Note4Students
From UPSC perspective, the following things are important :
Prelims level: Power generation in India
Mains level: Paper 3- Coal shortage crisis
Context
The power sector in India is going through a crisis. Peak shortages in some states have reached double digits.
Chronology of the crisis
- First, with summer approaching before time, power demand has shot up to record levels.
- The second reason for the rise in power demand is that the economy is recovering, and demand from the industrial sector is going up.
- All things put together, power demand crossed 207 GW on April 29, which is about 14 per cent higher than what it was a year ago.
- Experts feel that the peak demand may even touch 215 GW in the coming months.
Coal shortage crisis
- On average, coal stocks available are only good enough for about eight days’ generation against a norm of 24 days.
- In some plants, the stocks available are just about enough to run the plant for a day or two more.
- Part of the problem of poor coal stock is also rumoured to be on account of the non-payment of dues of coal companies.
- But this is not the major cause of the shortage.
Reasons for coal shortage and fall in generation
- The fall in coal stock in power stations is because of two main reasons.
- 1] Rise in international price of coal: The first is that due to a rise in the international price of coal on account of the Ukraine crisis, all plants that were importing coal have either stopped generating completely or are generating at much lower levels.
- We have a sizeable generating capacity based on imported coal, estimated at about 16 GW to 17 GW.
- All these plants after stopping imports are now looking for domestic coal, creating pressure on domestic coal.
- 2] Non-availability of rakes with Indian railways for transporting coal: Though about 22 MT of coal may be available in power stations, if one includes the stocks available with mining companies, the figure is well over 70 MT.
- So, it is all a question of transporting the coal to the power stations.
- 3] Fall in generation from gas-based plants: To make matters worse, generation from gas-based plants has also fallen due to high gas prices in the world market.
- 4] Impact on hydro generation: Reservoirs, too, are drying up due to intense heat which will adversely affect hydro generation.
Transportation problem faced by Indian railways
- The railways have about 2,500 rakes which can be used for coal transportation.
- With a turn-around time of about four-and-a-half days which goes up to nine days for coastal regions, the railways can provide only about 525 rakes on any single day.
- Of this, about 100 rakes are used for transporting imported coal and therefore, only about 425 rakes are available on a daily basis for transporting domestic coal.
- But only 380 rakes were being provided in the first half of April this year, though efforts are on to increase this to about 415 rakes.
- The railways prefer to transport coal over short distances in order to save on the turn-around time.
- There is also the issue of availability of tracks since they are being used on a back-to-back basis.
- Thus production has to be enhanced so that the replenishment rate is higher than consumption.
- Unless we do that, the total stock of coal in the country will deplete further and it will no longer be a mere transportation problem as it is now, but a general lack of supply of coal.
Conclusion
This is the right time to enhance coal production and build adequate stocks because once the monsoon sets in, production will fall.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Opening of insurance sector in India
Mains level: Paper 3- LIC and insurance sector in India
Context
LIC is now at a transformational moment. Its listing on the bourses should lift LIC to be a part of the elite corporate community in India.
Insurance sector in India
- Opening of the insurance sector: A milestone in the history of India’s insurance industry was the opening of the sector for private participation in the year 2000 and this caused widespread concern that LIC will find the competition tough and could very well be marginalised.
- Today, there are 24 private players in the life insurance space and many of them have foreign collaborations.
- LIC has steadily grown in the past six decades and today with over 290 million policyholders and an asset value of ₹38 lakh crore ($520 billion), it ranks as one of the largest insurance companies in the world.
- Yet, LIC remains a colossus capturing 75% of the life insurance business in the country.
- Its claim settlement at 99.87% is far above the industry average of 84%.
Role of LIC in skilling and women’s employment
- LIC created large scale employment for women right from its inception in 1956.
- Thousands of women became LIC agents in the 1950s and 60s, when job opportunities were scarce.
- There was no entry barrier in terms of age or fixed time for work.
- Education requirement was a mere high school pass.
- Many of these women were housewives who could earn an extra income by selling LIC policies.
- This was a period before the arrival of digital technologies and mobile phones.
- Skill development program: LIC’s training programme with its mix of online education and real-life case studies offer the best model for India’s skill development programmes.
- LIC’s relevance comes from its track record of creating vast number of employment opportunities for ordinary Indians, male and female, urban and rural.
Policies focused on savings
- In a country of vast poverty and low income, LIC recognised from the beginning that it cannot sell insurance as a risk cover on premature death.
- It, therefore, devised policies focussing on savings and the need for children’s education and daughter’s marriage which are fundamentals to family values in India.
- These policies also ensured that a part of the premium paid was returned at regular intervals before the maturity period, providing liquidity for emergencies.
- They simultaneously covered risk caused by death.
- People-centric approach: While the private players concentrated on technology-driven marketing, LIC’s approach was significantly people-centric.
- When Pradhan Mantri Jan Dhan Yojana was launched for financial inclusion of over 300 million of the rural population on August 15, 2014, LIC was already there with its policies covering a rural population of 200 million.
Conclusion
The nation must not forget the fact that LIC was built on sweat and tears, pain and sacrifice of ordinary Indians. It is these democratic credentials that remain LIC’s most valuable asset.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: World Energy Outlook Report
Mains level: Paper 3- Carbon tax
Context
Climate change is bound to impact human lives and the global economy at an exceptionally high scale in the not-so-distant future. The solution to the problem calls for government intervention.
Carbon intensive nature of India’s energy ecosystem
- After China and the United States, India, which releases 2.44 billion tonnes of carbon dioxide annually, is the third-largest emitter of this GHG, making it a key player in emissions reduction.
- The International Energy Agency’s (IEA) World Energy Outlook 2017 Report estimates that India will account for nearly one-fourth of the global energy demand by 2040.
- As per the IEA’s India Energy Outlook 2021 Report, India’s energy system is highly dependent on fossil fuels — coal, oil and bioenergy — that supply about 90 per cent of the country’s demand.
- Low electrification: About 38 per cent of primary energy is consumed for power generation, implying that the level of electrification is still low in the country.
- Power generation is highly dependent on coal — about 78 per cent of it comes from this fossil fuel — and, transportation is almost entirely dependent on oil.
- The Indian energy ecosystem is, thus, highly carbon-intensive.
Climate change as a feature of market failure
- Market failure due to climate change: Economic activities by consumers (driving or air-conditioning, for instance) and by producers (such as electricity generation and manufacturing) cause emissions, leading to pollution and global warming.
- Negative externalities: These negative externalities, causing outcomes that are not efficient, are not reflected in the costs incurred by consumers or producers.
- The true costs to the consumers, producers and society are not reflected in the market interactions.
- This leads to an uncontrolled rise in emissions and also breeds apathy towards mitigation efforts.
Way forward
- Government intervention: Achieving economic growth sustainably requires a strategy for reducing carbon emissions aggressively while also focusing on efficiency, equity, fairness and behavioural aspects.
- The solution to the problem of market failure calls for government intervention.
- Limits of emission: The most natural option of government intervention for reducing emissions is by fixing limits of emissions through regulation, taking into consideration the Nationally Determined Contribution targets set by the country under the Paris Agreement.
- Experts have shown that the wrongly set emission levels could lead to cost-inefficient outcomes.
- It makes it difficult for the regulator to obtain the information about each firm’s abatement-cost and damage-cost schedules in advance.
- Therefore, setting emission targets and regulating emissions through command and control might be good only during the initial phase of the mitigation strategy.
- Why Carbon tax is a better option? The carbon tax is a better option than regulating the pre-fixed levels of emissions.
- The marginal cost of abatement rises as the firms keep on reducing the emissions further, and the firm will stop reducing emissions and choose to pay tax at the point when the cost of abatement becomes higher than the rate of tax.
- This option will lead to near-efficient outcomes.
- The trading scheme will bring in higher efficiency as the price of certificates will be determined by allowing firms facing low and high abatement costs to compete in the free market as per their own abatement and damage cost schedules.
- The emissions trading scheme will determine the optimal and cost-efficient levels of emissions reduction by providing a choice to the firms to either mitigate or trade — the net effect of this will be a reduction in emissions.
- The low abatement-cost firms will keep reducing emissions as they would profit by trading the certificates.
- Equity in energy access: The issue of equity in energy access must be addressed by channelling the revenues generated from carbon pricing to households and firms impacted by the carbon trading and carbon tax — these could be through incentives or lump-sum transfers.
Conclusion
The socio-economic impact of decarbonising the economy and the way humans live would be crucial in setting our priorities. We have limited time and our resources are scarce.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much
Mains level: Paper 2- Semicon diplomacy
Context
The current decade presents a unique opportunity to India. . India must seize this opportunity and become an attractive alternative destination for semiconductor manufacturing.
Importance of semiconductors
- Semiconductor chips are the lifeblood of the modern information age.
- The semiconductor is the cornerstone of all electronic products.
- They enable electronic products to compute and control actions that simplify our lives.
- These semiconductor chips are the drivers for ICT development and one of the key reasons for the current flattening of the world
Global cooperation driven by semiconductors
- The manufacturing cycle of a semiconductor chip from sand to a finished product, sees it change hands approximately 70 times across international borders.
- Concentrated in few geographies: The semiconductor manufacturing capacities are concentrated in a few geographies.
- Nearly all leading edge (sub 10nm) semiconductor manufacturing capacity is limited to Taiwan and South Korea, with nearly 92 per cent located in the former.
- Further, 75 per cent of the semiconductor manufacturing capacity is concentrated in East Asia and China.
Opportunity for India
- Companies are looking to diversify their supply chain and for alternatives to their bases in China.
- The chip shortages due to Covid-19 have hit automakers with a revenue loss of $110 bn in 2021.
- The Russia-Ukraine conflict and its implications for raw material supplies for the semiconductor value chain has also poised chipmakers to invest in strengthening the semicon supply chain.
- India must seize this opportunity and become an attractive alternative destination for semiconductor manufacturing.
- The way ahead is conceptualising a semicon diplomacy action plan.
- Placing semicon diplomacy at the heart of India’s foreign policy is essential both strategically and economically.
- The multiplier effect on the economy: The establishment of the value chain for semiconductors would ensure a multiplier effect on the entire economy.
- National security implications: Semiconductors are used in critical infrastructures such as communication, power transmission etc., that have implications for national security.
- Reducing the BoP: Domestic production would be saving forex and reducing the balance of payments, especially vis a vis China.
Way forward: Leveraging Semicon diplomacy
- One of the ways of leveraging semicon diplomacy is increasing multilateral and bilateral cooperation.
- Role of Quad: A key institution with immense potential in this regard is the Quad.
- Australia, being rich in raw materials required for semiconductors, can be an important supplier to fill in India’s deficits.
- The US and Japan can be leveraged for capacity building and their advanced semiconductor technology in logic and memory segments.
- Pivot India’s Act East Policy: Considering that the semiconductor manufacturing and testing bases are heavily concentrated in East Asia, the Act East policy provides an opportunity to connect and strengthen ties with key players in the region.
- Technological exchanges with ASEAN: Frequent technological exchanges between a regional bloc like ASEAN via tracks in forums like the East Asia Summit and the ASEAN regional forum will be beneficial.
- Collective growth: Attaining self-sufficiency in semiconductor manufacturing can mean collective growth of the South Asian region.
- India needs to harness its strengths, such as the strong presence of global EMS players, diaspora, world-class design ecosystem, demographic dividend, and use it as a pedestal for global partnerships and outreach.
Conclusion
India’s concept of self-reliance is not an individualistic endeavour but one that encourages growth and prosperity of all, in the spirit of Vasudhaiva Kutumbakam, meaning the entire world is one family. Similarly, we don’t have an option but to be self-reliant in semiconductors.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Tax buoyancy
Mains level: Paper 3- Fiscal impact of Russia-Ukraine conflict
Context
The Union Budget 2022-23 received a great deal of attention even before the financial year began due to the Russia-Ukraine conflict, and the consequent rise in inflation. There has been considerable speculation on whether the fiscal targets will be altered due to the evolving conditions.
Estimate of GDP
- The critical estimate of GDP growth assumed for this year has certainly changed, with the RBI also adjusting its earlier forecast.
- However, the budget was conservative to begin with, assuming an 11.1 per cent growth estimate on which its revenue collection targets were based.
- Given that real GDP growth has been scaled down by the RBI to 7.2 per cent, and as inflation has gone up, on balance, the 11.1 per cent assumption looks tenable.
- Hence, inflation has been a positive for the government in this respect.
Tax collection
- Another positive that emerged last year was that overall tax collections were even more buoyant than expected.
- From the budgeted figure of Rs 22.17 lakh crore, the revised estimates raised the target to Rs 25.16 lakh crore.
- In comparison, actual collections have turned out to be even higher at Rs 27.07 lakh crore.
- If this buoyancy is maintained, then the government can expect the 2022-23 target of Rs 27.57 lakh crore to be exceeded by around Rs 2.5 lakh crore (of this, around 30 per cent will go to the states).
- This additional revenue would ideally flow from enhanced GST collections, corporate tax, and customs.
- Central to GST collections increasing is private consumption.
- Today, high inflation erodes the purchasing power of households, which will divert a larger portion of their incomes for necessities that have become expensive.
- Therefore, there will be uncertainty here.
- Corporates did well last year as they did manage to pass on higher input costs to the consumers, especially in the second half of the year.
- Can they do it for the second time is the question.
- High growth in trade volumes led to the government raking in higher customs collections. W
- ith global growth set to slow down in 2022, a similar flow is unlikely.
Excise collection and challenges
- The government will be watchful of excise collections as it is possible that rising fuel prices will lead to lower consumption.
- Also, in case crude oil continues on the current path and remains in the region of $100-120/barrel, a call may have to be taken by the government on the excise duty: Once the prices of diesel and petrol remain at a new threshold, there will be a tendency for freight rates to be increased permanently.
- This will have a secondary impact on inflation.
Disinvestment challenges
- On the revenue side, the LIC disinvestment that was to happen last year will materialise this year.
- The disinvestment has been pushed through for May, but would be of a much lower amount (around Rs 21,000 crore) than envisaged earlier.
- It will be interesting to see if this would be a part of the Rs 65,000 crore target for this year.
Uncertainty on the expenditure side
- The biggest concern will be the fertiliser subsidy, which has been a volatile expenditure item.
- Higher prices of natural gas have meant that fertilisers have been more expensive and so, the budgeted amount of Rs 1.05 lakh crore will have to be revisited.
- With inflation already high and agriculture expected to be the bright spot again, the government cannot risk ignoring the subsidy element on fertilisers because there can be an impact on farm product prices.
- The food subsidy will also need to be examined.
- The present rise in food prices globally has meant that there is a good global market, especially for wheat.
- Exports for wheat and maize might rise but can distort the procurement process.
Interest rate and its implications for borrowing
- The budget had assumed that interest rates would be stable.
- However, conditions have changed quite quickly with bond yields moving up by almost 50 bps for the 10-year G-secs.
- This will mean that the entire Rs 15.95 lakh crore of gross borrowing will have to be carried out at a higher cost.
- This can result in an additional Rs 8,000 crore of interest if the 50 basis points increase holds through the year. There could be an upward bias if rates go up further.
Conclusion
The longer the conflict continues the greater will be the impact. While the government has adeptly managed the fiscal numbers in the last couple of years, this year will be particularly challenging considering the nature of the shock.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: RTE
Mains level: Paper 2- Importance of better public schools
Context
The pandemic has thrown a harsh light on the vulnerabilities and challenges faced by the world in education. There is an immense learning gap due to existing inequalities.
Need for investment in learning systems
- In India, we have to accept that unless we mobilise learning resources and institutions at the government level, the divides will continue to expand and learners will continue to fall between the cracks.
- Systems have to be put into place to find a variety of methods to equip all learners — privileged, poor, middle-class and alternatively-abled.
- The challenge is about returning to school.
- In wealthier nations, schools have always been the first to open and last to close and citizens have benefited from the public school system.
- In India, across states, there is a sense of despair due to unemployment and lack of financial resources, which has snowballed due to the pandemic, resulting in greater inequality.
- Sending children to school, as opposed to keeping them at home, is a huge financial investment, particularly in the private school system.
- Parents have refrained from sending their children back to school due to a lack of funds.
Viewing education through government school lens
- The big shift that we as a nation have to make is viewing education through a government school lens.
- This will only take place if states provide the opportunity for free, compulsory, neighbourhood education.
- Radical reforms have to be implemented to restructure government schools and ensure quality.
- The government, both at the Centre and in the states, should build good-quality primary, middle and high schools and provide facilities that the best private schools have to offer.
- Online learning is not the way forward: We are subsumed by the myth that technology has expanded potential.
- The concern is that online learning will create greater inequality, not only in the global South but even in the most well-resourced corners of the planet.
- Online learning is not the way forward.
- The UNESCO’s International Commission on the Futures of Education states in its report, “the core commitments that should always be remembered are public education and common good”.
- It says, “This is not the time to step back and weaken these principles but rather to affirm and reinforce them.”
- We must take the opportunity to protect and advance public education.
- We cannot allow the government health system and government education to be opposed to one another. Their synergies must overlap
Conclusion
Public education is crucial to societies, communities and individual lives. It is the only thing that will enable us to live with dignity and purpose.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Core inflation
Mains level: Paper 3- Inflation challenge
Context
Expectations that commodity and oil prices would cool down in 2022 as the pandemic ebbed were belied by the Russia-Ukraine conflict, which exacerbated existing pressures. Fresh lockdowns in China are also extending the pandemic-induced supply-chain bottlenecks.
Challenges for central banks
- Systemically important central banks that viewed the consistent uptick in inflation as transitory — caused by post-pandemic supply shocks — are now finding it hard to bottle the genie.
- Inflation in the time of weak growth: What central banks like even less is having to deal with rising inflation in times of weak growth.
- Because the primary tool they have to fight it — the interest rate hike — can be recessionary.
Inflation in India
- CPI inflation averaged 6.3 per cent in the January-March 2022, above the RBI’s target range of 2-6 per cent.
- The RBI forecasts inflation for April-June at 6.3 per cent.
- One more quarter over the 6 per cent mark, and the central bank would owe the government an explanation.
- Factors driving inflation: Fiscal 2021-In fiscal 2021, inflationary pressures came largely from food and, to some extent, core which excludes fuel and food.
- Fiscal 2022- In fiscal 2022, crude prices hardened to emerge as the new driver. Core inflation firmed up further.
- But the drop in food inflation offset this, so overall inflation was lower at 5.5 per cent compared with 6.2 per cent the previous year.
Understanding inflation in fiscal 2023
- What makes this fiscal worrying is, all three-fule, food and core are firmly pointing in the same direction — up.
- Fuel inflation, in double digits for a year now, shows no signs of easing.
- Energy prices have risen sharply across the board — from crude oil to coal and natural gas.
- The cut in excise duties on petrol and diesel in November 2021 is insufficient to bring down fuel inflation, in the event crude prices stay above $90 per barrel this fiscal.
- Food inflation: Food is the most volatile component and biggest mover of CPI inflation, given that it occupies 39 per cent weight in the average consumption basket.
- On the positive side, India looks set to enjoy a fourth successive year of normal monsoon and still has good buffer stocks of rice and wheat.
- What is certain, though, is the rising cost of food production.
- Prices of fertilisers, pesticides, diesel and animal feed are all surging.
- Already pricey edible oils are set to get even costlier, with Indonesia’s recent ban on refined palm oil exports adding pressure.
- No wonder then, food inflation is expected to rise.
- Core inflation: Core inflation, a barometer of demand pressures, will continue to climb despite an environment of weak demand due to the persistence of supply shocks.
- For producers, the bump-up in international prices across energy and metal commodities since the war has brought more pain.
- But a weak and uneven demand recovery means producers had limited ability to pass on cost pressures to consumers.
- Such pass-through has been partial, at best.
- For most goods, CPI inflation has been much lower than the corresponding WPI last fiscal.
- The pattern of recovery is also uneven across different segments, with contact-intensive services lagging formal manufacturing.
- But contact-based services will catch up sooner or later, as restrictions become a thing of the past.
- The last time we saw such broad-basing of inflationary pressures was after the Global Financial Crisis.
- The difference this time around is consumer demand, which remains weak and will limit the extent of pass-through.
Conclusion
Forecasting inflation in such uncertain times is fraught with risk. The RBI has predicted ~5.7 per cent consumer inflation this fiscal, while professional forecasters see it at 5.6 per cent. The odds currently favour a higher inflation print, and a rate hike in June.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: International Cyber Engagement Strategy
Mains level: Paper 2- India-Australia relations
Context
Western and media attention may be focused on the conflict between Russia and Ukraine, but countries have not taken their eye off the Indo-Pacific where there is clear evidence of the changing world order.
India and Australia faces a common threat to cyber security
- The India-Australia ECTA is a concrete example of the bilateral faith in common values, and understanding of threats and goals.
- A reflection of this is cooperation in cyber security.
- China is accused of having amassed a large number of cyber weapons and has allegedly carried out sophisticated operations aimed at espionage, theft of intellectual property, and destructive attacks on internet resources of some countries.
- Advanced Persistent Threat (APT) groups: Australia and India have been at the receiving end of several such campaigns by the so-called Advanced Persistent Threat (APT) groups, supported by or assumed to be located in China.
Steps toward cooperation in cyber security
- At the June 2020 virtual bilateral summit, Prime Minister Narendra Modi and his Australian counterpart Scott Morrison elevated the bilateral relationship to a Comprehensive Strategic Partnership.
- New cyber security framework: The new cyber framework includes a five-year plan to work together on the digital economy, cybersecurity and critical and emerging technologies.
- Bilateral research: This will be supported by a $9.7 million fund for bilateral research to improve regional cyber resilience.
- An annual Cyber Policy Dialogue, a new Joint Working Group on Cyber Security Cooperation and a joint working group on ICTs have been established.
- An annual India-Australia Foreign Ministers Cyber Framework Dialogue will be held.
- India to be part of International Cyber Engagement Strategy: India will now be included in a core Australian initiative called the International Cyber Engagement Strategy — it began in 2017 to actively conduct capacity-building arrangements in Indonesia, Singapore and Thailand, and support similar activities in Malaysia, Vietnam and Cambodia.
- A joint Centre of Excellence for Critical and Emerging Technology Policy, to be located in Bengaluru, will be set up.
Steps taken by India to improve cyber security
- India has set up the office of the National Cybersecurity Coordinator, a national Computer Emergency Response Team (CERT-IN), a national Critical Information Infrastructure Protection Agency (NCIIPC), and made appropriate amendments to the Information Technology Act and Rules to enhance its cyber security posture.
- This has upped India’s rank to 10th in the Global Cyber Security Index (GCI) 2020, from 47th just two years earlier.
- India has capable cybersecurity professionals.
Conclusion
Deepening cooperation can develop avenues for mutual learning and create complementary markets in cyber tools and technologies, boosting bilateral business and strategic commitments on both continents.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much
Mains level: Paper 2- Importance of Mission Antyodaya
Context
This article argues that given the right momentum, the ‘Mission Antyodaya’ project bears great promise to eradicate poverty in its multiple dimensions among rural households.
Background of Mission Antyodaya
- The ‘Mission Antyodaya’ project was launched by the Government of India in 2017-18.
- The Ministry of Panchayati Raj and the Ministry of Rural Development act as the nodal agents to take the mission forward.
- Key goals: The main objective of ‘Mission Antyodaya’ is to ensure optimum use of resources through the convergence of various schemes that address multiple deprivations of poverty, making gram panchayat the hub of a development plan.
- Annual survey: This planning process is supported by an annual survey that helps to assess the various development gaps at the gram panchayat level, by collecting data regarding the 29 subjects assigned to panchayats by the Eleventh Schedule of the Constitution.
- Also, data regarding health and nutrition, social security, good governance, water management and so on are also collected.
- The idea of the Ministry of Panchayati Raj to identify the gaps in basic needs at the local level, and integrating resources of various schemes, self-help groups, voluntary organisations and so on to finance them needs coordination and capacity-building of a high order.
- If pursued in a genuine manner, this can foster economic development and inter-jurisdictional equity.
Infrastructural gaps as pointed out by the Mission Antyodaya Survey
- The ‘Mission Antyodaya’ survey in 2019-20 for the first time collected data that shed light on the infrastructural gaps from 2.67 lakh gram panchayats, comprising 6.48 lakh villages with 1.03 billion population.
- The maximum score values assigned will add up to 100 and are presented in class intervals of 10.
- While no State in India falls in the top score bracket of 90 to 100, 1,484 gram panchayats fall in the bottom bracket.
- Even in the score range of 80 to 90, 10 States and all Union Territories do not appear.
- The total number of gram panchayats for all the 18 States that have reported adds up only to 260, constituting only 0.10% of the total 2,67,466 gram panchayats in the country.
- If we consider a score range of 70-80 as a respectable attainment level, Kerala tops but accounts for only 34.69% of gram panchayats of the State, the corresponding all-India average is as low as 1.09%.
- The composite index data, a sort of surrogate for human development, are also not encouraging.
- Although only 15 gram panchayats in the country fall in the bottom range below 10 scores, more than a fifth of gram panchayats in India are below the 40 range.
- The gap report and the composite index show in unmistakable terms that building ‘economic development and social justice’ remains a distant goal even after 30 years of the decentralisation reforms and nearly 75 years into Independence.
Way forward
- Converge resources: Given the ‘saturation approach’ (100% targets on select items) of the Ministry of Panchayati Raj, the possibilities of realising universal primary health care, literacy, drinking water supply and the like are also immense.
- But there is no serious effort to converge resources (the Mahatma Gandhi National Rural Employment Guarantee Act, the National Rural Livelihood Mission, National Social Assistance Programme, Pradhan Mantri Awas Yojana, etc.) and save administrative expenses.
- Deploy the data to India’s fiscal federalism: Another lapse is the failure to deploy the data to India’s fiscal federalism, particularly to improve the transfer system and horizontal equity in the delivery of public goods in India at the sub-State level.
- The constitutional goal of planning and implementing economic development and social justice can be achieved only through strong policy interventions.
Conclusion
The policy history of India has been witness to the phenomenon of announcing big projects and failing to take them to their logical consequence. ‘Mission Antyodaya’ is a striking case in recent times.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: SDGs
Mains level: Paper 2- Energy security of South Asia
Context
Given that a 0.46% increase in energy consumption leads to a 1% increase in GDP per capita, electrification not only helps in improving lifestyle but also adds to the aggregate economy by improving the nation’s GDP.
Widening electricity coverage in South Asian nations
- The electricity policies of South Asian countries aim at providing electricity to every household.
- The issues these policies address include generation, transmission, distribution, rural electrification, research and development, environmental issues, energy conservation and human resource training.
- Bangladesh has achieved 100% electrification recently while Bhutan, the Maldives, and Sri Lanka accomplished this in 2019.
- For India and Afghanistan, the figures are 94.4% and 97.7%, respectively, while for Pakistan it is 73.91%.
- Bhutan has the cheapest electricity price in South Asia (U.S.$0.036 per kilowatt hour, or kWh) while India has the highest (U.S.$0.08 per kWh.)
- South Asia is reinforcing its transmission and distribution frameworks to cater to growing energy demand not only through the expansion of power grids but also by boosting green energy such as solar power or hydroelectricity.
Adapting to renewable
- Geographical differences between these countries call for a different approach depending on resources.
- India leads South Asia in adapting to renewable power, with its annual demand for power increasing by 6%.
- India’s pledge to move 40% of total energy produced to renewable energy is also a big step.
- Prime Minister Narendra Modi in his ‘net-zero by 2070’ pledge at COP26 in Glasgow asserted India’s target to increase the capacity of renewable energy from 450GW to 500GW by 2030.
- The region is moving towards green growth and energy as India hosts the International Solar Alliance.
- South Asia has vast renewable energy resources — hydropower, solar, wind, geothermal and biomass — which can be harnessed for domestic use as well as regional power trade.
Steps toward SDGs
- Solar power-driven electrification in rural Bangladesh is a huge step towards Sustainable Development Goal 7.
- Access to electricity improves infrastructure i.e., SDG 9 (which is “build resilient infrastructure, promote inclusive and sustainable industrialization and foster innovation”).
- Energy access helps online education through affordable Internet (SDG 4, or “ensure inclusive and equitable quality education and promote lifelong learning opportunities for all”), more people are employed (SDG 1: “no poverty”), and are able to access tech-based health solutions (SDG 3, or “ensure healthy lives and promote well-being for all at all ages”).
Regional energy trade
- The South Asian Association for Regional Cooperation (SAARC) prepared the regional energy cooperation framework in 2014, but its implementation is questionable.
- Energy trade agreements: There are a number of bilateral and multilateral energy trade agreements such as the India-Nepal petroleum pipeline deal, the India-Bhutan hydroelectric joint venture, the Myanmar-Bangladesh-India gas pipeline, the Bangladesh-Bhutan-India-Nepal (BBIN) sub-regional framework for energy cooperation, and the Turkmenistan-Afghanistan-Pakistan-India (TAPI) pipeline, rumoured to be extended to Bangladesh.
- Challenges: ‘South Asia’s regional geopolitics is determined by the conflation of identity, politics, and international borders.
- The current participation in cross-border projects has been restricted to respective tasks, among Bhutan and India or Nepal and India.
- It is only now that power-sharing projects among the three nations, Nepal, India, and Bangladesh, have been deemed conceivable.
Way forward
- Energy framework: Going forward, resilient energy frameworks are what are needed such as better building-design practices, climate-proof infrastructure, a flexible monitory framework, and an integrated resource plan that supports renewable energy innovation.
- Public-Private Partnership: Government alone cannot be the provider of reliable and secure energy frameworks, and private sector investment is crucial.
Conclusion
While universal coverage can catalyse the region’s economic growth, energy trade must be linked to peace building.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Inflation expectations
Mains level: Paper 3- Understanding inflation anchoring
Context
The RBI released the Inflation Expectations Survey of Households (IESH) for March 2022 on April 8. The survey results present interesting behavioural insights for public policy, particularly from a gender perspective.
Significance of inflation expectations
- The impact of inflation — the overall increase in the prices in an economy — is felt by everyone.
- High inflation adversely affects the poor.
- Individuals, therefore, form expectations about how prices will behave in the future to take precautions.
- If they anticipate high inflation, they negotiate wages or rents to compensate against a potential fall in their purchasing power.
- Self-fulfilling: Increased wages increase the cost of production, making expectations self-fulfilling and, therefore, playing a pivotal role in determining inflation.
- Anchoring inflation expectations: Central banks raise interest rates to ‘anchor’ high inflationary expectations when temporary price shocks, on account of drought or disruption in global supply chains, entail the risk of getting transmitted into actual inflation.
What shapes inflation expectations of individuals?
- A recent study carried out by Acunto et al., 2020, validates that what agents frequently purchase, instead of those purchased infrequently, shape their perception of the general level of inflation.
- Factors shaping individual’s perception: A significant factor shaping perceptions on inflation are the prices that individuals observe in their daily lives, originally posited by Robert Lucas in his seminal Islands model.
- Therefore, generalising aggregate inflation expectations for making general views of prices in the economy could be misleading.
- This insight has implications for gender-based differences in anticipating inflation in the future.
- Existing literature shows that women have higher inflationary expectations compared to men.
- However, a new study reveals that it is not the innate characteristics as much as the traditional gender roles that explain this divergence.
Natural experiments
- To test its validity, trends of Inflation Expectations Survey of Households (IESH) before and after the lockdown period present itself as a crude ‘natural experiment’.
- The authors hypothesise that if traditional gender roles are the primary reasons behind the gender inflation expectation gap, then the lockdown-imposed work-from-home (WFH) arrangements or loss of employment should contribute in closing this gap.
- The logic: during the lockdown, people in urban areas lost jobs or remained at home, taking a relatively equal share in the frequent day-to-day purchases.
- Two categories of occupations are studied here: homemakers (assumed to be dominated by women) and financial sector employees (assumed to be dominated by men).
- Looking at the trends of the RBI surveys for the period between March 2018 and March 2020, homemakers report higher inflation expectations than financial sector employees.
- However, this gap has narrowed over the last two years and has almost converged in March 2022.
- A possible explanation of closing of the gap could be the gradual ‘experience effect’ of male-dominated financial sector employees.
- Experience effect, contrary to Rational Expectations Theory that assumes individuals base their decisions on the information available to them, is based on the premise that actual personal experiences shape behaviour more than being informed about the outcome of the event.
Conclusion
Focus could be shifted more on the microfoundations — understanding macroeconomic outcomes by studying factors that shape individual behaviour and decision making — for making better policy decisions concerning macroeconomic phenomena.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much
Mains level: Paper 2- India's engagement with Europe and factors shaping it
Context
The re-election of Emmanuel Macron as the president of France on Sunday has sent a sigh of relief across Europe and North America. Delhi too is pleased with the return of Macron, who laid a strong foundation for India’s strategic partnership with France.
Why France election matters to the regional and domestic order in Europe
- Unlike the Soviet Union, which sought to shape European politics though left-wing parties, Russia today influences European politics through right-wing parties.
- Victory for Marine Le Pen, Macron’s opponent, would have dramatically complicated the geopolitics of Europe.
- Le Pen, like so many other right-wing leaders in Europe, has close ties to Vladimir Putin.
- Le Pen’s victory would have not only altered France’s international trajectory, but also shaken the EU to its political core.
Three factors shaping the transformation of India’s ties with Europe
- Russia’s threat to the regional and domestic order in Europe is among multiple factors shaping Delhi’s intensifying engagement with Brussels.
- Three major external factors are facilitating the transformation of India’s ties with Europe.
1] Russian Question
- For India, a normal relationship between Russia and the West would have been ideal.
- But Russia’s confrontation with the West comes during India’s rapidly expanding economic and political ties to Europe and America.
- Delhi might be sentimental about India’s historic Russian connection but it is not going to sacrifice its growing ties to the West on that altar.
- Russia’s declining economic weight and growing international isolation begins to simplify India’s choices.
- During the last few weeks, Delhi has insisted that its silence is not an endorsement of Russian aggression.
- India’s position has continued to evolve.
- Delhi’s repeated emphasis on respecting the territorial integrity of states is a repudiation of Russia’s unacceptable aggression.
- Meanwhile, geographic proximity and economic complementarity have tied Europe even more deeply to Russia.
- The EU’s annual trade with Russia at around $260 billion is massive in comparison to India’s $10 billion.
- Putin’s reckless invasion of Ukraine has compelled Europe to embark on a costly effort to disconnect from Russia.
- The war in Ukraine has certainly presented a major near-term problem that needs to be managed by Delhi and Brussels.
2] China Question
- Moscow has been deepening ties with Beijing for more than two decades triggering many anxieties in Delhi.
- In February, Putin travelled to Beijing to announce a partnership “without limits”.
- India has no option but to manage the consequences of the Russian decision.
- In the last two decades, China has emerged as a great power and now presents a generational challenge for Indian policymakers.
- That challenge has been made harder by Putin’s alliance with Xi Jinping.
- As Delhi strives to retain a reasonable relationship with Moscow, Europe emerges as an important partner in letting India cope with the China challenge.
- Thanks to the growing problems of doing business with Xi’s China, Beijing’s geopolitical alliance with Moscow, and the rapid deterioration of Sino-US relations, Brussels is ready to invest serious political capital in building purposeful strategic ties with India.
3] American Question
- Until recently it appeared that Europe’s calls for “strategic autonomy” from the US were in sync with India’s own worldview.
- But the Ukraine crisis has underlined the US’s centrality in securing Europe against Russia.
- In Asia, Chinese assertiveness has brought back the US as a critical factor in shaping peace and security.
- Washington wants a strong Europe taking greater responsibility for its own security; it would like Delhi to play a larger role in Asia and become a credible provider of regional security.
- Above all, America wants India and Europe to build stronger ties with each other.
Conclusion
For the first time since independence, India’s interests are now aligning with those of Europe. Together, Delhi and Brussels can help reshape Eurasia as well as the Indo-Pacific.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much
Mains level: Paper 2- Covid-19 mortality data
Context
Over the last year, the World Health Organization (WHO) has been busy, in an unprecedented effort, to calculate the global death toll from COVID-19.
Revision of Covid-19 death toll by WHO
- Globally from an estimated six million reported deaths, WHO now estimates these deaths to be closer to almost triple the number.
- The new estimates also take into account formerly uncounted deaths, but also deaths resulting from the impact of COVID-19.
- For example, millions who could not access care, i.e., diagnosis or treatment due to COVID-19 restrictions or from COVID-19 cases overwhelming health services.
- India’s stand: India is in serious disagreement with the WHO-prepared COVID-19 mortality estimates.
- The argument being made by India’s health establishment through a public clarification is that this is an overestimation, and the methodology employed is incorrect.
India’s Covid response
- India’s COVID-19 response has been replete with delays and denials.
- For instance, for the longest time that India’s COVID-19 number rose, the health establishment continued to insist that community transmission was not under way.
- It took months and several lakh cases before they agreed that COVID-19 was finally in community transmission.
- The devastation of the second wave showed how unprepared we were to combat the deadly Delta variant.
- By the time the wave subsided, India’s population was devastated, and helpless, seeing dignity neither in disease nor in death.
Conclusion
The figures ratchet up not only issues of administrative but also moral accountability for governments that they have been previously side stepped.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Palk Bay
Mains level: Paper 2- India-Sri Lanka fisheries issue
Context
After a gap of 15 months, the India-Sri Lanka Joint Working Group (JWG) on fisheries held its much-awaited deliberations (in virtual format) on March 25.
Background of the issue
- As sections of fishermen from the Palk Bay bordering districts of Tamil Nadu continue to transgress the International Maritime Boundary Line (IMBL), cases of many of them getting arrested and their boats being impounded by the Sri Lankan authorities continue.
- Apart from poaching in the territorial waters of Sri Lanka, the use of mechanised bottom trawlers is another issue that has become a bone of contention between the fishermen of the two countries; the dispute is not just between the two states.
- Use of mechanised bottom trawlers: This method of fishing, which was once promoted by the authorities in India, is now seen as being extremely adverse to the marine ecology, and has been acknowledged so by India.
- The actions of the Tamil Nadu fishermen adversely affect their counterparts in the Northern Province.
- Reason for transgression: The fishermen of Tamil Nadu experience a genuine problem — the lack of fishing areas consequent to the demarcation of the IMBL in June 1974.
- If they confine themselves to Indian waters, they find the area available for fishing full of rocks and coral reefs besides being shallow.
- Under the Tamil Nadu Marine Fishing Regulation Act 1983, mechanised fishing boats can fish only beyond 3 NM from the coast.
- This explains the trend of the fishermen having to cross the IMBL frequently.
Way forward
- Transition to deep-sea fishing: While Indian fishermen can present a road map for their transition to deep sea fishing or alternative methods of fishing, the Sri Lankan side has to take a pragmatic view that the transition cannot happen abruptly.
- In the meantime, India will have to modify its scheme on deep-sea fishing to accommodate the concerns of its fishermen, especially those from Ramanathapuram district, so that they take to deep-sea fishing without any reservation.
- Alternative livelihood measures: There is a compelling need for the Central and State governments to implement in Tamil Nadu the Pradhan Mantri Matsya Sampada Yojana in a proactive manner.
- The scheme, which was flagged off two years ago, covers alternative livelihood measures too including seaweed cultivation, open sea cage cultivation, and sea/ocean ranching.
- During Mr. Jaishankar’s visit, India had signed a memorandum of understanding with Sri Lanka for the development of fisheries harbours.
- This can be modified to include a scheme for deep-sea fishing to the fishermen of the North.
- Joint research on fisheries: . It is a welcome development that the JWG has agreed to have joint research on fisheries, which should be commissioned at the earliest.
- Institutional mechanism: Simultaneously, the two countries should explore the possibility of establishing a permanent multi-stakeholder institutional mechanism to regulate fishing activity in the region.
- Using common thread of culture, language and religion: The people of the two countries in general and fisherfolk in particular have common threads of language, culture and religion, all of which can be used purposefully to resolve any dispute.
Conclusion
What everyone needs to remember is that the fisheries dispute is not an insurmountable problem. A number of options are available to make the Palk Bay not only free of troubles but also a model for collaborative endeavours in fishing.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: NFSA 2013
Mains level: Paper 3- PDS reforms
Context
The release of two new working papers, one from the World Bank and the other from the IMF, has led to a renewed debate on poverty in India.
A substantial decline in extreme poverty in India
- Both papers claim that extreme poverty in the country, based on the international definition of $1.90 per capita per day (in purchasing power parity (PPP), has declined substantially.
- The World Bank paper uses the Consumer Pyramid Household Surveys (CPHS) data to conclude that 10.2 per cent of the country’s population was at extreme poverty levels in 2019.
- The IMF paper calculates poverty by using the NSO Consumer Expenditure Survey as the base and adjusts it for the direct effect of the massive food grain subsidy given under the National Food Security Act (NFSA, 2013) and PM Garib Kalyan Anna Yojana (PMGKAY) during the pandemic period.
- It claims that extreme poverty has almost vanished – it was 0.77 per cent in 2019 and 0.86 per cent in 2020.
- Another estimate of poverty by the NITI Aayog, the multi-dimensional poverty index (MPI), has put Indian poverty at 25 per cent in 2015 based on NFHS data.
- How MPI is calculated?: This MPI is calculated using twelve key components from areas such as health and nutrition, education and standard of living.
How much should be the coverage under NFSA, 2013?
- The offtake of grains under NFSA in FY20 was 56.1 million metric tonnes (MMT).
- Following the outbreak of Covid-19, the government launched the Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY) in April 2020 to distribute 25 kg cereals per family per month in addition to food transfers under the NFSA.
- That catapulted the offtake to 87.5 MMT (under PMGKAY and NFSA) in FY21.
- The scheme continued in FY22, and the grain offtake touched 93.2 MMT.
Issues with the wide coverage
- A further extension of free food on top of the NFSA allocations was uncalled for.
- This will strain the fisc, reduce public investments and hamper potential job creation.
- A look at the size of food freebies will help understand the gravity of this problem.
- As of April 1, the Food Corporation of India’s wheat and rice stocks stood at 74 MMT against a buffer stock norm of 21 MMT – there is, therefore, an “excess stock” of 53 MMT.
- The cost of excess stock: The economic cost of rice, as given by FCI, is Rs 3,7267.6/tonne and that of wheat is Rs 2,6838.4/tonne (2020/21).
- The value of “excess stocks”, beyond the buffer norm, is, therefore, Rs 1.85 lakh crore — this, despite a total of 72.2 MMT grains distributed for free under the PMGKAY in FY21 and FY22.
- Ballooning food subsidy: All this results in a ballooning food subsidy for FY 23, it is provisioned at Rs 2.06 lakh crore, for FY 23, it is provisioned at Rs 2.06 lakh crore.
- But this amount is likely to go beyond Rs 2.8 lakh crore with the continuing distribution of free food under the PMGKAY.
- This would amount to more than 10 per cent of the Centre’s net tax revenue (after deducting the states’ share).
Way forward
- It is all the more important to change the current policy of free food given the massive leakages in the PDS.
- As per the High-Level Committee on restructuring FCI, leakages were more than 40 per cent based on the NSSO data of 2011.
- Ground reports suggest that these leakages hover around 30 per cent or so today.
- Make PDS more targeted: In reforming this system of free food, wisdom lies in going back to the Antyodaya Anna Yojana (AAY).
- Under AAy, the “antyodaya” households (the most poor category) get more rations (35 kg per household) at a higher subsidy (rice, for instance, at Rs 3/kg and wheat at Rs2/kg).
- For the remaining below poverty line (BPL) families, the price charged was 50 per cent of the procurement price and for above poverty line families (APL), it was 90 per cent of the procurement price.
- This will make PDS more targeted and lead to cost savings.
- Use of technology: There could be some problems in identifying the poor. However, technology can help overcome this difficulty.
- Option of cash transfer: This measure should be combined with giving people the option of receiving cash instead of providing grains to targeted beneficiaries.
- The savings so generated from this reform can be ploughed back as investments in agri-R&D, rural infrastructure (irrigation, roads, markets) and innovations that will help create more jobs and reduce poverty on a sustainable basis.
Conclusion
The government needs to bite the bullet and emulate the Vajpayee government (which had introduced AAY) in using scarce resources more wisely.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much
Mains level: Paper 2- Opportunities for India in the wake of Ukraine-Russia conflict
Context
As Mahatma Gandhi’s nation, India must be a committed and relentless apostle of peace and non-violence, both at home and in the world.
How the Russia-Ukraine conflict is reshaping the world order
- Ever since the fall of the Berlin Wall in 1989, a paradigm of free societies, frictionless borders and open economies evolved to be the governing order in many nations.
- This catalysed freer movement of people, goods, services and capital across the world.
- India too has benefited enormously from being an active participant in this interconnected world, with a tripling of trade (as share of GDP) in the last three decades and providing vast numbers of jobs.
- Such tight inter-dependence among nations will lead to fewer conflicts and promote peace, was the established wisdom.
- The Russia-Ukraine conflict has dismantled this wisdom.
- Mutually beneficial to mutually harmful: If inter-connectedness and trade among nations were mutually beneficial, then it follows that its disruption and blockade will be mutually harmful.
- Global Village was built on the foundation of advanced transportation networks, cemented with the U.S. dollar as the reserve currency and fenced by integrated payment systems.
- Any disruption to this delicate balance runs the risk of plunging the ‘Global Village’ into disequilibrium and derailing the lives of all.
Trade opportunity for India
- Trade with other nations should and will always be an integral cornerstone of India’s economic future.
- A reversal towards isolationism and protectionism will be foolhardy and calamitous for India.
- As the western bloc of nations looks to reduce dependence on the Russia-China bloc of nations, it presents newer avenues for India to expand trade.
- It presents a tremendous opportunity for India to become a large producing nation for the world and a global economic powerhouse.
- However, to capitalise on these opportunities, India needs free access to these markets, an accepted and established global currency to trade in and seamless trade settlements.
Suggestions for India
1] Bilateral currency agreements are unsustainable
- The American dollar has emerged as the global trade currency, bestowing an ‘exorbitant privilege’ on the dollar.
- But a forced and hurried dismantling of this order and replacing it with rushed bilateral local currency arrangements can prove to be more detrimental for the global economy in the longer run.
- We had an Indian rupee-Russian rouble agreement in the late 1970s and 1980s, when we mutually agreed on exchange rates for trading purposes.
- Now, with India’s robust external sector, a flourishing trading relationship with many nations and tremendous potential to expand trade, such bilateral arrangements are unsustainable, unwieldy, and perilous.
2] Avoid discounted commodity purchases from Russia
- In the long run, India stands to gain more from unfettered access to the western bloc markets for Indian exports under the established trading order than from discounted commodities purchased under new bilateral currency arrangements that seek to create a new and parallel global trade structure.
- It entails a prolonged departure from the established order of dollar-based trade settlement or jeopardises established trading relationships with western bloc markets, it can have longer term implications for India’s export potential.
3] Non-disruptive geo-economic policy
- India needs not just a non-aligned doctrine for the looming new world order but also a non-disruptive geo-economic policy that seeks to maintain the current global economic equilibrium.
- By the dint of its sheer size and scale, India can be both a large producer and a consumer.
- To best utilise this opportunity, India needs not just cordial relationships with nations on either side of the new divide but also a stable and established global economic environment.
4] Social harmony is a must
- Just as it is in India’s best interests to balance the current geo-economic equilibrium, it is also imperative for India to maintain its domestic social equilibrium.
- Social harmony is the edifice of economic prosperity.
- Fanning mutual distrust, hate and anger among citizens, causing social disharmony is a shameful slide to perdition.
Conclusion
The reshaping and realignment of the world order will be a unique opportunity for India to reassess its foreign policy, economic policy and geo-political strategy and don the mantle of global leadership.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much
Mains level: Paper 2- Communal violence in India
Context
Communal violence, a complex phenomenon, has been over-simplified to suit a convenient political narrative.
India’s syncretic traditions and impact of invasions
- For aeons, India has had syncretic traditions inspired by the Vedic aphorism, “Ekam sad vipra bahudha vadanti” (there is only one truth and learned persons call it by many names).
- Because of this underpinning, Indian society has never insisted on uniformity in any facet of life.
- This equanimity of Indian society was, however, disrupted by invading creeds.
- The first such incursion came in 712, when Muhammad bin Qasim vanquished Sindh, and as Chach Nama, a contemporary Arab chronicle states, introduced the practice of treating local Hindus as zimmis, forcing them to pay jizya (a poll tax), as a penalty to live by their beliefs.
- In the 11th century, Mahmud of Ghazni, while receiving the caliphate honours on his accession to the throne, took a vow to wage jihad every year against Indian idolaters.
- The fact is, ties between the two communities were seldom cordial.
- There were intermittent skirmishes, wars and occasional short-lived opportunistic alliances.
- When Pakistan declared itself an Islamic Republic in 1947, it would have been natural for India to identify itself as a Hindu state.
- It didn’t, and couldn’t have — because of its Hindu ethos of pluralism.
- India, is, and will always be, catholic, plural, myriad and a vibrant democracy.
Conclusion
It’s relevant to recall what Lester Pearson (14th PM of Canada) said: “Misunderstanding arising from ignorance breeds fear, and fear remains the greatest enemy of peace.”
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much
Mains level: Paper 2- Communal violence and its implications for society
Context
India has a long history of communal violence. Just how similar or different are the recent episodes? And what kind of dangers do they pose to the polity and society?
What is different this time?
- Religious processions: It should first be noted that such processions have historically been some of the largest triggers for communal riots.
- Such processions can be, and have been, intensely political, often morphing from the religious to the communal.
- Communalism Vs. Religiosity: Communalism in South Asia has always been distinguished from religiosity.
- Religiosity may be about deeper meanings of life, but communalism is about a coercive assertion of power or a bloody search for retribution, often historically construed and presented.
- Thus, it is not the coexistence of religious processions and riots that is surprising today.
- What is different this time? Ram Navami and Hanuman Jayanti are not the principal religious processions touching off riots.
- Eroding neutrality of state: The second difference that in the past, processions might have caused riots, but the state rarely gave up the principle of neutrality in dealing with them.
- When a state either explicitly favours a community or looks away when a particular community is hounded, intimidated and attacked, it is no longer a riot, but a pogrom.
- The rapidly eroding religious neutrality of the government in several states is one of the most alarming political developments.
- In recent months, there have been spectacles of calls to murder in Dharam Sansads (religious assemblies).
- Such speech is criminally liable. India’s Constitution prohibits speech that endangers “public order”.
- In the past, it was invariably hard to find clear evidence of who led the riots.
- The riot leaders now openly proclaim call for violence.
- Such leaders are either not punished, or are merely given a slap on the wrist and some of them are even celebrated as heroes and rewarded with high office.
- New research on vigilantism makes it clear that vigilantism, especially lynchings, cannot flourish unless the state provides impunity to vigilante groups.
Conclusion
Even though India has a long history of communal violence the recent episodes of violence are different and pose grave dangers to the polity and society.
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From UPSC perspective, the following things are important :
Prelims level: Pillar One
Mains level: Paper 3- OECD formula for digital tax and its implications for India
Context
Over the past four years, 137 countries have engaged intensively with the OECD to find a solution to the tax challenges arising from digitalisation. Like any international agreement, finding a middle ground has been difficult and a series of compromises have been made.
What makes it difficult to tax the digital economy?
- Operation across the border: The unique feature of the digital economy is that firms can operate seamlessly across borders and users and their data contribute to their profits.
- However, this made it harder to tax such an economy.
- It was not clear how profits were to be pinned down to any jurisdiction.
- Political issues: Taxing digital economy became a political issue because the largest technology firms are tax residents of developed countries and redefining digital presence as the basis of taxation would potentially allow large markets like India more right to tax.
- Developing vs. developed countries: Developing countries wanted that profits from digital operations should be fractionally apportioned to markets while developed countries believe that a fraction of residual profit, mainly arising from marketing functions, should be taxed in markets.
Equalisation levy and DST issue
- The divergence in developed and developing countries as explained above compelled countries to implement unilateral measures.
- India was the first country to implement a gross equalisation levy on turnover.
- This is not covered by tax treaties.
- So, while the income tax act does not apply to the levy, credit is available for the tax paid by the company in its home country.
- Similarly, several other countries have announced or implemented a digital services tax (DST).
- In 2021, India expanded the scope of the equalisation levy.
- The US initiated the US Trade Representative investigations which found DST to be discriminatory, and then announced retaliatory tariffs.
Two-pillar approach and issues with its adoption
- The DSTs encouraged the US to actively participate in finding a consensus-based solution.
- As talks progressed, the OECD announced that the issue of allocation of taxing rights would be actively considered and adopted a two-pillar approach.
- Pillar One approach: The first pillar was to define the rules for taxing digital companies.
- Sovereignty issue: Pillar One was to go beyond digital companies and apply to large companies with annual revenue over € 20 billion. To ensure certainty to taxpayers, the solution will require excessive global coordination.
- Whether this will undermine sovereignty, remains to be seen.
- Therefore, it is important to consider if the consensus approach is worth pursuing.
- EL may still apply to companies not covered by OECD proposal: In fact, the EL may apply to companies that are not covered by the OECD proposal, leaving one to wonder whether it will truly address the tax challenges from digitalisation.
- Complications: Corporations that argue in favour of simplicity must also consider the potential benefits from an EL like tax that sets aside the complications of attributing profits to complex functions.
- The OECD approach creates a fiction of reallocation, where the profits reallocated through Pillar One could in fact be compensated for by taxing back global profits taxed below 15 per cent.
Conclusion
As per Pillar One proposal, DSTs will be removed once the OECD approach is ratified in 2023. It is imperative therefore that countries assess the price of compromise.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Merit goods vs public goods
Mains level: Paper 2- Issues with competitive freebie politics
Context
Against the backdrop of promises of freebies in Punjab, this article deals with the harm caused by such freebies to the economy, life quality and social cohesion in the long run.
Macroeconomic stability of the Union and the States
- India is a Union of states. It is not a confederation of states.
- The Union is indestructible.
- The Union, therefore, is integral to both the Centre and the states.
- The strength of the Centre lies in the strength of the states.
- Therefore, the macroeconomic stability of the Union is contingent on the macroeconomic stability of both the Centre and states.
The complex issue of freebies
- There is great ambiguity in what “freebies” mean.
- Merit goods Vs. Public goods: We need to distinguish between the concept of merit goods and public goods on which expenditure outlays have overall benefits.
- Examples of this are the strengthening and deepening of the public distribution system, employment guarantee schemes, support to education and enhanced outlays for health, particularly during the pandemic.
- All over the world, these are considered to be desirable expenditures.
- Freebies could be expensive? It’s not about how cheap the freebies are but how expensive they are for the economy, life quality and social cohesion in the long run.
Issues with the culture of competitive freebie politics
1] It affects macroeconomic stability
- Freebies undercut the basic framework of macroeconomic stability.
- The politics of freebies distorts expenditure priorities.
- Outlays are being concentrated on subsidies of one kind or the other.
- Illustratively, in the case of Punjab, while estimates vary, some have speculated that the promise of freebies might cost around Rs 17,000 crore.
- As we know, the debt-to-GDP ratio of Punjab is already at 53.3 per cent for 2021-22, which would worsen on account of these new measures.
2] Distortion of expenditure priorities
- Take, for instance, the change to the new contributory pension scheme from the old scheme, which had a fixed return.
- Rajasthan announced that it would revert to the old pension scheme.
- This decision is regressive as the move away from the old scheme was based on the fact that it was inherently inequitable.
- The pension and salary revenues of Rajasthan amount to 56 per cent of its tax and non-tax revenues.
- Thus, 6 per cent of the population, which is made up of civil servants, stands to benefit from 56 per cent of the state’s revenues.
- Intergenerational inequality: This is fraught with dangers not only of intergenerational inequality, but also affects the broader principles of equity and morality.
3] Increases social inequality
- The issue of intergenerational equity leads to greater social inequalities because of expenditure priorities being distorted away from growth-enhancing items.
4] It affects the environment
- When we talk of freebies, it is in the context of providing, for example, free power, or a certain quantum of free power, water and other kinds of consumption goods.
- This distracts outlays from environmental and sustainable growth, renewable energy and more efficient public transport systems.
5] The distortion of agricultural priorities
- The depleting supply of groundwater is an important issue to consider when speaking of freebies pertaining to free consumption goods and resources.
6] Effect on the future of manufacturing
- Lower the quality of competitiveness: Freebies lower the quality and competitiveness of the manufacturing sector by detracting from efficient and competitive infrastructure enabling high-factor efficiencies in the manufacturing sector.
7] Subnational bankruptcy
- Freebies bring into question market differentiation between profligate and non-profligate states and whether we can have a recourse mechanism for subnational bankruptcy.
Way forward
- The race to the bottom implies government deregulation of markets and business.
- We must strive instead for a race to efficiency through laboratories of democracy and sanguine federalism where states use their authority to harness innovative ideas and solutions to common problems which other states can emulate.
Consider the question “What are the challenges in dealing with the competitive freebies politics? What are its drawbacks?”
Conclusion
The economics of freebies is invariably wrong. It is a race to the bottom. Indeed, it is not the road to efficiency or prosperity, but a quick passport to fiscal disaster.
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