Brief of newspaper articles for the day bearing
relevance to Civil Services preparation
- GS PAPER 1
- Urban poor own nominal assets – {Indian Society – Income Inequality}
- GS PAPER 2
- Central rule in Arunachal is in national interest: Govt. – {State Emergency}
- The basics of free speech – {Right to freedom of speech}
- More than a number game, moving beyond the floor test – {State Emergency}
- Giving cities the smart edge– {Urbanisation}
- We the unequal– {Right to equality}
- The threat will save Europe– {International Affairs}
- GS PAPER 3
- Rajan warns against straying from fiscal consolidation path– {Indian Economy – Fiscal Policy}
- GDP expanded 7.2% last year, slower than expected– {Indian Economy – National Income Accounting}
- Govt. to back sate run banks’ capital needs: Sinha – {Banking}
- The real trouble spot– {Economic Policy & Reforms}
- Less taxing – {Taxation}
- Government’s cash balance with RBI high, put stress on liquidity– {Fiscal and RBI}
- Bad subsidies should go, says PM– {Subsidies}
GS PAPER 1
[1]. Urban poor own nominal assets
Urban poor have very low assets:-
The bottom 10 percent (in terms of total assets) of rural households had assets worth Rs.25,071 on an average, largely as a result of the value of land, while the figure for their urban counterparts was just Rs.291, implying that the urban poor hardly own any assets.
Urban rich have very high assests:-
On the other hand, the top 10 per cent of the rural and urban population had average assets worth Rs.57 lakh and Rs.1.5 crore respectively.
Top and bottom ranks:-
Haryana and Punjab had the highest average assets per household in rural areas, while Maharashtra and Kerala were on top in urban areas. Odisha lay at the bottom in both rural and urban India.
Land is the major asset:-
Land and buildings held the dominant share in asset holdings, as was the case in the previous decade, comprising more than 90% of all assets in both urban and rural areas.
The share of land as a proportion of total assets has increased with time, possibly due to the escalation of land prices, says the NSSO report.
Financial assets (Shares, deposits etc) form a very low percentage both in rural and urban:-
Financial assets that include shares in companies and cooperative societies, national saving certificates, and deposits in companies and banks, were just two per cent of total assets in rural areas, compared with five per cent in urban areas
Rural and urban debt:-
The data also show that 31 per cent of the rural households and 22 per cent of the urban households were under debt.
GS PAPER 2
[1]. Central rule in Arunachal is in national interest: Govt.
Context:-
The Centre said President’s rule was imposed on Arunachal Pradesh in the interest of the country.
Reason:-
Political stability is a must in Arunachal Pradesh as it is a strategically located State.
The State is a very sensitive region sharing a restive border with China. It is therefore imperative and in the interest of the country that the State be socially, economically and politically stable.
[2]. The basics of free speech
Context:-
By initiating contempt proceedings on Ms. Roy the court has exemplified the state of the right to free speech in India.
The author feels that the liberty fractured by colonial vestiges such as the law on contempt, which we have embarrassingly embraced as a supposed necessity to uphold the majesty of our courts.
Reasonable restraints on the Freedom of Speech:-
Article 19(1)(a) no doubt grants to the country’s citizens a right to freedom of speech and expression. But the ensuing clause, Article 19(2), limits this freedom, and accords the state the express authority to make laws that establish reasonable restrictions on speech, on various grounds, including contempt of court.
The 1971 act:-
In 1971, Parliament enacted the Contempt of Courts Act, with a purported view of defining and limiting the powers of courts in punishing acts of contempt.
Broadly, the 1971 law recognises two common forms of contempt. First, it defines civil contempt to include, among other things, a wilful disobedience of a court’s judgment, order or direction. And second, it defines criminal contempt to include publications that do one or more of the following: (a) scandalise or lower the authority of any court; (b) prejudice or interfere with the due course of any judicial proceeding; or (c) interfere with or obstruct the administration of justice in any other manner.
Abuse of power:-
The power to punish acts which ostensibly scandalise or lower the authority of the court speaks not to the majesty of the institution, but to an ingrained sense of insecurity, coupled with an almost despotic view of its own infallibility, that the judiciary seems to possess.
In a democracy, properly understood, it’s difficult to locate any justification for thwarting speech at the face of the judiciary, notwithstanding the fact that contempt of court is one of the explicitly spelled out restrictions to the guaranteed right to freedom of speech under the Constitution.
Speech in criticism of the courts ought not to be considered as a reasonable restriction, for it would simply open up the possibility of gross judicial abuse of such powers.
Was it an actual Threat?
India’s courts have routinely invoked the long arm of its contempt powers to often punish expressions of dissent on purported grounds of such speech undermining or scandalising the judiciary’s authority.
But, while doing so, the court has rarely conducted a strict analysis on whether those acts posed any actual threat to — or interfered in any direct manner with — the administration of justice.
For example, in 1970, the Supreme Court famously upheld a conviction of contempt of court against the former Chief Minister of Kerala, E.M.S. Namboodiripad. During his tenure as Chief Minister, Namboodiripad had apparently delivered a speech arguing that judges were guided and dominated by class interests.
The judgment made no effort at showing any actual link between Namboodiripad’s statements and the supposed weakening of the courts’ authority.
This culminated in a 1996 decision in which the Supreme Court ruled that “all acts which bring the court into disrepute or disrespect or which offend its dignity or its majesty or challenge its authority” amount to punishable contempt.
2006 amendment to the act:-
In 2006, with a view to reducing the breadth of the judiciary’s powers, Parliament amended the Contempt of Courts Act of 1971. The law now provides two additional safeguards in favour of a dissenter.
One, it establishes that a sentence for contempt of court can be imposed only when the court is satisfied that the contempt is of such a nature that it substantially interferes, or tends to substantially interfere with the due course of justice.
Two, the truth in speech now constitutes a valid defence against proceedings of contempt, if the court is satisfied that the larger public interest is served through the publication of such content.
In spite of these amendments, though, courts have continued to routinely equate the supposed scandalising of the judiciary’s authority to an act of contempt.
Why freedom of speech is imperative?
First it involves an instrumental understanding of free speech: that to allow people to speak freely and openly promotes good rather than bad policies.
The second justification is premised on a larger platform of a commitment to individual autonomy, of treating people with equal concern, and of therefore respecting their right to speak freely.
British example:-
Interestingly, in England, whose laws of contempt we’ve so indiscriminately adopted, there hasn’t been a single conviction for scandalising the court in more than eight decades.
In 2013, after a recommendation by its Law Commission, the country altogether abolished as a form of contempt the offence of scandalising the judiciary.
In so doing, it gave credence to Lord Denning’s characteristically precise opinion in a case where contempt charges had been pressed against Queen’s Counsel Quintin Hogg for what was an excoriating attack on the courts in Punch magazine. “Let me say at once that we will never use this jurisdiction as a means to uphold our own dignity,” Denning wrote. “That must rest on surer foundations… We do not fear criticism, nor do we resent it. For there is something far more important at stake. It is no less than freedom of speech itself.”
Conclusion:-
Punishing speech for supposedly scandalising or lowering the authority of the court falls afoul of whichever rationale we might wish to adopt in our theorising of the abstract right to free expression in India.
[3]. More than a number game, moving beyond the floor test
Context:-
Dr. B.R. Ambedkar believed that Article 356 of the Constitution, which provides for imposition of President’s rule in the States and dissolution of State Assemblies, would, in reality, be only a ‘dead letter’ (meaning it will not be used).
S.R. Bommai case:-
The provision originally meant to be used sparingly had been invoked over 90 times , by the time a Constitution Bench ruled in the S.R. Bommai v. Union of India case (1994) that a presidential proclamation under Article 356 is subject to judicial review, that it is not an absolute but a conditional power, and that no Assembly can be dissolved before both Houses of Parliament ratify the proclamation.
After the verdict, however, one would have thought that the provision has been somewhat neutralised.
Arunachal Pradesh has now demonstrated that the ‘dead letter’ is quite alive and kicking Chief Ministers out of power.
In favour of the governor:-
The Gauwhati High Court has categorically ruled in favour of the Governor’s decisions in the present crisis. It is somewhat ironical that at a time when even a presidential proclamation is subject to judicial review, case law on the role of the Governor still favours gubernatorial privilege and discretion.
Governor’s discretion:-
A crucial question before the Supreme Court is whether the Governor can, in his discretion and without the aid and advice of the Council of Ministers, summon the legislature or advance a scheduled sitting; and whether he can fix the agenda for such a session on his own. Interestingly, the Gauwhati High Court extensively quotes from a Madras High Court Full Bench verdict of 1973 favouring the Governor’s action in somewhat similar circumstances in the Tamil Nadu Assembly.
Article 163:-
On the crucial question of the Governor’s discretion, the high courts have gone by the principle in Article 163: that the question whether any advice, and if so what advice, had been given to the Governor shall not be gone into by any court; and when a question arises whether the matter on which the Governor had acted was actually one on which he can use his discretion, the decision made by the Governor in his discretion will be final.
What could have been done?
Just as unscrupulous defections are legally discouraged, opportunistic cooperation between ruling party dissidents and Opposition legislators just to bring down a Chief Minister may also have to be prevented.
Proof of support:-
This can be achieved if the Governor asks the Chief Minister to submit proof of his support within his own legislature party or alliance partners before ordering a floor test.
No confidence motion:-
In the event of some factions withdrawing their support to the government, the Governor can always turn them away and ask them to move a no-confidence motion instead of coming to him.
Seeking proof for single leadership:-
If there is any attempt by the Speaker or the Chief Minister to block such a motion, or if the Assembly is not convened, the Governor should not hesitate to write to the party’s leadership seeking proof of its legislature party still having only one leader.
Floor test:-
This may force the hand of parties that seek to avoid convening legislature party meetings and hoping that in the Assembly, a floor test can be managed by a partisan Speaker and by selective expulsions to change the composition of the House.
In other words, those arguing for the primacy of the floor test will need to have their house in order before the matter is decided in the legislature.
Governor recommendation:-
An incumbent government’s reluctance to follow this process may lead to the Governor recommending that the Centre give a suitable direction to the State.
Article 365:-
For, under Article 365, it shall be lawful for the President to then hold that because of any non-compliance with the direction, the State can no more be run in accordance with the Constitution.
Conclusion:-
This sequence — proof of subsisting support within the ruling party, a floor test, and in the event of these efforts being blocked, a formal direction from the Union, followed by a determination on the constitutionality of the continuance of the regime — may address concerns of partisan behaviour.
The recommendations of the Sarkaria Commission on Centre-State relations states that a Governor should be someone eminent in some walk of life, and should not be one “who has taken too great a part in politics generally, and particularly in the recent past”.
Only a few eminent personalities outside the domain of politics and civil or military service have been made Governors. As long as parties pursue their own political interests rather than abide by the Constitution, it will be left to the courts to uphold federal norms.
[4]. Giving cities the smart edge
Context:-
The Central government’s framework for 20 cities to become ‘smart’ over a five-year period can cover new ground if it makes intelligent use of information technology to deliver better civic services.
Urban governance problems:-
Rapid and poorly regulated urbanisation has overwhelmed urban governments, rendering them incapable of providing even basic services such as clean water, sewerage, pedestrian-friendly roads, public transport, uninterrupted power, street lighting, parks and recreational spaces.
So weak and uncoordinated is governance that commercial entities have wilfully violated building regulations and put up unauthorised structures — with severe impact on congestion, air quality and flood management — and governments have gladly regularised the violations later.
Smart cities-
The smart city plan now proposes to intervene and bring some order by upgrading the physical infrastructure in select enclaves, and incentivising the use of information and communication technologies.
The definition of a smart Indian city is one that “enables a decent life to the citizens, and green and sustainable environment, besides enabling adoption of smart solutions”, but the exercise should lead to measurable outcomes.
Area based development approach:-
This area-based development approach makes it imperative that the resulting demand for mobility to and from the ‘smart’ area be made an integral part of the plan, with an emphasis on walkability, use of non-motorised transport and access to public transport.
Ahmedabad and Bhubaneswar have shown high ambition by opting for a common travel card. Others such as Indore, Davangere and Belagavi plan Intelligent Transport Solutions, something that has been unattainable for even a big metro such as Chennai.
Fund crunch:-
Although it enjoys high visibility, the smart city programme is merely a framework for urban development aided by the Centre with a small initial seed fund of Rs.500 crore, while additional finances have to come from public-private partnerships and local revenue.
State governments, including those left out of the first list, could unlock the potential of all cities with development policies that aim at structural change.
Improved Public transport:-
Improved public transport, for instance, has an immediate positive impact on the local economy. Technologies such as GPS to inform passengers in real time on their mobile phones, and common ticketing, increase the efficiency of transport use.
Disabled friendly:-
Universal design in public buildings and streets would help all people, including those with disabilities.
Challenge:-
The challenge for Smart Cities 1.0 is to provide proof of concept quickly and make outcomes sustainable.
Care also needs to be taken that the effect is not to create gated communities of best practices and civic upgrade in a wider landscape of urban distress.
It is crucial that these urban enclaves cater to the housing, health, education and recreation needs of a wide cross section of society, and that the convergence of the Smart Cities programme with existing urban renewal projects countrywide be smooth.
[5]. We the unequal
The two fundamental axes of social inequality in India are caste and gender.
Bhakthi movement:-
A major challenge to religious discrimination was the bhakti movement. Poets such as Tukaram and Eknath in Maharashtra, Kabir and Mira in north India, and the Alvars of the Tamil country, preached (and practised) what we might call equality in the eyes of god.
In the orthodox tradition, scripture was interpreted only by authorised male priests; while low castes were excluded from places of worship. The bhakti movement challenged this orthodoxy by arguing that individuals did not need priestly instruction to forge their own path to the divine. In approaching god, said (or sang) the bhakti poets, personal devotion and faith mattered more than social status or family position.
Narasinha Mehta a bhakthi poet was also a considerable influence on Mahatma Gandhi. He composed “Vaishnava Jana To”, Gandhi’s favourite hymn, and also first used the term “Harijan”.
Still Persistent:-
But, as recent events in Sabarimala and the Shani temple show, the same broadmindedness has not been extended to women. And, as the controversy over the Haji Ali shrine in Mumbai demonstrates, Muslim women also do not enjoy equal rights when it comes to patterns and forms of worship. In the eyes of god, as interpreted by mullahs and pandits, men are still the superior sex.
It used to be claimed, or believed, that caste discrimination was relatively less active in the cities. But as the tragic suicide of Rohith Vemula showed, this may not really be the case. In the science faculties of an elite Central university, men and women are still being judged by which caste they were born into.
Three kind of equality:-
There are three kinds of equality a modern, tolerant, humane society should strive for. Two I have already spoken of: Equality in the eyes of god, and equality in everyday social life. The third, of course, is equality before the law.
The Constitution of India assured equality before the law to all citizens regardless of age, caste, gender or religion. It further allowed for affirmative action for Dalits and Adivasis to compensate for past discrimination against them.
Much later, an amendment to the Constitution mandated affirmative action for women in local bodies, likewise an acknowledgement that history and culture had discriminated against them.
Gender Discrimination in personal law:-
There is, however, one aspect of the law in which gender discrimination persists. This is the domain of family and personal law. The personal law reforms of the 1950s (the handiwork of Ambedkar and Nehru) gave Hindu women far greater rights than they had previously enjoyed. But they left Muslim women untouched. Customs like polygamy and triple talaq, which are completely repugnant to a democratic sensibility, are thus still legally valid.
Common civil law:-
India desperately needs a gender-sensitive common civil code that brings all citizens under its ambit. Indians need to press the managements of the country’s temples, mosques, churches and gurdwaras towards less discriminatory practices, so that women can enter and worship in any part of a shrine, so that women can, if they so wish, become pujaris, mahants, maulanas, imams, priests and bishops too.
Conclusion:-
Legal and religious reforms are important, but in the context of caste and gender discrimination, the reform of individual and collective behaviour may be more important still.
[6]. The threat will save Europe
Context:-
The article highlights that the European union and the Schengen agreement have stood the test of time though it might seem now that everything is falling apart.
Two key elements of European integration – the euro and border-free travel within the Schengen Area – were placed under severe strain. And neither is in the clear.
European Union and the Euro crisis:-
The global economic crisis that began in 2008 exposed the deep flaws in Europe’s monetary union, though it took the near-death experience of the euro crisis of 2010-2012 to force Europe’s leaders to act, by creating a large fund to help struggling countries and establishing a banking union. Even so, more than three years later, that union – which entails supervision by the European Central Bank and the beginnings of a fund for restructuring failing banks, but lacks a common system for deposit insurance – is far from perfect.
When Greece was not willing to accept the bailout plan it was threatened that its EU membership might be suspended which has changed the way things were.
The Europe’s monetary union, though still deeply flawed, has become more cohesive. If eurozone membership cannot be taken for granted, if countries that do not abide by the common roles can simply be kicked out, countries will try harder to hold onto it.
Schengan area and the migrant crisis:-
The problems within the Schengen Area illustrate a similar evolution. Like the eurozone, the Area is an incomplete structure, because it abolished internal borders without creating a common mechanism for policing the external border.
The recent surge in migration to Europe, driven largely by Syria’s intensifying civil war, has brought Schengen’s shortcomings to the fore.
Europe’s initial response was incoherent, with different EU member states taking radically different approaches to the influx. Still, checks are being re-instituted at an increasing number of internal borders – most recently, on Denmark’s border with Germany. To many, Schengen appears to be in tatters.
Reinstatement of internal border is a temporary measure:-
But the reinstatement of some border controls is merely a temporary measure. Like the capital controls in Greece (and, until recently, in Cyprus), the purpose is to stem the crisis while better mechanisms are implemented. Moreover, internal border controls remain the exception, not the rule.
The Schengen countries know that reviving full controls across all internal borders would be extremely costly, forcing them to divert significant resources away from the primary objective of fighting crime and terrorism.
That is why their leaders remain committed to preserving open internal borders, while maintaining a stronger external border -even if that means, as has been made clear to Greece, revoking the Schengen membership of a country deemed incapable of doing its part.
Conclusion:-
Both the eurozone and the Schengen Area have survived the tough tests they have faced for one reason: They bring practical, tangible benefits to their members.
Economists call this “revealed preference.” In the real world, declarations of lofty principles mean a lot less than concrete actions. And the concrete actions of the last year – notably, the warning that countries that do not follow the rules will be left out – suggest that 2016 will bring more progress, however piecemeal, toward a stronger eurozone and a real political union.
GS PAPER 3
[1]. Rajan warns against straying from fiscal consolidation path
Context:-
During the global turmoil, macroeconomic stability should not be risked, and both the government and the central bank should continue to bring down inflation.
Question to be asked:-
If there are any very high- return investments that we are foregoing by staying on the consolidation path?
Macroeconomic stability relies immensely on policy credibility, which is the public belief that policy will depart from the charted course only under extreme necessity, and not because of convenience. If every time there is any minor difficulty, we change the goal posts, we signal to the markets that we have no staying power.
Brazil Example:-
As Brazil’s experience suggests, the enormous costs of becoming an unstable country far outweigh any small growth benefits that can be obtained through aggressive policies
We should be very careful about jeopardising our single most important strength during this period of global turmoil – macroeconomic stability
Postponing targets:-
Originally, the target was to bring down fiscal deficit to 3.6 per cent of the GDP in 2015-16 but it has been postponed by a year.
Now, government is targeting 3.9 per cent in the current fiscal.
Deviation from the fiscal consolidation path could push up government bond yields, both because of the greater volume of bonds to be financed and potential loss of government credibility on future consolidation.
Low inflation:-
A slowing in inflation has been on account of the “joint work” of the government and the RBI, aided to some extent by the fall in international commodity prices
Fiscal deficits in states:-
With the government’s UDAY scheme to revive state power distribution companies set to become operational in the next fiscal it is unlikely that states will be shrinking their deficits.
[2]. GDP expanded 7.2% last year, slower than expected
Context:-
GDP Growth:-
India’s economy expanded 7.2 per cent in the financial year ended March 2015, marginally slower than the previous estimate of 7.3 per cent. India’s economy expanded 7.2 per cent in the financial year ended March 2015, marginally slower than the previous estimate of 7.3 per cent.
Real GDP:-
Real GDP or GDP at constant (2011-12) prices for the years 2014-15 and 2013-14 shows a growth of 7.2 per cent during 2014-15, and 6.6 per cent during 2013-14.
Gross value added:-
In terms of real Gross Value Added, that is, GVA at constant (2011-12) prices, there has been a growth of 7.1 per cent in 2014-15, as against a growth of 6.3 per cent in 2013-14, according to the statement.
Problems with New Methodology:-
Not the reality:-
Around 80 per cent of economists feel that the way the new GDP numbers are being calculated has yielded in a higher estimate than reality. The belief is that the economy is actually growing at 5-6 per cent. The problem lies with the methodology.
Inconsistency with other indicators of economic performance:-
The problems with the GDP data come when they are analysed on a sectoral basis and also when they are compared to the other indicators of economic performance.
If we look at all the other indices, growth in capital stock, exports, agriculture, industrial production, etc, then this (the GDP growth rate) will reconcile with none of them.
Need for auditing:-
There needs to be an external committee than can audit these numbers and bring credibility back to the government’s numbers.
Sector wise growth:-
High-employment sectors such as agriculture are growing very slowly, adding to the concerns. The revised numbers peg the agricultural GVA at 1.3 per cent in 2014-15, up from the 0.6 per cent provisionally estimated earlier.
More than 50 per cent of the workforce is employed in agriculture, but the sector is growing at less than 2 per cent. There was a drought, but it is the job of government policy to deal with such situations.
The secondary sector, comprising manufacturing and construction, grew at 5.4 per cent in the same period, down from the estimated 6.5 per cent. The services sector grew at a robust 10.3 per cent.
Gross Capital Formation, a proxy for economic activity, decreased marginally from 36.2 per cent of GDP in 2013-14 to 35.9 per cent in 2014-15.
[3]. Govt. to back sate run banks’ capital needs: Sinha
Context:-
The government reiterated its commitment to support public sector banks’ capital needs at a time when bad loans are eroding their capital and putting pressure on profits.
Basel III Norms:-
Government will be fully supporting the public sector banks to cope up with all the Basel-III requirements as far as their capital adequacy in concerned.
The Reserve Bank of India (RBI) is forcing banks to clean up their balance sheet by asking the lenders to make adequate provisions for bad loans, which were unidentified hitherto.
The banking regulator has prepared a list of borrower accounts, which has to be classified as non-performing and provided for in third and fourth quarter of the current financial year.
Pressure due to high provisioning requirements:-
Banks are facing pressure on bottomline due to high provisioning requirement during the third and fourth quarter.
Manipal-headquartered public sector lender Syndicate Bank, for example, which announced October-December quarter earnings, reported Rs.120 crore loss due to sharp increase in non-performing assets.
Reforms:-
The government will be reforming the public sector banks and the first ne will be IDBI Bank will be transformed in the line of Axis Bank.
When Axis Bank commenced business it was owned by UTI and a clutch of public sector insurance companies. Ownership was one hundred per cent in the public sector, and yet it was awarded a private sector bank license.
In February 2003, the UTI shareholding was transferred to the Special Undertaking of the Unit Trust of India (SUUTI). Since then, the Government-as-Investor stance has characterised the control of the Bank, with SUUTI acting as a special purpose vehicle holding the investment on behalf of the Government.
IDBI is going through a QIP process; the move will help the lender to reduce government’s shareholding.
[4]. The real trouble spot
The obsession with crises in the West makes us oblivious to problems in the EMEs, which arguably have more long-lasting effects on our economy
1997-98 Crisis:-
It began as a collapse of the baht, after speculative attacks that forced the Thai government to float the currency on July 2, and very soon spread to Indonesia, South Korea, the Philippines and Malaysia.
The “Asian flu” basically did three things: First, it triggered tit-for-tat currency devaluations among the EMEs that saw this as the only way to retain export competitiveness. Second, these were accompanied
by falling commodity prices — spot Brent Crude plunged below $10 per barrel in December 1998. Third, the combination of devalued currencies and lower global commodity prices resulted in countries “importing” deflation.
Its impact on India:-
During 1994-95 to 1996-97, the country’s GDP grew by 7.2 per cent a year. But in the subsequent six-year period, the average annual growth was just 5.4 per cent.
Simply put, the Asian crisis produced a slowdown, whose effects, both in terms of low growth rates and depressed prices for producers lasted well into 2002.
Similar crisis now:-
What we are now witnessing is a crisis similar to that in 1997, again centred around the EMEs rather than the West. China consumes 40-50 per cent share of global consumption, be it for iron ore, coal, lead, zinc, nickel or aluminium.
Not too long ago, China’s steel mills and base metal smelters were gobbling up much of the world’s industrial raw materials to cater to its own breakneck pace of infrastructure and housing construction.
Today, these same factories are saddled with excess capacity in the face of domestic demand growth stalling. China seeking to export its way out of a slowdown now has, in turn, become the cause of imported deflation for others, including India.
Concerns:-
Right through 2014 and much of 2015, our attention was riveted on troubles in the eurozone and the Fed’s monetary policy moves. Adding to the complacency was the new GDP computation methodology from the Central Statistics Office, throwing up growth numbers not many — apparently even RBI Governor Raghuram Rajan or Chief Economic Advisor Arvind Subramanian — take very seriously.
Conclusion:-
The biggest lesson to be learnt from the 1997 Asian financial crisis is never to underestimate the troubles emanating from the EMEs. It took five years or more for India to emerge from that crisis.
The current crisis, in all probability, is still to fully unfold. Not acting decisively now could well mean a recovery not happening before 2018.
[5]. Less taxing
Context:-
The government has the first report of an expert committee headed by Justice R.V. Easwar, mandated to help bring more predictability in tax laws and to simplify tax laws.
Recommendations:-
The committee has recommended
- Raising the threshold for Tax Deducted at Source (TDS)
- Reduction of TDS rates from 10 per cent to 5 per cent for individuals and Hindu Undivided Families, Amending the capital gains tax laws to provide relief to retail investors who get caught in demands made by taxmen
- Simplification of the distinction between capital gains and business income
- Changes in law to avoid delay in the issue of tax refunds
- A presumptive income scheme for professionals as part of the move to ensure ease of business
- Encouragement of electronic filing and measures to reduce the compliance burden
Review:-
Much of these appear to be aimed at mitigating the concerns of smaller taxpayers and the growing band of professionals — a constituency the government appears keen to tap.
With close to 65 per cent of personal income tax collections accounted through TDS, any move to make it more taxpayer-friendly ought to be welcomed.
Similarly, given the long history of litigation between the income tax department and taxpayers on whether investment in shares or securities is business income or investment income, the latest recommendation on a threshold of Rs 5 lakh makes sense.
Concerns:-
The suggestion to kick off a presumptive scheme for professionals ,only because of past experience with such schemes, especially for small businessmen is a cause for concen.
The challenge for the government is to put on a friendly face for taxpayers and ensure certainty without an erosion in what is already a low tax base.
For an economy of India’s size, its tax to GDP ratio is still a tad over 10 per cent with just a shade over four crore taxpayers.
Conclusion:-
What is needed now is the outlining of a clear roadmap on taxation — just as in the case of lowering of corporate taxes over the next four years, better analysis of tax data by the department to widen the net and, more importantly, making sure the Goods and Services Tax (GST) kicks in.
[6]. Government’s cash balance with RBI high, put stress on liquidity
Context:-
On one hand there’s excess cash with the government in RBI and on the other hand there’s liquidity crunch in the economy.
Government’s cash:-
The government’s cash balance with the Reserve Bank of India (RBI) was Rs 1.4 lakh crore on January 28 ( usually its around 70000 crore), an amount unusually high for this time of the financial year and is causing acute liquidity pressure in the banking system.
Reasons:-
Fiscal consolidation:-
The cash pile-up indicates the Centre may be reluctant to spend in order to meet the fiscal deficit target of 3.9 per cent of the gross domestic product (GDP) for 2015-16.
Banks usually face a liquidity shortage at the time of tax outflow but money starts coming back into the system when the government begins spending. This has not happened so far, indicating the government could be preparing to meet its deficit target.
Holding back capital expenditure:-
Finance ministry officials said while the Centre was not holding back on capital expenditure, there was a tightening over schemes where spending was weak in the first three quarters of 2015-16.
The finance ministry has told the departments concerned that it might not support schemes in January-March that have not utilised funds in the first three quarters of the year. Schemes for the social sector and of national importance are, however, unlikely to be affected.
Liquidity pressure in market:-
Reasons:-
RBI Intervention in Forex:-
The RBI’s intervention in the forex market was sucking out rupees. The RBI sold $5 billion in the past month to stabilise a falling rupee and removed an equivalent amount of money from the system.
This has led to liquidity shortage in the banking system prompting RBI to offer assistance of Rs 1.6 lakh crore through its overnight and dated liquidity windows so that call money rates remain near the repo rate of 6.75 per cent.
On a technical basis though, the liquidity shortage is 1.73 per cent of the net demand and time liabilities of the banking system, higher than RBI’s own target of one per cent. However, the overarching aim of the regulator now is to keep call money rates anchored to the repo rate.
Basel norms:-
Banks are finding it difficult to meet higher demand for year-end credit from companies and enhanced liquidity reserve requirements. Most banks were struggling to meet the enhanced liquidity coverage ratio under Basel III norms.
FII’s Selling off:-
Foreign institutional investors were liquidating part of their holdings in Indian debt and taking out money, putting additional strain on liquidity, bank treasury executives said.
[7]. Bad subsidies should go, says PM
Context:-
Prime Minister on Friday batted for rationalising subsidies, by weeding out the bad ones and making those that really help the poor more efficient.
When a benefit is given to farmers or the poor, experts and government officers normally call it a ‘subsidy’. However, if a benefit is given to industry or commerce, it is usually called an ‘incentive’ or a ‘subvention’.
The double-taxation avoidance treaties have in some cases resulted in double non-taxation.
The PM’s observations came at a time when the Budget is widely expected to prune wasteful subsidies in line with the recommendations of the Bimal Jalan panel, while targeting the necessary ones.
Jan Dhan Yojana which was initially derided for the large numbers of zero balance accounts has become the world’s largest financial inclusion programme having accumulated a total of $4 billion in these accounts.
By: ForumIAS Editorial Team
Leave a Reply