9 PM Daily Current Affairs Brief – February 2, 2021

Good evening dear reader

Here is our 9pm current affairs brief for you today

List of 9 PM Current Affairs Articles

1. India- Myanmar relations after Coup
2. Budget 2021: Despite some hits, the Budget has crucial misses
3. Budget 2021: Continues with fiscal conservatism
4. Evaluation of Budget 2021
   

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India- Myanmar relations after Coup

Source: click here

Syllabus: GS – 2- India and its neighborhood- relations

Synopsis: India has a deep security relationship with the India Myanmar military. It is not in India’s interest to intervene in Myanmar’s politics.

Introduction

Military rule has returned to Myanmar after a coup. Aung San Suu Kyi along with other political leaders have been detained by the Military.

Similar events had taken place in Myanmar 30 years ago. But this time, India’s reaction is going to be very different from its stand in 1989-90.

Why is India’s reaction going to be different this time?

India gave a statement of deep concern over the developments in Myanmar. However, its reaction is going to be different from the past because of the following reasons:

• First, India has a very close security relationship with the Myanmar military. Myanmar military assists India in securing the North East borders from insurgent groups.
  • In a recent visit to Myanmar, Indian counterparts met with both State Councillor Suu Kyi and Gen. Min Aung Hlaing. It signifies the equal importance of both for India.
• Second, The image of Ms. Suu Kyi as a democratic icon and Nobel peace laureate has been damaged. It is the result of her failure in stopping the Army’s pogrom against Rohingya. Moreover, she defended the Army’s action.
• Third, India has initiated numerous infrastructure and development projects with Myanmar. India sees this as the “Gateway to the East” and ASEAN countries. For example, the India- Myanmar-Thailand trilateral highway and the Kaladan multi-modal transit transport network.
• Fourth, India wants to resolve the issue of Rohingya refugees that fled to Bangladesh and some of them still live in India.
• Fifth, There was a public uproar in India, in 1990, to take a strong stand against Myanmar. This is not the case in the present scenario.

Till now, India enjoyed a balanced relationship with both civil and military establishments of Myanmar. But after this coup, India’s capacity to maintain a balanced relationship on both sides has diminished.

Budget 2021: Despite some hits, the Budget has crucial misses

Source: click here

Syllabus: GS – 3 – Economy

Synopsis: The recently released budget has got a few things right, but there are some issues as well.

Introduction

The government’s response to distress in the economy was below expectations. Public spending was just over 1% of GDP. It was in a situation when GDP growth was in the negative zone and the unemployment rate was high.

In this budget, the government has proposed increasing public investment by 34.5% in the upcoming fiscal year. It is a positive step for the economy.

However, the finances for investment depend upon several factors like tax revenue, disinvestment proceeds, sale of rail and road assets, etc.

How this Public Investment would be realized?

1. First, The government would increase public investment by borrowing. It will be an additional ₹80,000 crore for the purpose in the next two months.
2. Second, States will be allowed a higher fiscal deficit, in case of capital expenditure. If the capital expenditure plan outlined in the Budget speech is implemented with assured financial backing, it can revive the investment cycle.
3. Third, The Development Finance Institution (DFI) proposed in the budget. There was lack of long term credit for infrastructure in the last decade. The most successful industrializing economies have been utilizing DFIs for providing long-term credit.

What are the issues in the budget?

1. First, DFI mentioned in the budget will be financed by foreign portfolio investments (FPI), which is a cause for concern. FPI represents short term inflows with exchange rate risks. This investment will certainly lead to currency and maturity miss-match, increasing the cost of capital.
2. Second, The NFHS data for 2019-20 indicated that constructing toilets in households is of no use unless adequate access to water and sewage facilities are provided. Thus, the effectiveness of such investments depends upon coordination with other facilities.
3. Third, The Budget has not mentioned the unemployment and migration crisis due to pandemics which led to the rise in economic inequality. The budget did not consider a special tax on the super-rich.
4. Fourth, There is no targeted employment program to alleviate the immediate crisis is a matter of concern.

Way forward

There is a need to consider alternative long-term sources, preferably from domestic sources, or international development agencies to make DFI a success.

Budget 2021: Continues with fiscal conservatism

Source: The Hindu

Syllabus: GS 2-Parliament and State Legislatures- Budgeting

Synopsis:  A close analysis of Budget 2021 reveals that the Government is following the principle of fiscal conservatism. The policy of Fiscal spending was the need of the hour.

Why the government resorts to fiscal conservatism?

Falling revenues had forced the government to restrict its aggregate spending. Some of the issues that contributed to falling revenues are,

• A sharp reduction in corporate tax rates in September 2019,
• The under-performance of Goods and Services Tax regime.
• Failure of government’s ambitious disinvestment agenda. The government was only able to collect ₹32,000 crores last year, compared to the plan of ₹2.1-lakh crore.
• The mandate of Fiscal Responsibility and Budget Management (FRBM) Act to reduce the fiscal deficit.

Because of the above reasons the total expenditure for 2021-22 is projected to rise only by just 0.95% compared to revised estimates for 2020-21.

What are the signs of a continuation of Fiscal conservatism in Budget 2021?

1. First, Allocation to MGNREGA and Food subsidies:

• According to the Budget 2021-22, the allocations for the MGNREGA programme, is drastically reduced from the ₹1,11,500 crore spent in 2020-21 to ₹73,300 crores in 2021-22.
• Similarly, the allocation for food subsidies has been reduced from ₹4,22,618 crore in 2020-21 to ₹2,42,836 crore in 2021-22.
• MGNREGA and food subsidies supported the vulnerable sections in a big way, to survive during lockdowns.
• Experts see this as neglect of responsibilities by the government to support the vulnerable and marginalized people.

2. Second, Allocation to health and wellbeing

As per the Budget, the government has increased its spending on health and capital expenditure.

• Health spending increased by 137% compared to the previous year. (From ₹94,452 crore in 2020-21 to ₹2,23,846 crore in 2021-22)

However, closer scrutiny of budget allocations for health suggests otherwise. For example,

• The expenditure on the Jal Jeevan Mission is included as a part of ‘Health and Wellbeing’ expenditure. It has magnified the figures on Health expenditure.
• Also, an increase in Budget spending on Health is not reflected equally in the allocation for the Department of Health and Family Welfare. For example, the Budget estimate of Department of Health and Family Welfare for 2021, shows a mere increase of 9.6% compared to last year.

3. Third, the allocation for infrastructure investment

As per the budget, Capital spending is increased by 35% compared to the previous year. (from ₹4.12-lakh crore in 2020-21 to ₹5.54-lakh crore in 2021-22)

But the Budget estimate for infrastructure will also not be adequate. Because of the following reasons,

• The government is planning to finance new investments in infrastructure through disinvestments of equity, strategic sale, and privatization of the public financial sector. It is expected to yield ₹1.75-lakh crore in 2021-22.
• However, after looking at the past performance of disinvestment targets,  it seems to be an overambitious target.

Even before the pandemic recedes, the government seems to restore the old normal. i.e., Fiscal Conservatism. It is still continuing with the same path.

Evaluation of Budget 2021

Source: The Hindu

Syllabus: GS 2-Parliament and State Legislatures- Budgeting

Synopsis: The evaluation of Budget 2021 is done on three parameters. First, on the credibility of the Budget. Second, it’s potential to deliver adequate domestic output and jobs. Third, on how the Budget raises resources.

What is the Credibility of the Budget 2021?

• Budget 2021 scores high on credibility. Because, unlike previous budgets, Budget 2021 has taken into account the real estimates of revenue receipts. Moreover, it has recognized the ‘off balance sheet’ expenditures.
• This has resulted in arriving at real fiscal deficit numbers that are much higher than expected. It is 9.5% of the GDP for FY21 and 6.8% of the GDP for FY22. But disclosing real fiscal deficit has the following significance
  1. One, realistic revenue budgets will reduce the pressure on tax authorities to engage in tax terrorism.
  2. Two, it will allow governments to release payments and refunds on time.
  3. Three, focus on the ‘real’ numbers will help in informed decision-making and planning to improve our fiscal balance.

Steps taken to provide adequate domestic output and jobs

1. Budget 2021 signals a shift away from the revenue expenditure towards Capital Expenditure. Capital expenditure in FY22 is budgeted to increase by 26% over FY21 due to increased focus on areas such as infrastructure, roads, and textile parks.
2. The budget also promises to improve health, education, nutrition and urban infrastructure.
3. Along with this, efforts are being made to increase domestic jobs. It includes reform of labour laws, corporate tax rate cuts, and production-linked incentives.

What steps were taken to raise resources and improve investment?

• The Budget focuses to raise resources through disinvestment and asset sales, rather than via additional taxes. It reduces the tax burden on people.
• The Finance Minister also announced the creation of a new Development Financial Institution to facilitate and fund infrastructure investments.
• There were also efforts to revive our stressed financial services ecosystem. The Finance Minister announced the creation of a government Asset Reconstruction Company, or ‘bad bank’, to reduce the non-performing assets throughout the industry.

Way forward

• The government should also help to revive other sectors that are suffering from chronic stress. Examples are financial services, power, real estate, telecom, airlines and shipping, contact-based services, and micro, small and medium enterprises.
• Also, taking lessons from the global financial crisis 2008, the government should not assume that a revival in consumption and government spending would automatically result in durable growth. Hence, Government needs to make efforts to ensure adequate growth in domestic output and jobs.

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