefore, do not strengthen the overall system.
    • The core health service and research ministries (H&FW and AYUSH) have together received only an 11 per cent increase.
    • Even in COVID times, the health services get only 2.21 per cent of the total central budget — down from 2.27 per cent in the 2020-21 budget.
    • Computing for inflation, the increase in allocation for health services alone disappears and actually becomes negative.
    • Water and sanitation received a 179 per cent increase from Rs 21,518 crore to Rs 60,030 crore already earmarked for the flagship schemes, Swachh Bharat and Jal Jeevan Mission.
    • But allocation for nutrition decreased by 27 per cent, with the “new” Poshan 2.0 merely combining the poorly performing Supplementary Nutrition Programme and Poshan project.
    • Added together, health, water and sanitation and nutrition make up the claimed 137 per cent increase in allocation to “health” services — with a real decline in healthcare and nutrition.

    Pradhan Mantri Atma Nirbhar Swasthya Yojana (PMANSY)

    • Finance Minister also announced a new scheme, the Pradhan Mantri Atma Nirbhar Swasthya Yojana, to support the almost 29,000 health and wellness centres in the country.
    • The scheme also envisages the creation of public health laboratories and critical care hospital blocks and virology institutes.

    Concerns with PMANSY

    • PMANSY has an announced allocation of Rs 64,180 crore over six years, but it does not find a place in the present budget documents.
    • But these additional activities could have been slotted in the NHM.
    • Since 2014, the allocation for NHM has been on the wane.
    • Therefore, even the marginal 1.33 per cent increase (from Rs 27,039 crore to Rs 30,100 crore) is a demonstration of the government’s realisation that public services do matter.
    • The allocations of about Rs 10,000-Rs 11,000 crore each year for the PMANSY is not enough for making the public services capable of “universal health coverage”.
    • The High-Level Expert Group on Universal Health Coverage had estimated that by 2020, we need a 114 per cent increase in sub-centres and primary health centres, 179 per cent increase in community health centres and a 230 per cent increase in sub-district and district hospitals.
    • Getting anywhere close to this requires doubling of real allocations every year over a five-year period to reach something like 10 per cent of the budget.
    • In the present budget, it declines to a mere 2.21 per cent.

    Way forward

    • If such public provisioning for universal health coverage can’t be done, then effective low-cost rationalised service system options have to be designed.
    • Insurance schemes only create the mirage of affordability of health services while adding to peoples’ expenses.
    • Community and public services are indisputably the most cost-effective for any society.

    Consider the question “Examine the benefits of the idea of health and well being under which health, water and sanitation and nutrition are clubbed together.”

    Conclusion

    Water and sanitation are meaningful for health, but not if it only inflates the allocation to “Health and Wellbeing”. What we need is the real increase in spending on health.

  • The way forward in Myanmar

    The article discusses the five lessons from past experiences as the international community frames its response to the military coup in Myanmar.

    Coup in Myanmar

    • After Aung San Suu Kyi’s National League for Democracy (NLD) swept the polls by winning almost 80% of the vote, Myanmar’s military staged a coup and declared a state of Emergency for a year.
    • Myanmar, which started a fragile transition to democracy 10 years ago after decades of brutal military dictatorship, is back in the hands of the Generals.

    Lessons for the international community

    1) Benefits of sanctions

    • The developments in Myanmar will invariably bring back the old debate around the prudence of sanctions.
    • Notwithstanding the western sanctions before 2010 [during military rule], China, Thailand and Singapore were the key trading partners of Myanmar.
    • The present reality is no different.
    • Singapore was reportedly the largest foreign investor in Myanmar in 2020, accounting for 34% of the overall approved investment.
    • Given that the military has been able to economically withstand sanctions by striking deals with Asian countries in the past, sanctions are unlikely to bring any major political change.

    2) Accountability for crime against humanity

    • As political changes got underway in 2010, many generals were on the radar of the international community for perpetuating a regime of human rights abuses, quietly vanished from the scene.
    • This bred a culture of impunity.
    • During the 2017 Rohingya crisis, senior military officials brazenly exploited social media to mobilise public support for brutality against Rohingyas.

    3) China’s influence

    • Three, a critical international player in Myanmar is China.
    • The international community, particularly the West, has to factor in China’s multi-layered influence on Myanmar.

    4) Revival of past international mechanisms

    • Many international mechanisms comprising Western and Asian countries that were formed to coordinate strategies on Myanmar were disbanded after the 2015 election.
    • That the changes in Myanmar were irreversible was the standard thinking.
    • Relevant actors should be brought on a common platform by reviving past mechanisms.

    5) Increasing the engagement with domestic stakeholders

    • The expectation that Myanmar will see a nationwide protest against the military after the coup should be examined with the geographical extent of Bamar, Myanmar’s largest ethnic group, who support the National League for Democracy.
    • The minorities in the country form around 35% of the population.
    • In the current scenario, the military will continue to exploit ethnic and religious fault lines.
    • Engagement with domestic stakeholders, including ethnic minorities, especially from the north, should be pursued by the international community.

    Consider the question “As military hinders Myanmar’s transition to democracy, what are the factors that should be considered by the international community as it form the response to the situation in the country.”

    Conclusion

    There is one consistent lesson, that no change is irreversible, particularly in a context where military leadership scripted the meaning of democracy, and domestic forces and geopolitics continuously fail to deter its actions and impulses to rule.

  • No to vaccine nationalism, yes to global cooperation

    India has been supplying vaccines to other countries even as its first phase of vaccination covers the health care workers. At the same time, the selfishness of the advanced countries has been on full display by amassing the approved vaccines. The article deals with the issue of vaccine nationalism.

    What is vaccine nationalism

    • When a country manages to secure doses of vaccines for its own citizens or residents and prioritises its own domestic markets before they are made available in other countries it is known as ‘vaccine nationalism’.
    • This is done through pre-purchase agreements between a government and a vaccine manufacturer.
    • The advance purchase contracts made by some advanced countries for potential vaccines would vaccinate their population many times: the European Union, two times, the United States and the United Kingdom, four times, and Canada, six times.

    Impact on the SDGs

    • The reversal of progress on many Sustainable Development Goals, or SDGs, such as SDG 3 (“Ensure healthy lives and promote well-being for all at all ages) could affect the health of the world population, and global growth itself.
    • Even before COVID-19, projections have shown that 6% of the global population would be in extreme poverty, which has gone up by 71 million, thereby causing enormous challenges to SDG 1 (“End poverty in all its forms everywhere”).
    • According to estimates by the International Monetary Fund, over 50% of emerging markets and developing economies that were converging toward advanced economies per capita income over the last decade are expected to diverge over the 2020-22 period.

    India’s important role

    • While advanced countries have turned their back on the need of poor countries, India has taken a position that a significant percentage of the approved doses will be permitted for exports.
    • While its exports to neighbouring counties will be under grant mode, initial shipment of vaccines to least developed countries will be free of cost.
    • Brazil has received 2 million doses of vaccine from India (as of January 23).
    • While India is in its first phase of vaccination to cover health-care workers, exports from India are helping other countries also in initiating phase one of their vaccination programme — a gesture well-appreciated globally.
    • The ability to produce large volumes of vaccine at an affordable cost underlines India’s importance to developing countries when it comes to drug access.

    Need for coordinated global efforts

    • Due to the vaccine nationalism, the arguments of public good and global cooperation have been widely neglected.
    • Nevertheless, India’s approach only reinforces the need of having coordinated global efforts in bringing COVID-19 under control.
    • This response manifests India’s unstinted commitment to global development and has consolidated its name as the world’s pharmacy.

    COVAX Project: Unique case of global cooperation

    • The COVAX project is a global risk-sharing mechanism for pooled procurement and fair distribution of COVID-19 vaccines.
    • It is based on funding from high and middle-income countries.
    • Since high and middle-income countries are buying up large amounts of the vaccine directly from suppliers, the promise by COVAX to deliver 2 billion doses by the end of 2021 seems to face new challenges.
    • Since most of the vaccines are purchased from the global south [specifically, India and China] for developing nations, the COVAX project can draw new pathways for global development.
    • Most of these vaccines are cost-effective and affordable to the global south.

    Consider the question “What is vaccine nationalism? Examine the role played by India against the backdrop of vaccine nationalism.” 

    Conclusion

    The development of vaccines is a classic story of global cooperation between the North and the South. Unfortunately, the increasing nationalist tendencies of the democratic World during the pandemic have challenged the positive narrative on global cooperation.

  • Government set for fiscal push, RBI needs to do more

    The article analyses the key features of the Union Budget, including the increase in overall expenditure and jump in capital expenditure in FY22.

    Explaining the Rs 4.1 lakh crore jump in expenditure in FY21

    • The budget has moved clearly from off-balance-sheet funding [borrowing by FCI and arrears of fertiliser subsidy] to headline-deficit funding.
    • That possibly explains the surge in fiscal deficit in the current fiscal at 9.5 per cent of GDP.
    • However, by excluding such off-balance-sheet funding, the headline-fiscal deficit declines to 8.6 per cent of GDP. 
    • A closer look at the food subsidy, juxtaposed with outstanding FCI liabilities shows that Rs 1.2 lakh crore (0.6 per cent of the GDP) is a pure accounting shift, while the rest Rs 1.9 lakh crore is new spending this fiscal.
    • Hence, the incremental spending in FY21 comes to around Rs 2.9 lakh crore (net of Rs 1.2 lakh crore/ 1.5 per cent of the GDP).
    • Interestingly, the government has also spent an additional Rs 62,638 crore on fertiliser subsidy, the entire amount of which has been front-loaded.

    Focus on capital expenditure in FY22

    • Increase in the expenditure in FY22 is noticeable as the pie has decisively shifted towards capital expenditure.
    • The budgeted raise in FY22 is 4.6 times larger than the trend increase in the last two decades. 
    • The proposed capital expenditure amounts to 3.4 per cent of the GDP if we also include allocation for capital expenditure for autonomous bodies.
    • Assuming an Incremental Capital Output Ratio (ICOR) of 4.5, one can expect a GDP growth contribution of 0.8 per cent on account of the capital expenditure.
    • The other number in the budget that deserves admiration is the significant decline in extra budgetary resources of the government and PSUs. All this augurs well even for rating agencies if we go by purely fiscal transparency as a rule.

    Steps to clean up NPAs in the banking sector

    • The most notable development in the financial system is announcement of setting up an Asset Reconstruction Company (ARC) and an Asset Management Company (AMC).
    • The approach is to set up an AMC, which in partnership with an ARC, takes over large stressed assets ( approximately Rs 3.5 lakh crore) spread across multiple banks that have a clear potential for turnaround.
    • An operational turnaround of the asset creates value for the overall system.
    • The AMC/AIF-led approach could enable a move towards true price discovery, consolidating debt into one single entity ensuring faster decision-making, freeing up blocked capital/funds and an operational turnaround of assets.
    • A better price discovery could be ensured by having an independent investment committee comprising of senior management professionals.

    Increase in FDI limit in insurance sector

    • The Union budget also has a proposal to increase the FDI limit in insurance companies to 74 per cent from the present 49 per cent, with Indian management control.
    • It is expected that fresh capital will bring a new wave in technical know-how, innovation, and new products to the advantage of consumers, pushing up insurance penetration in the country.
    • However, we must ensure that foreign investors become interested in the Indian insurance sector as the current FDI used limit is at 33.8 per cent in private insurers.

    Role of RBI

    • With the government set for a fiscal push, the baton has passed to the RBI.
    • Overall, monetary and fiscal policies need ideal co-ordination for macroeconomic management.
    • If the central bank pursues its monetary objectives by not accommodating debt financing in its strategy, the macroeconomic outcome may be worse for both the fiscal and monetary authorities, as well as for the economy.
    • Fortunately, the RBI and government have worked in perfect harmony during the pandemic.
    • As it continues, we can have a stable interest rate regime which will be rewarding for all, particularly the government.

    Conclusion

    The Union Budget for FY22 is a budget to consolidate (C), spend (S) and revive (R) and shows that the government is set for fiscal push. Now, the baton has passed to the RBI.

    Back2Basics: What Is the Incremental Capital Output Ratio (ICOR)?

    • The incremental capital output ratio (ICOR) is a frequently used tool that explains the relationship between the level of investment made in the economy and the consequent increase in the gross domestic product (GDP).
    • ICOR indicates the additional unit of capital or investment needed to produce an additional unit of output.

  • The Budget bids goodbye to fiscal orthodoxy

    A whopping fiscal deficit at 9.5% of GDP for FY21 highlights departure of India’s fiscal policy from the path of fiscal consolidation. The article highlights the issues related to such departure.

    Important departure

    • With its fiscal deficit at 9.5% of GDP for FY21 and 6.8% in FY22 Budget for 2021-22 seems to signal “spend like there is no tomorrow”.
    • For well over a decade-and-a-half, we have tried attaining deficit targets set out in the Fiscal Responsibility and Budget Management (FRBM) Act (2003).
    • In this Budget, target of FRBM Act has not been adhered to.
    • The Budget thus marks an important departure from one of the key tenets of the Washington Consensus that was based on macroeconomic stability.
    • In previous years, Medium Term Fiscal Policy cum Fiscal Strategy Statement would give the indicators for the past two years as well as the projections for the next two years.
    • In this year’s Budget, the yearly projections are missing.
    • The Finance Minister has promised to introduce an amendment to the FRBM Act to formalise the new targets.

    The theoretical basis for departure

    • The Economic Survey laid the groundwork for a departure from rigid adherence to fiscal consolidation. 
    • It has a quote from economist Olivier Blanchard, “If the interest rate paid by the government is less than the growth rate (IRGD), then the intertemporal budget constraint facing the government no longer binds.”
    • The “intertemporal budget constraint” means that any debt outstanding today must be offset by future primary surpluses.
    • The Survey argues that in India, the growth rate is higher than the interest rate most of the time. 
    • The Survey says that, in the current situation, expansionary fiscal policy will boost growth and cause debt to GDP ratios to be lower, not higher.

    Key concerns

    • An important factor for adhering to the fiscal constraint in the past was the fear that the rating agencies would downgrade India if total public debt crossed, say, 10%-11% of GDP.
    • That is a risk that cannot be wished away unless the rating agencies have decided to toe the IMF-World Bank line on fiscal deficits.
    • Another concern is that a large fiscal deficit can fuel a rise in inflation.
    • A third concern is that, with the tax to GDP ratio not rising as expected, the sale of public assets has become crucial to reduction in fiscal deficits in the years ahead. This is a high-risk strategy.
    • A large-scale privatisation almost always involves substantial FDI.
    • In South East Asia and Eastern Europe, privatisation of banks meant a large rise in foreign presence in the domestic economies.

    Consider the question “The Budget 2021-22 is characterised by its departure from the path of fiscal consolidation. Examine the theoretical basis for such departure. What are the key concerns?”

    Conclusion

    If the nation’s political economy came in the way of our meeting the FRBM targets, it is also likely to pose an obstacle to large-scale privatisation. A departure from fiscal orthodoxy is welcome. But the government needs to think of ways to make it more sustainable.

    Back2Basics: Interest Rate Growth Differential

      • A key indicator of an economy’s long-run debt sustainability is the differential between interest paid on government debt and the economy’s nominal growth rate.
      • When the cost of raising debt is lower than the gross domestic product (GDP) growth rate, public debt comes with low fiscal costs.
      • In such a situation, the debt-to-GDP ratio of the economy declines as debts are rolled over.

     

  • Bringing transparency in Budget in agri-food sector

    The article analyses the Union Budget and highlights the emphasis on transparency by showing the borrowing of the FCI and arrears of the fertiliser companies in the Budget.

    Transparency in food subsidy and arrears of fertiliser industry

    • Year after year, a substantial part of the food subsidy was being put under the carpet by increasing the Food Corporation of India’s (FCI) borrowings.
    • The amount had crossed Rs 3 lakh crore.
    • The revised estimate (RE) for FY 2020-21 is 3.66 times the budgeted figure, indicating that almost all borrowings of FCI have been cleared.
    • This is indeed a historic step towards introducing transparency in the Union Budget.
    • The Budget also cleared off the fertiliser industry’s arrears.
    • Against the budgeted figure of Rs 71,309 crore for FY 2020-21, the revised estimate is Rs 1,33,947 crore, an increase of Rs 62,638 crore.

    Neglect of R&D

    • From a policy perspective one must point to the huge bias towards subsidies as compared to investments, especially research and development.
    • The allocation for agri-R&D is a meagre Rs 8,514 crore in FY 2021-22 against a RE of Rs 7,762 crore in FY 2020-21.
    • The marginal returns in terms of agri-growth from expenditures on agri-R&D are almost five to 10 times higher than through subsidies.
    • India spends not even half of what a private global company like Bayer spends on agri-R&D — almost Rs 20,000 crore every year.
    • This is why growth momentum in agriculture remains subdued and India keeps spending on freebies with sub-optimal results.

    Subsidies needs a rethink

    1) Food subsidy

    • The FCI’s economic cost of rice is Rs 37/kg and of wheat about Rs 27/kg.
    • This economic cost is roughly 40 per cent higher than the procurement price.
    • This calls for giving the public distribution system’s beneficiaries the choice of direct cash transfers.
    • This could create a more diversified demand which, in turn, will support diversification in agriculture.
    • Further, in food subsidy, it is time to revise the issue prices for beneficiaries except for the antyodaya (most marginal) category.
    • Percentage of population covered by the food subsidy should be brought down to 40 per cent.

    2) Fertiliser subsidy

    • Massive subsidisation of urea, to the tune of almost 70 per cent of its cost, is leading to its sub-optimal usage.
    • It is time to move towards direct cash transfers to farmers based on a per hectare basis and free up prices of fertilisers.
    • This will help reduce leakages and imbalance in NPK (nitrogen, phosphorus, potassium) usage and lead to efficiency, equity and environmental sustainability.

    Consider the question “If one looks at India’s Union Budget, it is easy to notice huge bias towards subsidies and neglect of the research and development in agriculure in the allocation for agriculture sector. What are the implications of such bias?” 

    Conclusion

    Overall, the expenditure on agri-R&D needs to be doubled or even tripled in next three years, if growth in agriculture has to provide food security at a national level and subsidies on food and fertilisers need to be contained. At the same time, food subsidy and fertiliser subsidy needs rationalisation.

  • Budget is constructive, but lack of income support continues

    The article takes broad overview of the Budget and highlight the recovery led by the goverment spending.

    Faster and sharper recovery

    • The economy has been recovering sharply and faster in the last two quarters than suggested by official growth numbers.
    • Official growth number remain based on antiquated year-on-year comparisons.
    • Comparisons from a year ago have a serious problem in that they depend on what happened four quarters earlier and tell us very little about growth momentum.
    • J.P. Morgan estimates suggest that, on a quarterly basis, India’s GDP plunged 25 per cent in the second quarter of 2020 and grew 21.5 per cent in the third quarter of the same fiscal year.
    •  This is a narrative markedly different from that portrayed by the official numbers.

    What is the basis of optimis

    • The economy is likely to have grown another 10.5 per cent in the fourth and is expected to deliver a growth rate of negative 6.5 per cent for the full fiscal year and then rise by 13.5 per cent in FY 2022.
    • The basis of this optimism is two-fold.
    • First, by accident or design, India has managed to break the link between infection and mobility.
    • The second is the recent shift in the government’s fiscal stance.
    • After delaying for nearly six months, the government began to speed up spending in September.

    Government spending to boost economy

    • With the economy recovering and the equity market surging, taxes and privatisation would reasonably be expected to rise.
    • The revenue increase could be used to reduce the deficit while keeping spending broadly at its current share of the Gross Domestic Product (GDP).
    • This would allow spending to grow 17-18 per cent, in line with the nominal GDP.
    • The choice really boiled down to where to spend.

    Higher fiscal deficit

    • For this year, the Budget pegged the deficit at 9.5 per cent of GDP, much higher than market estimates of around 7 per cent and a 5 per cent-point rise over the previous year.
    • Instead of funding food procurement through off-balance-sheet borrowing by the Food Corporation of India (FCI), as has been the case in the last few years, this year’s Budget has rightly brought some of that spending back on its accounts.
    • Excluding subsidies and interest payments, the increase in the deficit is just 2 percentage points of GDP.

    Continues lack of income support

    • In the details, while there is a welcome emphasis on public health, infrastructure projects, and on privatisation, the glaring omission is the continued lack of income support.
    • This lack of income support is important.
    • Underlying the strong headline recovery in growth, imbalances in the economy have widened significantly.
    • The scarring in the labour market is extensive and the likely damage to household and SME balance sheets substantial.
    • While a debt moratorium and other regulatory forbearance have concealed the extent of the damage, these measures simply postpone the eventual reckoning.
    • A key risk is that not only is medium-term growth impaired because of the scarring, but also that banks turn risk-averse and do not extend credit exactly when the recovery is expected to gather strength once mobility fully normalises.

    Consider the question “While the Budget for 2021-21 rightly health, infrastructure and privatisation, the lack of income support could threaten the prospects of recovery. Comment.”

    Conclusion

    While the Budget is constructive and has helped to allay fears of excessive fiscal tightening, it did not go far enough to mitigate the tail risk that the current economic recovery does not turn into a “dead cat bounce”.

  • Municipal finance reform through Finance Commission recommendations

    Transforming the financial governance of India’s municipalities

    • Interim report of the Fifteenth Finance Commission of India (XV FC) indicates that it could fundamentally transform the financial governance of India’s municipalities.
    • Final report for FY 2021-22 to FY 2025-26 is expected to be tabled along with the forthcoming Budget 2021-22.
    • Building on the track record of previous finance commissions, the XV FC Commission has significantly raised the bar on financial governance of India’s municipalities in the interim report in at least four specific ways.

    4 Provisions in the interim report

    1) Increase in the outlay for municipalities

    •  It has set aside Rs 29,000 crore for FY 2020-21 and indicated the intent to raise the share of municipalities in the total grants’ of local bodies including panchayats gradually over the medium term, from the existing 30 per cent to 40 per cent.
    • This could result in the outlay over five years being in the range of Rs 1,50,000-Rs 2,00,000 crore compared to Rs 87,000 crore during the XIV FC period.

    2) Ensuring financial accountability through conditions

    • Two very important entry conditions have been set for any municipality in India to receive FC grants:
    • 1) Publication of audited annual accounts.
    • 2) Notification of floor rates for property tax.
    • These two entry conditions lay strong foundations for financial accountability of municipalities and own revenue enhancement respectively.
    • Similarly, the Atmanirbhar Bharat Abhiyan links Rs 50,000 crore of additional borrowing limits for states to reforms in property taxes and user charges for water and sanitation.
    • There is also a thrust on municipal bonds and municipal finance reform conditions under AMRUT.

    3) Distinguishing between million-plus urban agglomerations, and other cities

    • The XV FC has adopted an approach of distinguishing between million-plus urban agglomerations, and other cities.
    • This is well-founded, based on the pattern of urbanisation in India, where 53 million-plus urban agglomerations comprising 250-plus municipalities account for approximately 44 per cent of the total urban population.
    • The remaining 4,250-plus municipalities comprise 56 per cent of the total urban population.
    • Of the remaining 56 per cent, there is a “long tail” of approximately 3,900 municipalities with 33 per cent of the total urban population.
    • The XV FC has now provided for 100 per cent outcome-based funding of approximately Rs 9,000 crore to 50 million-plus urban agglomerations (excluding Union Territories) with specific emphasis on air quality, water supply and sanitation and basic grants to the rest of the cities, with 50 per cent of the end-use tied to water supply and sanitation.
    • For the first time, there is also an acknowledgement of the metropolitan area as a unified theatre of action to solve complex challenges of air quality, water and sanitation, with implicit emphasis on inter-agency coordination.

    4) Common digital platform for municipal accounts

    • The report recommends a common digital platform for municipal accounts, a consolidated view of municipal finances and sectoral outlays at the state level, and digital footprint of individual transactions at source, the FC has broken new ground and demonstrated farsightedness.

    Role of the state governments

    • The ultimate responsibility for municipal finance reforms remains with state governments.
    • Constitutional bodies such as the finance commission can, at best, prepare the ground and provide incentives and disincentives.
    • We need municipal legislation to reflect progressive and enabling financial governance of our cities through five reform agendas:
    • 1) Fiscal decentralisation including strengthening state finance commissions.
    • 2) Revenue optimisation to enhance own revenues.
    • 3) Fiscal responsibility and budget management to accelerate municipal borrowings.
    • 4) Institutional capacities towards an adequately skilled workforce.
    • 5) Transparency and citizen participation (for democratic accountability at the neighbourhood level).
    • The first step needs to be predictable fiscal transfers from state governments to municipalities and other civic agencies on a formula-based approach as against the present practice of ad hoc, discretionary grants.
    • State finance commissions would need to emulate the XV FC and its predecessors, and emerge as credible institutions.
    • State governments need to ensure that state finance commissions are constituted on time, resourced right, and their recommendations taken seriously.

    Consider the questions “Financial governance of our cities faces several challenges. Discuss the reforms that could transform the financial governance of municipalities”

    Conclusion

    The state government must act on these reform agenda and ensure the transformation of financial governance of their municipalities.

  • How PFMS is ensuring transformation via digital inclusion

    The article highlights the role played by the Public Financial Management System (PFMS) in promoting the good governance.

    About PFMS

    • With the objective of bringing in transformational accountability and transparency and to further promote good governance, the Indian government envisioned Public Financial Management System (PFMS).
    • PFMS has evolved as an end to end solution for Processing, Monitoring, and reconciling financial flows of Central Govt.
    • Today, PFMS has empowered governance to become more responsive, accountable, and transparent.

    Mandate of PFMS

    • Through Cabinet decision, PFMS has been mandated the following:
    • It acts as a financial management platform for all plan schemes and allows for efficient and effective tracking of fund flow to the lowest level of implementation for the planning scheme of the Government.
    • It is mandated to provide information on fund utilization leading to better monitoring, review, and decision support system to enhance public accountability in the implementation of plan schemes.
    • To result in effectiveness and economy in Public Finance Management through better cash management for Government transparency in public expenditure and real-time information on resource availability and utilization across schemes.

    Achievements of PFMS

    • PFMS can be credited to the transformation of Direct beneficiary transfers space in financial governance in India.
    • An estimated 102 crore DBT transactions were done through PFMS in FY 19-20 amounting to about ₹2.67 lakh crore.
    • Through efficient use of technology, PFMS is estimated to have saved about ₹1 lakh crore in direct beneficiary transfers.

    4 Factors that could determine the successful evolution of PFMS in future

    • Agility in terms of Onboarding/Integrating all Govt. accounts: Only after ensuring significant coverage, the true execution of the concept will take place.
    • Effective data management capabilities: PFMS will have to add significant data management capabilities in order to ensure better monitoring/review to deliver on the idea of a decision support system for effective cash management or management of idle float in the system.
    • Constantly upgrading: Adaption to rapid changes in technology is another key area that would call for a considerable amount of focus both in terms of gradation and monitoring.
    • Collaboration with the banking system: Lastly, one of the most critical factors for the successful execution of PFMS is its integration with the banking systems.
    • The Banks and PFMS will have to actively partner to ensure faster coverage/integration of all the Govt. entities.

    Consider the question “Governance in India has long been marred with structural challenges like transparency, lack of accountability and sustainable and inclusive growth. In light of this, discuss the role played by the Public Financial Management System in tackling these challenges.” 

    Conclusion

    The PFMS has revolutionized the ways public finances are managed in the country. With constant improvement and increasing coverage, the scope of PFMS is ever-increasing. Going ahead, PFMS will not only be seen as a tool for managing planned expenditure but will also add new meanings to Direct Beneficiary transfers, data-driven cash management, and e-Governance in India.

  • An overview of Economic Survey 2020-21

    The pandemic has been leaving its imprint various aspects of our lives and Economic Survey is no different. This year’s Economic Survey focuses on the recovery path of the economy disrupted by the pandemic. The article takes an overview of the survey and also mentions the missing areas.

    Focus on a recovery path

    • The Economic Survey analyses the broad trends at the macro level and the profiling of the initiatives across various economic activities.
    • This year, the Economic Survey focuses on the recovery path after initial derailment and the losses suffered by the Indian economy due to the pandemic.
    • The recovery is expected to follow a V-shaped path.
    • The Survey advocates countercyclical fiscal policies based on the premise that growth leads to debt sustainability.
    • The Survey brings together various relevant factors that have both a short and long-term impact on the economy and the budget.
    • This year’s Survey focuses on enhanced public healthcare spending and demonstrates how effective it has been in slashing out-of-pocket expenditures in the recent past.
    • It also shows the brilliant performance under the Pradhan Mantri Jan Arogya Yojana (PM-JAY) and the improved outcomes in states that have implemented the programme.
    • With focus on basic needs, the Survey has brought back national attention on the fundamental developmental paradigm.
    • The idea of analysing inequalities in times of recovery is a reassuring premise to move on with.

    Comparison with past Economic Surveys

    • If we consider the last two Economic Surveys, the introduction of new concepts and approaches has been quite evident.
    •  In the Survey for 2018-19, the idea of “nudge” helped provide recognition of the importance of social behaviour change for any policy to succeed.
    • This led to the adoption of transformative approach in the Swachh Bharat Mission and Beti Bachao Beti Padhao initiative that integrated behavioural insights.
    • Another powerful idea has been using technology to run and monitor welfare schemes.
    • The Economic Survey 2019-20 talked overwhelmingly about the importance of wealth creation, entrepreneurship, and financial markets in the economic development.

    What the Survey misses

    • The Survey should have focussed on a new narrative for trade.
    • Apart from explaining the missing value chains and integration with South and Southeast Asia, the survey should have analysed the high cost of tariffs when 38 per cent of our exports are import-dependent.

    Consider the question “In the wake of economic disruption caused by the pandemic, India needs a new narrative for trade. However, India faces the challenge of missing value chains and lack of integration with South and Southeast Asia. In light of this, suggest the policies India should adopt as new narrative for trade.“

    Conclusion

    Besides trade, FDI inflows and the accumulation of foreign exchange reserves has been remarkable this year. It is expected that India will emerge as an important link in the global value chain sector which has been visibly disrupted by the pandemic