9 PM Daily Current Affairs Brief – January 4th, 2023

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Mains Oriented Articles

GS PAPER - 2

It is crucial for India to embrace multi-domain operations

Source– The post is based on the article “It is crucial for India to embrace multi-domain operations” published in The Hindu on 4th January 2023.

Syllabus: GS2- Security

News–  The article explains the concept of multi-domain operations and its relevance for India. It also explains the steps needed to embrace the concept of MDO.

What is the concept of Multi Domain Operations?

It is not just actions on land, in sea, air, cyber, space and in the electromagnetic spectrum. It comprises operations conducted across multiple domains and contested spaces.

It needs convergence of capabilities to overcome an adversary’s strengths. This means having a common operating picture across all domains which forms the basis of any decision.

It is the best positioned and capable operator of any service using its capabilities across any domain. Thus, an Army coastal missile battery could be tasked to strike an enemy naval vessel detected by the radar of an Air Force aircraft.

What are the requirements for MDO?

It requires the technical complexity and the command, control and communication (C3) structure.

It would have inputs from all sensors for optimum engagement solution using artificial intelligence.

This demands three things. First, all sensors must be capable of being hosted on the MDO architecture.

Second, all executors must be able to receive inputs and instructions from the C3 structure and carry them out.

Third, if the link to the main structure is not available, the distributed control of mission command should ensure that operations continue.

Should India embrace the concept of MDO?

This is a complicated process. It requires pioneering technologies. Only nations with a developed scientific base and financial standing can afford it. It would require a complete relook at doctrine, planning, acquisition, staffing and training.

But, China is attempting to match U.S. military power. It has technologies and finances for Multi Domain Operations. India should acquire this capability for deterring China

Russia-Ukraine conflict has shown the utility of MDO. The West is helping Ukrainians to utilise the power of MDO to  to strike Russian targets.

What is the way forward to embrace the concept of MDO?

A four-pronged strategy is suggested. First, in the short-term, traditional physical domains must be stabilised. The critical deficiencies of the services should be plugged.

Second, Command, Control and Communication networks need to be protected against cyber threats. They need to be linked and synchronised so that seamless exchange of data is ensured.

Third, for the long term, a pilot project must be started now so that challenges in the creation of an MDO environment can be understood. The pilot project would identify the technologies and financial requirements.

Finally, it is vital to train and educate personnel starting now. There is a need to inculcate critical thinking and problem solving skills at the operational level of war amongst Joint All Domain Specialists.

India@75, Looking@100 – on healthcare sector in India

Source– The post is based on the article “India@75, Looking@100” published in The Indian Express on 4th January 2023.

Syllabus: GS2- Issues related to development and management of health

News– The article explains the problems faced by healthcare sectors and measures needed to improve the provision of healthcare services in India.

What are the issues faced by the healthcare sector in India?

There is a shortage of manpower in the healthcare sector. Multiple roles are assigned to staff.

There is a lack of facilities for specialised treatment in our hospitals.

What is the way forward for providing better healthcare services in India?

Timely recruitment and appointment of medical and paramedical staff is needed.

Nursing school education & information may quickly become outdated because the healthcare field is constantly changing and progressing. Adequate and appropriate training of medical and paramedical staff is critical.

There is a need for enough officers to conduct training sessions. A thorough review of the process is necessary so as to ensure that our trainees receive the best education.

Our focus, for the next 25 years, should be on preventative healthcare. These measures should be introduced in schools at early ages and in community spaces across the country.

A greater focus on immunisation and sensitisation campaigns would ensure better healthcare for the population.

For great road safety, India needs a change in mindset

Source– The post is based on the article “For great road safety, India needs a change in mindset” published in The Indian Express on 4th January 2023.

Syllabus: GS2- Government policies and interventions

News– The article explains the issue of road safety in India.

What are the reasons behind increasing road accidents in India?

Human error on the roads is the single-largest factor responsible. There are frequent violations of lane driving, speed limits and traffic signals and at-will parking on highways.

There is administrative and political apathy toward road safety. Road users are lacking the understanding of the basic traffic rules and road signage.

There is easier access to driving licences without a meaningful ground scrutiny of skills.

In case of a serious road crash, charges are framed against the erring drivers. They are not framed against the road-safety public officials for non-performance.

At the macro level, various institutions of road safety are engaged in routine paperwork and lack accountability.

What is the way forward for road safety in India?

The enforcement of traffic norms is the key to road safety. The priority goal should be to significantly reduce the rising number of road crashes.

There is a need for regular and professional enforcement of rules. Swift and innovative solutions by the administration could help in evolving a healthy safe-road culture.

A new Motor Vehicles Act is required. Along with it, decentralised federal structure and the Supreme Court committee on road safety and its regular monitoring of the related issues is key to road safety. A specific regime whereby road safety authorities are given clear targets for reducing road crashes over a defined period should be priority.

Parts of major roads and highways should be set up as “ideal” road safety zones. These zones will promote locally suitable, comprehensive safe road practices.

To begin with, identify the two worst roads in a specific area:

  • Notify each identified road as a Zone of Excellence in road safety
  • Provide road written instructions on road-surface and road signage
  • Take care to provide lanes for emergency vehicles, cyclists, pedestrians etc, as feasible
  • Ensure adherence to basic traffic rules. Create multiple checkpoints every 2-4 kms. Each checkpoint should be supported by road safety volunteers in addition to police
  • Use tech aids, judiciously combined with manual interventions and volunteers
  • Supplement enforcement with road safety awareness measures
  • Station ambulances and lift cranes for swift response to accidents
  • Make reliable arrangements with hospitals and trauma centres through formal MoUs

The administrative structure for the implementation of road safety can be set up in three tiers.

Tier 1 would be the Managing Group. It would look after day-to-day operations and would be autonomous and financially empowered. It will have representatives from the police, transport and health sectors, the public works department and public representatives.

Tier 2 would have district level monitoring. It would also ensure adherence to targets.

Tier 3 would have top management and control, represented at the level of the Union or state government. At this level, a dynamic road-safety ecosystem would be developed. Existing road safety institutions would either be dismantled or rejuvenated. There would be monthly reviews, with directions, accountability and disciplinary action.

A late but right call by Kerala Governor

Source: The post is based on the article “A late but right call by Kerala Governorpublished in The Hindu on 4th January 2023.

Syllabus: GS 2 – Indian Polity

Relevance: Role of Governor

News: Kerala Governor Arif Mohammed Khan has finally decided to reinstate former Minister Saji Cherian into the Cabinet and administer the oath. However, he was initially reluctant.

What does the Constitution say regarding oath?

Article 164(3) provides that the Governor shall administer the oaths of office and secrecy to a Minister before he assumes office.

The Schedule III of the Constitution lays out the oath of office and oath of secrecy for a Minister of a State.  The oaths are prescribed for various constitutional posts, including Ministers and judges, and without it, one cannot assume office.

A person can become a minister if he is an MLA or MLC and has not suffered any disqualification provided under the Constitution.

In the present case, the concerned minister was made to resign for his anti-constitutional speech but was not disqualified.

However, there have been instances where the Governor has refused to administer the oath.

Can a Governor refuse to administer the oath?

This issue came up in 1978. Vasantha Pai got elected as a Member of the Tamil Nadu Legislative Council from the graduate constituency.

It is a requirement under Article 188 that the elected person should be administered the oath by the Governor or a person appointed on his behalf under Schedule III.

However, the Governor nominated Pro-tem Chairman to administer the oath on his behalf but Vasantha Pai did not want to take oath before him.

So, he expressed his wish in front of the then Governor of Tamil Nadu and informed him that he would like to be administered the oath by him. After not getting any answer, he sent a telegram asking him to fix a date for the oath.

However, he later sent his oath in the form prescribed in Schedule III duly signed by him to the Governor. He referred to Article 188 and said that it was the Constitutional duty of the Governor to administer the oath.

He also filed a writ petition before the Madras High Court and asked for the declaration that he has followed the constitutional requirement of taking oath before assuming office.

The court allowed his case and he entered the legislative council successfully.

Therefore, the same could have happened if the Kerala Governor would have refused to administer the oath and a governor cannot refused to administer the oath as it his constitutional duty.

Restrictions on NGO activities: Beyond civil society – ‘Protectionism’ in social services is impractical

Source: The post is based on the article “Beyond civil society – ‘Protectionism’ in social services is impractical” published in the Business Standard on 4th January 2023.

Syllabus: GS 2 – The role of NGOs, SHGs, various groups and associations, donors, charities, institutional and other stakeholders.

Relevance: About restrictions on NGO activities.

News: Recently, at least two NGOs have received letters from the government to stop their fund-raising. The government also directed states to restrict NGO activities in areas where the Central government assumes primary responsibility.

What are the recent restrictions on NGO activities?

According to the home ministry, 6,677 non-governmental organisations (NGOs) lost their licences to access foreign funding between 2017 and 2021. The government is also restricting access to domestic funding as well.

The Ministry of Women and Child Development’s letter to the states complains about the “false information being spread by NGOs” and asks local administrations to raise awareness about the government’s nutrition schemes.

Why imposing restrictions on NGO activities is not correct?

These strictures are unclear and counter-productive: For instance, serial internal surveys, including the government’s National Family Health Surveys, have flagged child malnourishment as a serious issue. So, it is in the government’s interest to work with reputed NGOs towards improving child nourishment.

Overlapping domains are unavoidable: The government, by its very nature, is active in the delivery of social services such as health and education. So, the operation of NGOs always overlaps with government domains.

Impacts CSR activities: Improving education and tribal welfare is part of the list of activities under corporate social responsibility mandates. Restrictions on NGOs might create confusion about the status of corporate programmes in which they have invested money.

Read more: The evolving role of CSR in funding NGOs
What should be done instead of imposing restrictions on NGO activities?

Lessons from Bangladesh: Bangladesh is significantly improving its human development indicators in cooperation with NGOs. So, India should co-work with NGOs.

So, enforcing protectionism in social services in a country like India cannot be considered a sound policy.

GS PAPER - 3

Preventing animal cruelty is a duty of the state

Source– The post is based on the article “Preventing animal cruelty is a duty of the state” published in The Hindu on 4th January 2023.

Syllabus: GS3- Conservation. GS2- Significant provisions of constitution

News– The article explains the issue of legality of jallikattu sport in Tamil Nadu. It also explains the issue of animal welfare.

A Constitution Bench of the Supreme Court of India will deliver its verdict on the validity of Tamil Nadu’s law permitting the practice of jallikattu in the State.

In 2014, in Animal Welfare Board of India v. A. Nagaraja, a two-judge Bench of the Supreme Court declared jallikattu illegitimate. Since then, Tamil Nadu has made efforts to resurrect the sport’s legality.

What are the deficiencies in constitution and legislative structure for addressing the question of animal welfare?

None of the fundamental rights contained in Part III of the Constitution are explicitly conferred on animals. Article 14 and Article 21 are bestowed on persons.

Some of the DPSPs and the Fundamental Duties put responsibility on the state and on human beings to protect and improve the natural environment. But these are unenforceable obligations.

Legislation on animal welfare does not follow an animal rights approach. These are based on the ethical belief that collective conscience does not permit us to inflict unnecessary pain and suffering on animals. This approach was followed while enacting the Prevention of Cruelty to Animals Act.

The PCA Act has shortcomings. While it criminalises several types of actions that cause cruelty to animals, it contains exemptions. For example, the use of animals for experiments with a view to securing medical advancement.

Tamil Nadu amended the PCA Act in 2017 on the basis that both the state and the Union government have the power to legislate on issues concerning cruelty to animals. It specifically excluded jallikattu from the confines of the statute’s various protections. It also secured the President’s approval for the law.

What are the arguments by petitioners against jalikattu in the Supreme Court?

Judicial review of legislation can broadly be made on two grounds. One, the competence of the legislature to enact the law. Second, the violations of fundamental rights contained in Part III of the Constitution.

Both the Union and the State legislatures have equal power to make laws on ‘prevention of animal cruelty’. But the law regulating jallikattu by the Tamil Nadu government gives consent to cruelty on animals. Hence, it must be seen as a colourable exercise of power.

The Supreme Court arrived at clear findings of fact and law in 2014. In A. Nagaraja, the court had held that jallikatu amounted to a violation of the existing provisions of the PCA Act, and the fundamental duty contained in Article 51A(g).

The Bench said that it had a direct bearing on the right to life contained in Article 21. The expanded meaning of the word “life” now includes a right against disturbance to the basic environment.

What should be the approach towards this issue?

On any reasonable reading of the Constitution, it might be difficult to hold that animals are promised rights under Article 21 and under Article 14.

The better approach to the dispute is to maintain a greater faith in our Constitution’s text and values. It needs to be seen in the context of our own right to live in a world that treats animals with equal concern.

The judgement in A. Nagaraja hinted at this approach.  It held that Article 21 safeguards only the rights of human beings. But the word “life” today means something more than mere existence. It means an existence that allows us to live in a clean and healthy environment.

Science Congress: an appraisal

Source: The post is based on an article “Science Congress: an appraisalpublished in The Indian Express on 4th January 2023.

Syllabus: GS 3 – Science and Technology

Relevance: issues associated with the ISC and measured needed to bring reforms.

News: The Indian Science Congress is conducting its 108th edition in Nagpur after a two-year gap due to the pandemic. The event was inaugurated by PM Modi.

What are the excerpts of the PM’s speech?

He highlighted harnessing scientific knowledge for societal needs and making India self-reliant.

He said that scientific works should be such which will fulfill the needs of India and have effects on the entire humanity. Therefore, we should work on such issues which are important for the entire humanity. 

He also mentioned other priority areas like disease control, management of natural disasters, space applications, waste management, new materials, and semiconductor research.

What is the Indian Science Congress?

The Indian Science Congress was started in 1914. It brings together scientists and researchers from the premier institutions, laboratories, science teachers and professors from colleges and universities.

It offers a platform for their interaction with students and the general public on matters related to science.

It is organized by the Indian Science Congress Association (ISCA), an independent body functioning with the support of the Department of Science and Technology (DST) in the central government.

However, the purpose of organizing the Indian Science Congress is not being served these days and there have been lots of criticism of it.

What are the reasons behind the criticism and the decline of ISC?

There has been a lack of serious discussion, promotion of pseudoscience, weird claims by random speakers, and the absence of useful outcomes.

Scientists, leading scientific institutions and laboratories and others have started to avoid the event.

The attendees from colleges and universities have limited scientific knowledge and papers presented by them hardly reflect the latest advancements in science.

Some scientists have asked for the discontinuation of the event or at least withdrawal of government support. There have been talks of reforms but nothing has happened.

Why has the government not been successful in bringing reforms in ISC?

The government provides an annual grant for organizing the ISC. Government agencies, like the Science and Education Research Board, also make financial contributions because the event is seen as an effort to promote science.

Further, the government has no role to play in the selection of the panelists or speakers, the papers to be presented, or the subjects to be discussed.

But due to the grants provided by the government and presence of the PM, the event gets attached with the government and lands in a controversy.

The government is then blamed for it and also have fear of being blamed as anti-science if reforms are brought.

What can be done to bring reforms in the ISC?

Scientists say that a better way to reform the Science Congress could be to develop an alternative forum.

Top Indian and global scientists could be invited in the forum to talk about the latest developments in the science. These kinds of forums are already being organised in many countries and are extremely popular.

The forum can also serve as platforms to spread scientific knowledge among youngsters, general public and help in developing scientific temper.

It could also help in making Indian science more competitive, and lead to an increase in collaborative research with leading scientific groups and institutions.

High Growth … But Do More – India’s humming economy isn’t yet helping much of its low-income citizens, who need the education deficit bridged and policies that promote job-creation

Source: The post is based on the article “High Growth … But Do More” published in The Times of India on 4th January 2023.

Syllabus: GS 3 – Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment.

Relevance: About the status of the Indian economy.

News: Lower-middle-class households are on their edge because of the pre-pandemic economic slowdown. Now, they have been forced by the pandemic to sell their property and borrow for consumption.

What do the various data show on the status of the Indian economy?
Data on buying

Data from SIAM shows that domestic two-wheeler sales, bought by lower-middle-class, have fallen by 36% since 2018-19 and are now back at 2012-13 levels.

The sale of domestic passenger cars, typically bought by upper-middle-class households, fell only by 9% over the same period. And luxury car maker, Mercedes Benz, reported a 64% increase in sales in the first nine months of 2022 over 2021, and expects to match or surpass its 2018-19 sales record.

Overall, the lower the income of the household, the more severe the demand.

Data on borrowing

RBI’s monthly bulletin indicates that commercial bank loans against gold jewellery increased by a huge 218% between February 2019 and August 2022.

This suggests that households across the board were borrowing to support consumption.

Data on selling

According to the National Family Health Survey, average land holdings were 22% lower in the latest round (2019-21) compared to the 2015-16 round.

This suggests that the poorest landowners seem to be engaged in substantial distress sales in recent years.

Read more: External risk factors for the Indian economy: Global storm: Overseas risk is main policy challenge
Other stress indicators of the economy

Labour market: Labour share in agriculture has increased over the last few years, in contrast to the steadily shrinking share before that. The demand for “last resort” MGNREGA jobs has increased from 1. 64 crores in 2015 to 3. 07 crores in 2022

This shows India is not creating enough jobs in manufacturing and services.

Corporate balance sheet: Large corporations have cleaned up their balance sheets, as have banks.

What are the opportunities for reviving the Indian economy?

a) As global supply chains look for alternative suppliers outside China, India could benefit, b) Indian services exports may grow significantly as new technologies to provide services have emerged, and c) Government infrastructure spending is good. But it can be enhanced further.

Read more: Post-pandemic surprises and where the indian economy truly stands today 
How India can revive the Indian economy?

Limit the long-term consequences of the damage: This can be done by ensuring children in government schools have access to remedial tutoring so that they can make up for learning losses.

Implement reforms on the business environment and tariffs: This can ensure investment pick up in both foreign and domestic to create jobs. Only with more high-quality jobs, India can restore health to the lower-middle class, without which India cannot achieve our collective dream of prosperity.

The jobs & technology trade-off

Source: The post is based on the article “The jobs & technology trade-off” published in the Business Standard on 4th January 2023.

Syllabus: GS 3 – Employment.

Relevance: About job-displacing technology.

News: The negative impact of technological progress on jobs is often ignored. With India’s G20 presidency, India is expected to bring a human-centric approach to technology.

How has technological progress impacted the job market worldwide?

Since the 1990s in the US and Europe, labour has been continuously replaced by capital due to huge advances in technology, such as the internet and digital technology.

The pace of technology has accelerated, and the vast mass of workers cannot adjust to the new realities at that speed. Labour-replacing technologies are getting better and better every year. So, every country will face a job crisis in the near future.

On the other hand, technological improvements reduce the need for skills at the bottom end of the job market. For instance, deadbeat jobs will expand in sectors such as logistics, food and grocery delivery, retail and warehousing, and cab-hailing services.

How has India’s job market impacted technological progress?

In India, the employment elasticity of growth is probably between 0.1 and 0.2 now, which means even if we grow gross domestic product at 10%, jobs will grow just by 1-2%.

The Centre for Monitoring Indian Economy produces a four-monthly estimate of employment and unemployment the employment figure has stayed stuck in the 395-405 million range.

Read more: The Great Jobs Hunt – Too few Indians are seeking work and mostly among those working quality of employment isn’t great
Why India is more vulnerable to technological progress associated with job loss?

a) India has a lower level of per capita income than the rich world, b) India’s labour market will continue to expand for another 20 years. So, job loss will be more in India, c) Rich nations finance welfare with higher taxation, d) India did not conduct factor markets (labour and land) in 1991, e) Reskill and upskilling the citizens is impossible to do so for a working age population of 900 million.

Read more: India’s big problem of low-quality employment
What can be done to reverse job-displacing technologies?

Direct tech innovation towards job-enhancing sectors and disincentivising job-replacing ones: For this to happen a global consensus is required. This is because, a) In an interconnected world, it is not possible for any one country to decide on an automation policy on its own, b) Each country will try to frame a policy for its advantage. For example, China might advocate for job displacement technology due to its own ageing population, c) Jobs crisis is global in nature.

So, India should under its G20 presidency at least launch a study on how technology impacts jobs. Without a deeper understanding of job-displacing technology, the world can never get our arms around the problem.

Fiscal Deficit in India: Trends and Concerns – Explained, pointwise

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Introduction

The Union Government had estimated the Fiscal Deficit to be INR 16.61 lakh crore for FY2022-23. As of November 2022, the Government’s Fiscal Deficit stood at INR 9.58 lakh crore, which is ~58% of the full-year estimate. The Budget estimate of Fiscal Deficit (INR 16.61 lakh crore) is ~6.4% of India’s GDP. The Fiscal Responsibility and Budget Management (FRBM Act, 2003) prescribes the limit of Fiscal Deficit to be 3% of the GDP. However, successive Governments, since 2003-04, have failed to achieve this target due to multitude of justifiable and unjustifiable reasons. The Act itself has been amended 4 times to change the target dates. While the breach of limit seems reasonable based on certain grounds (like COVID-19 pandemic or global macroeconomic developments), the debate regarding freebies and their impact on Governments’ finances has reignited debate regarding Governments’ obligation to adhere to fiscal prudence and the target of 3% Fiscal Deficit prescribed by the FRBM Act.

What is the meaning of Fiscal Deficit?

Fiscal Deficit is the difference between the total income (Total Revenue Receipts and Non-debt Capital Receipts) and total expenditure of the Government. A situation of Fiscal Deficit arises when the total expenditure of the Government exceeds its income. This Fiscal Deficit is calculated both in absolute terms and also as a percentage of the Gross Domestic Product (GDP) of the country. A recurring high fiscal deficit means that the Government has been spending beyond its means.

The Gross Fiscal Deficit (GFD) is the excess of total expenditure (including loans net of recovery) over revenue receipts (including external grants) and non-debt capital receipts. The Net Fiscal Deficit is the Gross Fiscal Deficit less net lending of the Central Government.

The Parliament had passed the Fiscal Responsibility and Budget Management Act (FRBM Act) in 2003. The Act’s goal is to ensure intergenerational equity in fiscal management, long-run macroeconomic stability, better coordination of fiscal and monetary policy, and transparency in the Government’s fiscal operations. One of the Key Targets of the FRBM Act is to limit the Fiscal Deficit to 3% of GDP. However, the target date of achieving the target has been pushed forward through successive amendments to the Act.

The Fifteenth Finance Commission has suggested that the Union Government should bring down fiscal deficit to 4% of GDP by 2025-26. For State Governments, it has recommended the fiscal deficit limit (as % of GSDP) of: (a) 4% in 2021-22; (b) 3.5% in 2022-23; (c) 3% during 2023-26.

What has been trend of India’s Fiscal Deficit?

For 2022-23, the Government had estimated the Fiscal Deficit to be INR 16.61 lakh crore or 6.4% of the GDP. As of November 2022, the fiscal deficit had touched 58% of the full year budget estimate.

Trend of Fiscal Deficit UPSC

The Fiscal Deficit of the Government had fallen to 2.54% of the GDP in FY2007-08. However, due to the global financial crisis and the consequent fiscal stimulus by the Government to boost growth resulted in fiscal deficit rising to 6.6% of the GDP in FY2009-10 and 5.9% of GDP in FY2011-12.

The deficit had gradually reduced since then, having fallen to 3.44% of the GDP in FY2018-19. However, the COVID-19 pandemic, and the Government’s fiscal package to rescue the economy from lockdowns, resulted in Fiscal Deficit of 9.5% in FY2020-21. It was 6.9% in FY2021-22 and 6.4% in FY2022-23 (estimated).

What are the reasons for high Fiscal Deficit in India?
Revenue Side

Tax-to-GDP Ratio: In India, it is low at around 10-11% of GDP and it has stayed at close to that level for the last 20 years. In contrast, Sweden has ratio of ~26%, the UK and France 25%, South Africa 23%. This means Government collects less revenue causing higher fiscal deficit. This has also lead to lower rate of investment and lower GDP growth.

Narrow Tax Base: An overwhelming majority of Indians do not pay taxes, Indian tax revenues remain largely dependent on indirect tax collections which include all taxes on spending (such as GST). According to Ministry of Finance, only 5.83 crore Income Tax Returns were filed in Assessment Year 2022-23. (~4% of India’s population).

Expenditure Side

High Subsidies: Expenditure on food, fertilisers and petroleum, form the largest share of Government’s expenditure along with interest payments. The expenditure on these items (Food, Fuel, Fertilizers) soared to ~3% of GDP in FY2020-21. For FY2022-23, the subsidy bill on these three heads is expected to be INR 532,446.79 crore: Food (INR 287,179.34 crore), fertiliser (INR 214,511.27 crore) and petroleum (INR 30,756.18 crore).

Off-budget Financing: Economists and analysts argue that the actual fiscal deficit figures might be even higher because some of the government’s expenditure is funded by the so-called “off-budget” items. (The off-budget borrowings are loans that government does not take directly, but public institutions borrow after the Government’s order). This extra expenditure does not figure in the official calculations. This means that the true fiscal deficit is higher than the level presented in the Budget.

Debt-to-GDP Ratio: India’s debt ratio is projected to be 84% of its GDP by the end of 2022, which is higher than many emerging economies. Due to this there is increase in interest payment. Interest payment of the government has increased to 3.1% of the GDP to INR 7.31 lakh crore in 2021-22.

Others

Poor Bond Market: In the developed economies, the Bond Markets are mature and developed. The Bond Markets judge the sustainability of the borrowing of a Central/State/Local Government and demand higher interest rates when public finance is on an unsustainable path. Such a system is healthy as fiscal responsibility is rewarded by cheaper debt financing (i.e., Government can borrow at lower interest rates) and vice versa. Poorly developed bond markets in India lack the ability to act like this check-and-balance. When the government needs to borrow, it forces financial firms (like banks) to lend to it.

What are the reasons for non-adherence to the FRBM Act?

Escape Clause: The term ‘Escape Clause’ refers to the circumstance in which the Central Government can deviate from fiscal deficit targets. The FRBM Act has defined three conditions upon which the escape clause can be invoked: (a) Over-riding considerations of national security, acts of war, and calamities of national proportion and collapse of agriculture severely affecting farm output and incomes; (b) Far-reaching structural reforms in the economy with unanticipated fiscal implications; (c) A sharp decline in real output growth of at least 3 percentage points below the average for the previous four quarters. Because of this clause, the goal posts for fiscal targets have been moved multiple times over the course of the past two decades.

Amendments to FRBM Act: Amendments to the FRBM Act are permissible through money bills, which include Finance Bills. This makes it easier to amend the Act and shift the target dates e.g., the date of eliminating Revenue Deficit was gradually shifted through amendments in 2004, 2012, 2015 and 2018.

Effectiveness of Fiscal Responsibility Framework:  In the US, the Government shuts down when the Budget negotiation is not able to fit within the debt ceiling. In Germany, the ‘Federal Debt Brake‘ is in the Constitution, and there would be a shutdown of government payments if it were violated. Such overarching clause is missing in the FRBM Act.

What are the harmful impacts of high Fiscal Deficit?

Crowding-out: Due to high fiscal deficit, the Government borrows from financial institutions. This reduces the financing available to private sector. This reduces private investments, slowing down the economic growth rate.

Higher Interest Rates: Higher borrowing by Government reduces the financing available in the market (demand exceeds supply). This raises interest rates.

Inflation: To cover its fiscal deficit, the Government also borrows from the Central Bank. When the Central Bank prints money to finance the government, the economy’s money supply expands, causing inflationary pressures.

Debt Trap: Persistent fiscal deficit and dependence of borrowing may lead to accumulation of debt. As the debt rises, the interest payments on cumulative debt rise, putting further pressure on Government finance. Ultimately it may create a vicious cycle with the Government entangled in a debt trap where it has to borrow more money to just repay existing debt and interest payments.

External Dependence: Financing Fiscal Deficit through borrowings from abroad may force the Government to borrow from abroad. This creates dependence on foreign financial institutions and Governments. There is also risk of ballooning of debt in the event of domestic currency depreciation.

What steps can be taken to address Fiscal Deficit?

First, The Government should focus on rationalizing the subsidies. The tendency to grant ‘freebies’ should be kept in check. The subsidies can be made more targeted. Checking leakages and diversions can also help in rationalizing the spending.

Second, The Government should also improve the tax system. Tax-to-GDP ratio must be improved by ensuring better compliance (~4% pay Income Tax). In addition, introduction of Wealth Tax and raising the rate of Property Tax can reduce the asymmetry with respect to Direct and Indirect Taxes. Laws regarding tax evasion must be made more robust and implementation strengthened.

Third, The Government can also enhance revenues through monetization of assets especially idle assets like land lying vacant with Government entities.

Fourth, The Government should adhere to the recommendations regarding fiscal consolidation given by the 15th Finance Commission.

Fifth, The amendments to the FRBM Act regarding shifting of target dates should be debated in the Parliament. The Government should adhere to the Act and the costs of deviation from the provisions of the Act should be increased.

Conclusion

The Government had to enhance its spending during the pandemic. Breach from fiscal consolidation targets is justified in such circumstances. However, even during the normal times, the fiscal deficit has never been below 3% since 2007-08. As normalcy returns post COVID-19 pandemic, the Government must focus on fiscal consolidation and bringing down the Fiscal Deficit to more sustainable level at the earliest.

Syllabus: GS III, Indian Economy

Source: Indian Express, The Times of India, The Times of India, Business Standard

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