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9 PM Daily Brief – 12th Nov 2016


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Front Page / NATIONAL


[1]. India signs landmark civil nuclear deal with Japan


The Hindu


Context
India signed a historic civilian nuclear deal with Japan during the annual bilateral summit held in Tokyo.

Backdrop
Deal had been under negotiation for six years.
• Negotiations which began in 2010 during the UPA government were stuck on India’s non-NPT status as Japan sought assurances that the deal would be used for peaceful purposes
• The final seal on the text had to wait legislative clearance from Japan, which has 13 civil nuclear agreements with countries such as France and the U.S.

Point to remember
India is the first non-member of the non-proliferation treaty (NPT) to have signed such a deal with Japan.

What is Non-Proliferation Treaty?
The NPT is an International treaty meant to prevent the spread of nuclear weapons &Arms technologies, while promoting the use of Nuclear energy in a peaceful manner.
• India refuses to sign it saying it is very discriminatory in nature, because it defines Nuclear -weapons states as those states that tested nuclear devices before 1967.

Mutual benefits of this deal
It will be beneficial for both the Asian Economies.
• India will utilise Emission – free energy, whereas for Japan it opens new business opportunities for its nuclear Sector
• Japan has a monopoly in the manufacturing of reactor safety components &Power plant domes—key components that Indiawants for its Nuclear cooperation programs with the US & other countries
• The deal will also strengthen Japan’s struggling nuclear Industry which will give more access to the growing Indian Markets which is estimated to be worth $150 billion. This will help Japanese to revive its Nuclear industry after it suffered greatly from fukushima nuclear accident
• India’s similar civil nuclear deals with US & South Korea have improved bilateral relations tremendously


[2]. Airfares to soar as Centre slaps levy


The Hindu


Context
The Centre will impose a levy of up to Rs. 8,500 on flights of domestic airlines from December 1 to fund its regional connectivity scheme, making fares costlier

Regional Connectivity Scheme (UDAN)
The government will provide subsidies to regional airlines to offer half the seats on a discounted rate.
16 airports are ready to fly under the regional connectivity scheme from January
• Airlines will be offered a number of sops at smaller airports such as waiver of landing and parking charges.
• Extending the airports benefits for flights operating from small to major airports under the scheme is under active consideration of the government.

Airlines’ view
Airlines are opposing this new levy. Their reasoning is,
• Unconstitutional: A levy in the nature of tax can only be levied having regard to the provisions contained in the Article 265 of the Constitution of India i.e. by authority of law
Therefore, an imposition of a regional connectivity levy would require amendment to the Aircraft Act, 1934 and not the rules and until then the draft rules would be “beyond the authority of law and in contravention to the Constitution of India.
The draft rules may, therefore, tantamount to an attempt by the Central Government to usurp the powers or authority of the Parliament
• Section 5(2) (ab) of the Aircraft Act of 1934 does empower the Centre to make rules for economic regulation of air services but it doesn’t authorize it “to introduce a levy in the nature of tax on air services.”

Regional Connectivity Fund
The Union Civil Aviation Ministry had suggested amendments to the Aircraft Rules of 1937 in August to set up a regional connectivity fund to subsidise the losses of airlines that wanted to fly on regional routes.
• The fund was proposed to be financed by a levy on domestic flights along with contribution from states and credit proceeds from other sources.

Levy
Centre has decided to impose a levy of Rs. 7,500 for flights up to 1,000 km. It will be Rs. 8,000 for flights between 1,000 and 1,500 km and Rs. 8,500 for flights beyond 1,500 km.
• It will be applicable only on scheduled domestic flights operating on major routes and excludes regional flights

Impact of the levy
Airfares on domestic routes may rise “by one per cent on an average


[3]. Demonetisation could cut inflation, says Panagariya


The Hindu


Context
The Centre’s demonetisation drive will help lower inflation, NITI Aayog vice chairman Arvind Panagariya said. He also said that eradication of black money from circulation will have some impact on money supply

Impact on money supply
• As the black money goes out of the system, the money supply will shrink to some degree. This will reduce the inflation rate in the absence of any open market operations (OMO) by the RBI.
• Banks will see healthy growth in savings account deposits due to this exercise

Note: For an in-depth understanding of OMO, please refer to this link


INTERNATIONAL


[1]. Hydel projects: World Bank asks India, Pak. to agree to mediation


The Hindu


Context

The World Bank has “urged” India and Pakistan to agree to mediation on how to proceed in their dispute over two hydropower dam projects in Jammu and Kashmir.

Backdrop
The dispute is over the Kishenganga (330 MW) and Ratle (850 MW) hydel plants India is constructing on the Kishenganga and Chenab rivers

What India wanted?
India wanted that a neutral expert be appointed over Pakistan’s objections over the two hydel projects

What Pakistan did?
Pakistan appealed directly for the formation of a Court of Arbitration (CoA) as it claims India has violated the 1960 treaty

What is World Bank doing?
World Banks is going ahead with both the procedures simultaneously i.e. it will appoint neutral experts as per India’s demand & will set up a Court of Arbitration as demanded by Pakistan.
• WB said Indus Water Treaty does not allow a precedence to one procedure over another

India’s stance
India has issued a strong statement threatening to pull out of the World Bank’s arbitration process or even consider more stringent options over the Indus Waters Treaty


[2]. Japan has option to scrap N-deal


The Hindu


Context
The deal includes the option that Japan can give a year’s notice before terminating it in case India breaks the nuclear testing moratorium that it had extended to the Nuclear Suppliers Group in 2008.

Significance of Deal
The deal is significant as it will help guarantee Japan’s continued support to India’s civil nuclear programme
• Apart from the Russian reactors, the planned nuclear reactors with France and the U.S. depend on Japanese parts.That apart, GE, Westinghouse, and Areva, the companies planning reactors in India have important ownership stakes of Japanese companies Hitachi Ltd, Toshiba and Mitsubishi that were stopped from doing business with India without a final nuclear deal.
• The deal is also likely to revitalize Japanese nuclear majors that are yet to recover from the setback of the Fukushima accident.
• The deal will bring Japan into the Indian nuclear market where France and Russia have already have a strong presence.

Nine agreements
Both sides also signed nine agreements including one on cooperation between ISRO and JAXA in outer space

MoU on Railways
Another MoU that was signed covered investment in infrastructure projects in railways and transport terminals.


ECONOMY


[1]. Centre unveils steps to boost cybersecurity


The Hindu


Context
The Centre on Friday announced a slew of measures, including one that requires all organisations having a significant IT infrastructure to appoint cyber security officers, in an attempt to strengthen cybersecurity in India.

Measures in place
• Indian Computer Emergency Response Team (CERT-In) is being strengthened
• National Cyber Coordination Centre (NCCC) being set up to provide near real time situational awareness and rapid response. Rs 985 crore project to be completed in five years

Announced
• Organisations having a significant IT infrastructure are required to appoint cyber security officers
• State Certs are being planned by Maharashtra, Tamil Nadu, Telangana, Kerala and Jharkhand. Also, three sectoral Certs in power sector — generation, transmission and distribution, have been set up, in addition to the banking one

What is CERT?
Computer emergency response teams (CERT) are expert groups that handle computer security incidents.
• The name “Computer Emergency Response Team” was first used by the CERT Coordination Center (CERT-CC) at Carnegie Mellon University (CMU). The abbreviation CERT was then picked up by other teams around the world.
What is CERT-In?
Indian Computer Emergency Response Team (CERT-In) is the Government organisation under Ministry of Electronics and Information Technology.It is a nodal agency that deals with cyber security threats like hacking and phishing. It strengthens security-related defence of the Indian Internet domain

Ministry: CERT-In operates under Ministry of Electronics and information Technology

What is NCCC?
National Cyber Coordination Centre is a proposed cyber security and e-surveillance agency in India. It is intended to screen communication metadata (data that provides information about other data) and co-ordinate the intelligence gathering activities of other agencies
• Some of the components of NCCC include a cyber-crime prevention strategy, cyber-crime investigation training, review of outdated laws, etc. Indian and U.S. intelligenceagencies are also working together to curb misuse of social media platforms in the virtual world by terror groups.


[2]. Expiry of investment pacts will hurt FDI: EU


The Hindu


Context
The European Commission wants India to agree to extend the expiry date of these BITs till an India-EU investment treaty is in place

Backdrop
India’s separate Bilateral Investment Treaties (BIT) with 23 European Union (EU) member countries will soon expire one after the other and the absence of an investment protection pact will hurt Foreign Direct Investment (FDI) from EU to India

Legal vacuum
Expiry of the investment treaties will begin with the one with the Netherlands and such a situation will create a ‘legal vacuum’ — something that is troubling European companies looking to make huge investments in India.


[3]. Wage cap plan to widen PF net


The Hindu


Context
The Employees’ Provident Fund Organisation (EPFO) has written to the Centre demanding a higher wage ceiling of Rs.25,000 per month for its social security schemes raising the possibility of more workers being added to the provident fund pool

Present situation
At present, EPF is optional for workers earning more than Rs.15000 per month
• Around 3.7 crore active members are subscribed to EPFO out of which about three crore workers are those in the earning category of Rs 15,000 and below. Both employer and employee contribute 12 per cent each of the latter’s income towards EPF

Rationale
As the minimum wage itself had become more than the existing wage ceiling of Rs.15000 per month (Rs 18000 as per 7th Pay commission) for EPFO, it was high time that wage ceiling in EPFO be also increased

Previous revision
The previous wage ceiling was revised in September 2014 when the limit was increased from Rs.6500 to Rs.15000 per month
• Recently, the Labour Ministry had raised the threshold wage limit for coverage of Employees’ State Insurance (ESI) from Rs.15000 to Rs.21000 per month allowing more workers to get health care benefits.

Railway employees
The EPFO has written to the Union labour ministry demanding inclusion of 13 lakh Indian Railways workers under its fold.
• Many contract workers are deprived of PF benefits on account of the fact that the Central Department or organisation where they are working does not come under the purview of EPF & MP (Miscellaneous Provisions) Act , 1952


Indian Express


[1]. No proof required: In the name of the poor – again


India Express


Context
The anti-black money initiative could mean a policy reform bigger than the GST. But the naysayers are again cloaking their gripes by painting it as anti-aamaadmi.

In the first few paragraphs author tries to dispel the false claims of many political parties that have termed the demonetization as anti-poor. He justifies the current limit for weekly withdrawal that has been set at Rs 20000 and actually shows that this limit could be further lowered without hurting the interests of the poor. Let us see how he does that.

Data used
1. Total number of poor: According to the Tendulkar poverty line, today are close to seven per cent of the population (say, a 100 million people).
2. Weeks in a month: 4.5
3. The average family size in 2011/12: 4.4(Assumption made: There is only one bank account holder per family)
4. Consumption estimate: Author picks up the national account estimates due to its accuracy.
The national accounts estimate by the CSO (part of GDP accounts): Consumption level for the 99th percentile — Rs 13,910 per person per month. But each person is allowed a cash withdrawal of Rs 20,000 a month. There is no law that says that you should not use credit cards or cheques for consumption. The policy of a maximum of Rs 20,000 cash withdrawal should stay. Actually, the above data suggests that this cash limit should be reduced.
Author states that while this move is effective in dealing with the past black money, it is silent on the creation of black money.

What is Black money & its determinants?
Black money: Money which has a legal source and which is hidden from the tax net or money which is obtained through illegal sources is termed as black money.

Source of black money
Author states that the black money generation is not due to corporates or due to salaried individuals (both sets are in the tax net).
• Missing middle: Most of the generation of black money is on the part of professionals (for example, accountants, doctors, lawyers) — the missing middle identified in the Vijay L. Kelkar Report of the Task Force on Direct Taxes, 2002
What is the Missing middle?
It is term which was used in the Kelkar report wherein professionals like (CAs, lawyers, and doctors) who do not pay taxes were referred to as the missing middle

What is Black money used for?
Author writes that most of the black money is used for,
• Expenditures on gold
• Purchase of foreign exchange
• Purchase of real estate

Real estate
Transfer of money abroad into “anonymous” accounts is now a difficult exercise for all the world’s black money residents. Gold purchases and hoarding are also becoming more difficult. So the prime outlet for big-time black money use is real estate.
• If a salaried professional buys a house, and pays part of the purchase price in cash, she has inadvertently converted her own white money into black money for the seller

Way ahead
1. Reduce income tax rates so that the incentive to avoid taxes (on the part of the not fully compliant middle) is reduced
2. Decrease tax rates on purchase of houses: Author states that regressive and archaic taxes like stamp duty should be done away with in real estate
3. Reduce the capital gains tax on property to less than 10 per cent, if not zero

Conclusion
The current reform is only the first step which the government must take to fully reform the tax revenue generation in India. Government should not stop merely at demonetization.


[2]. A time to tax India


Indian Express


Context
In the light of the recent UNFCTC conference that was hosted by India from 7th – 12th Nov, author states that it is an apt moment for Indian government to reflect on its strategy to combat tobacco epidemic and thereby improve national health

Sustainable development Goals (SDGs)
The 2030 Agenda for Sustainable Development adopted at the United Nations Summit on Sustainable Development in September 2015, recognises non-communicable diseases (NCDs) as a major challenge for sustainable development. NCDs were not addressed in the Millennium Development Goals (MDGs).
As part of the Agenda, Heads of State and Government committed to:
• Reduce by one third premature mortality from NCDs
• Strengthen responses to reduce the harmful use of alcohol
• Achieve universal health coverage (UHC)
• Strengthen the implementation of the WHO Framework Convention on Tobacco Control (FCTC)
• Support the research and development of vaccines and medicines for NCDs that primarily affect developing countries
• Provide access to affordable essential medicines and vaccines for NCDs

Author states that at present India’s policy faces a wide gap between what is actually needed and what actually is, especially with regards to NCDs

Primary risk factor: Tobacco use
Tobacco use is a primary risk factor for all the main NCDs — heart disease, strokes, diabetes, cancer and chronic lung diseases. Hence, one obvious solution for India to reduce its NCD burden is to implement tobacco control measures especially Tobacco taxation

Taxing Tobacco
• Cost effective strategy: High tobacco taxes are the single most cost-effective and evidence-based strategy for persuading tobacco users to quit and to deter youth from initiating use
• Mitigation of negative impacts: Higher tobacco taxes help reduce tobacco’s negative economic and health impacts. As per a study commissioned by the ministry of health and family welfare, tobacco-related diseases cost India Rs 1,04,500 crore ($ 22.4 billion) in 2011 which is 12 per cent more than the combined annual central and state health expenditures that year.

Present situation
• Different tax rates: In India, smokeless tobacco products, bidis and cigarettes of different lengths are taxed at different rates — even though they all cause disease and premature death
Consumption of smokeless tobacco: India’s burden is that a high level of consumption of smokeless tobacco has made India the world leader in head, neck and throat cancers.

What should be done?
As per author, GST offers the government with an opportunity under which it can club all tobacco products like bidis, cigarettes, and others into one single category of “demerit goods”.
Demerit goods: These are the goods with no health value

Example of Philippines
Philippines also faced the problem of high levels of tobacco use and a politically influential tobacco industry, a complex tobacco tax structure which had enabled the industry to keep prices of products low.

Sin tax reform: In 2012, the Philippines government passed its “Sin Tax Reform Law.”
• Simplification and increase: Recognising that all tobacco products cause harm, former complex tobacco tax structure was simplified and rates were increased by as much as 341 per cent for low-priced brands in the first year
• Incremental revenues: The new law also designated incremental revenues as a sustainable source of financing for the country’s universal health care programme.

The Result
In just three years, the Sin Tax Law generated an additional US$ 3.9 billion in revenues, which allowed the government to subsidise health insurance premiums of indigent families, from 5.2 million in 2012 to 15.3 million families in 2015.
• Alternate livelihoods: Some money is also available to help farmers move to an alternative livelihood

Moving back to India, author states that,
• Health cess: A health cess (2 per cent) was introduced in India in 2007 and the revenue generated has been used to fund national health missions. Under GST, government can extend this funding source

Arguments by tobacco industry
Author says that tobacco industry gives following arguments to oppose tax increase on tobacco products,
• Reforms will harm the poor
• It will stimulate illicit trade and crime
• It will cause job losses
• It will reduce government revenue

Thailand
Author states that history has shown above claims to be false. He cites the example of Thailand.
Thailand, under its Health Promotion Foundation Act of 2001, established a small two per cent surcharge on tobacco and alcohol products, earmarking the revenue to fund ThaiHealth, a state-run health promotion foundation.
• In 2014, ThaiHealth garnered the equivalent of $125 million from the surcharge, a figure consistent since the tax’s inception in 2001

A welcome step
Author welcomes the move by GST council of placing the tobacco products in the highest slab rate of 28 per cent &the decision to levy an additional cess on tobacco products on top of this.

Conclusion
Author concludes by encouraging the central government to raise excise on all tobacco products, including bidis, and to strive for a uniform excise tax system, so that prices are effectively increased. These changes would help slow India’s tobacco epidemic and significantly improve health.

Note: If time permits, please read the following report


[3]. Nuclear loose talk


Indian Express


Context
By committing to the NFU, critics have argued, India allows more powerful adversaries, specifically China, to plan large-scale conventional offensives secure in the knowledge India will not reach for its strategic deterrent.

Backdrop
Author shares his disappointment with Defence Ministers’ recent comments at a book launch function wherein he questioned the wisdom of the “No First Use (NFU)” doctrine of India.
• It should be kept in mind that this was done while Indian PM is in Japan negotiating a nuclear deal with a nation that has borne the aftermath of a nuclear catastrophe

What is NFU?
India first adopted a “No first use” policy after its second nuclear tests, Pokhran-II, in 1998. In August 1999, the Indian government released a draft of the doctrinewhich asserts that nuclear weapons are solely for deterrence and that India will pursue a policy of “retaliation only
Arguments given against NFU
Critics argue that by committing to NFU, India has allowed more powerful enemies like China to plan large-scale offensives without having to worry about the strategic deterrents available to India because India will not use them first.
• Without NFU, an enemy is forced to think twice or take that factor into its calculations wherein it knows that India can retaliate first

Costs of abandoning NFU
If India abandons NFU, it will encourage Pakistan, which will then be in same situation as India is with China now, to build even more nuclear weapons, since it cannot be sure India will not attempt a pre-emptive first strike to destroy its weapon stockpile.
• Excuse to others: China has a no-first use policy and, in spite of calls for Beijing to revise its no-first use doctrine, it is unlikely to do so. Hence, if New Delhi gave up its no-first use doctrine, it could give Beijing a chance to adopt a first strike policy and shift blame on India. In fact, India’s adoption of a first strike policy would be an easy excuse for Beijing to give up its no-first use doctrine against the United States and Russia as well.
• Reputation damage: India has always promoted herself as a responsible nuclear weapon state. Hence, a first strike policy would severely damage India’s reputation as a responsible nuclear weapon state.

Way ahead
India’s strategy of maintaining a ‘minimum credible deterrent’ should be coupled successfully with its no first use doctrine. Instead of focusing on adopting a first strike policy, India must work towards strengthening its counter strike and second strike capability.
• India’s third leg, its sea based nuclear deterrence, must be strengthened at the earliest.
• Long range submarine launched missiles could enable New Delhi to enhance the survivability of its nuclear arsenal. As India’s command and control would continue to get robust, the no-first use doctrine would also be strengthened

Reference: Article contains references from this link


 

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