Answers: Mains Marathon – UPSC Mains Current Affairs Questions – February 7, 2019

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Q.1) Discuss the problems faced by workers in the unorganized sector? What measures have been taken by the government for their social security and welfare?

Answer:

Unorganised sector constitute more than 90% of the labour workforce in India.

Problems of unorganised sector:

1. It affects the wage premium and formal wage employment.
2. Among self-employed persons, the share of those who found their work remunerative was below 50% and 60% in rural and urban areas respectively.
3. No comprehensive social security
4. No guaranteed minimum wages despite existing laws
5. Bonded labour is reported as a problem by an ILO report last year
6. Child Labour, as they are paid less and work for more hours
7. Working Women face issues of harassment at workplace
8. Lack of healthy and congenial environment at the workplace

Steps taken by the government:

1. Rashtriya Swasthya Bima Yojana
2. Atal Pension Yojana
3. Aam Admi Bima Yojana
4. Janani Suraksha Yojana
5. Indira Gandhi National Old Age Pension Scheme
6. The Unorganised Workers Social Security Act, 2008 shall be eligible for registration; State Governments are to provide benefits of welfare schemes

Q.2) Recently the Government has set up a five-member working committee to look into the angel tax issue. In this context, discuss the various concern raised by startups and what could be the way forward to address the challenges imposed by Angel tax.

Answer:

The angel tax is a 30.9 % tax levied on investments made by external investors in startups or companies. The entire investment is not taxed, only the amount that is considered above “fair value” valuations of the startup, classified as ‘income from other sources’ in the Income Tax Act of India.

Concerns:

1. The problem arises because startups are often valued subjectively on the basis of discounted cash flows, without taking into account intangibles like goodwill. This can cause differing interpretations of “fair value” and leave startups vulnerable to unduly high taxes because the taxman feels the investment is too high over their valuation.
2. The valuation of a startup is usually based on a commercial negotiation between the company and the investor, and is a function of the company’s projected earnings at that point in time. However, since startups operate in a highly uncertain environment, many companies are not always able to perform as per their financial projection. Equally, some companies exceed the projection by a long mile if they are doing well.
3. Since many unlisted and early-stage startups rely heavily on funding the taxation will limits investors from putting their money and trust on fledgling and early-stage startups, which in effect stifles more people to come forward and start their own.

Way ahead:

1. Ensuring fair assessment: Income Tax department should lay down detailed parameters for fair assessments, before making such additions to income, and to check the genuineness of the transaction. Otherwise it will not only discourage entrepreneurs but will also add on to an already long queue of tax litigation
2. Simple Registration of Angel Investors: The existing registration as an Alternate Investment Fund (AIF) or a Venture Capital (VC) firm is a very long and expensive process. The right way perhaps should be to ask angel investors to register in the Income tax portal with Tax residency certificate or PAN Card number and other details.
3. Simpler and more process driven Startup India registration: The discretionary powers of DIPP for granting Start-up India registration for income tax benefits should be more automated and process driven rather than giving discretionary powers to the officers to determine if the start-up is innovative or not or whether it would generate enough employment or not.

Q.3) Direct cash transfer to poor do not ensure accessibility, affordability or even sustained economic security. Discuss.

Answer:

1. It believes that all existing forms of social security transfers are inefficient. Several studies on cash transfers including one by J-PAL South Asia for NITI Aayog found that cash transfers are not greatly superior in terms of leakages compared to other schemes of in-kind transfer such as the public distribution system (PDS).
2. A move towards universalisation and use of technology enabled Chhattisgarh and Tamil Nadu to reduce leakages in the PDS.
3. This cannot in anyway address ongoing agrarian crisis or malnutrition or educational deficit and job crisis.
4. It cannot provide citizens with good quality and affordable education and health as neither the government nor the private sector is able or willing to
5. There are still problems of financial inclusion in the country which affect the last mile delivery of the sum transferred to accounts. Some states such as Tripura have opposed the central government’s direct cash transfer scheme saying banking was not available in most villages.
6. Inflation could easily erode the purchasing power of cash transfers.
7. Biometric-based unique identity or Aadhaar is causing problems for people working for the rural employment guarantee scheme and for others receiving welfare benefits
8. Many fear that the direct cash transfer in PDS will affect the system and gives scope to corruption. Rights groups argue that the decision to stop food grains and introduce cash transfer in its place is a unilateral decision and unscientific. Instead of targeted rationing system, they want the government to universalise the PDS.

Q.4) Institutions trust deficit in its functioning which have had ramifications for centre state relations. Discuss the importance of institutional strength in a democracy

Answer:

Off late several institutions have come under scrutiny for their alleged nexus with the government and political interference in their functioning.

Importance of institutions:

1. They see that any kind of discretionary power is not arbitrarily utilized
2. Institutions eliminate subjectivity
3. Rights of citizens are protected
4. Affects balance of power carefully maintained
5. Institutional decay occasions worry because it affects ordinary citizens in disastrous ways.
6. The only way citizens can be protected against any arbitrary and unlawful exercise of power is by limiting the power of government.
7. Institutions, as the embodiment of formal and informal rules, assure citizens that the government exercises power according to some norms that enable as well as regulate state capacity.