Brief of newspaper articles for the day bearing
relevance to Civil Services preparation
- GS PAPER 2
- U.S. Act to ‘institutionalise’ defence, trade ties with India {International relations}
- Govt. aims at harnessing the soft power of Zero {International relations}
- Next door Nepal:Symbolic, not substantive {International relations}
- India’s rise and global order {International relations}
- India’s new federal polity takes root {Polity}
- GS PAPER 3
- GST will happen soon, Modi tells entrepreneurs in Saudi {GST}
- Revisiting the EPF rollback {Mobilisation of Resources}
- The need to pre-empt nuclear terrorism {Nuclear Security}
- Reserve Bank may cut rate by 25 bps {Monetary Policy Review}
- Rail, road connectivity to top Board of Trade agenda {Infrastructure}
- India’s gross fiscal deficit to exceed target {Government Budgeting}
- Unhealthy pallor {Indian Economy}
- The gas opportunity {Indian Economy}
GS PAPER 2
[1] U.S. Act to ‘institutionalise’ defence, trade ties with India
What?
The US-India Defence Technology and Partnership Act, would “institutionalise” the Defence Technology and Trade Initiative (DTTI) framework between the two countries and the India Rapid Reaction Cell (IRCC) in the Pentagon.
IRCC
- The IRRC is the only country-specific cell in the Pentagon and functions under the office of the Under Secretary of Defence Acquisition, Technology and Logistics.
- It is indicative of the importance attached to deepening strategic cooperation with India.
- It was launched in 2012 to deepen high-technology cooperation and move towards co-development and co-production of high technology platforms.
Why ‘institutionalise’?
As there will be a change of Government in the US, so US wants that it should be made permanent through an Act.
[2] Govt. aims at harnessing the soft power of Zero
India’s contributions
Indian contribution to maths and sciences which the world doesn’t know too much about has to be showcased at UNESCO
How will it showcase
- After marking International Yoga Day and a Sanskrit conference at the UNESCO, India is all set to sponsor a conference on ancient Indian contribution to mathematics in Paris beginning Monday.
- Indian delegation at the “International Conference of Zero” will gift a bronze bust of Aryabhata to the UNESCO headquarters.
- The conference will see a keynote address by Manjul Bhargava, the Canadian-born professor of Indian origin who won the Fields medal in 2014.
- There will also be discussions on the links between mathematics and other applied sciences.
Why
- The UNESCO is a fantastic global forum to showcase India’s soft power, whether it is maths and science or the arts, or whether it is yoga
- After marking International Yoga Day and a Sanskrit conference at the UNESCO, India is all set to sponsor a conference on ancient Indian contribution to mathematics in Paris beginning Monday
About UNESCO
- Formed 16th november 1945, headquarters at Paris. France
- The United Nations Educational, Scientific and Cultural Organization (UNESCO) is a specialized agency of the United Nations (UN). Its purpose is to contribute to peace and security by promoting international collaboration through educational, scientific, and cultural reforms in order to increase universal respect for justice, the rule of law, and human rights along with fundamental freedom proclaimed in the United Nations Charter. It is the heir of the League of Nations’ International Committee on Intellectual Cooperation.
- UNESCO has 195 member states and nine associate members. Most of its field offices are “cluster” offices covering three or more countries; national and regional offices also exist.
- UNESCO pursues its objectives through five major programs: education, natural sciences, social/human sciences, culture and communication/information.
- Projects sponsored by UNESCO include literacy, technical, and teacher-training programmes, international science programmes, the promotion of independent media and freedom of the press, regional and cultural history projects, the promotion of cultural diversity, translations of world literature, international cooperation agreements to secure the world cultural and natural heritage (World Heritage Sites) and to preserve human rights, and attempts to bridge the worldwide digital divide. It is also a member of the United Nations Development Group.
[3] Next door Nepal:Symbolic, not substantive
Issue
Analysis of the recent visit to China by Nepalese Prime Minister K.P. Sharma Oli.
Agreements signed
- Nepal became a dialogue partner in the Shanghai Cooperation Organisation.
- Signed agreements to undertake feasibility studies on railway connections, to explore oil and gas deposits in Nepal.
- The two sides also signed a trade and transit agreement, and are to undertake a feasibility study for a free trade agreement.
A shift in Foreign Policy
- Both sides had avoided formalising these issues in the past as they agreed China couldn’t substitute India in Nepal, given the latter’s “India-locked status”, open border and long history of a symbiotic existence.
- But the five-month long blockade Nepal suffered after promulgating its constitution and India’s visible international isolation apparently contributed to Kathmandu look towards China.
Implications of such a shift
- China:- China no longer accepts India’s lead role in Nepal and the backseat for itself.
- India:- It’s also a disapproval of and an outcome of the role India played in open alliance with the West, advocating radical political changes in Nepal.
- Nepal:- There is fear among Nepalese people that such a shift would invite hostile response from India and it will bring immediate hardship upon the people of Nepal.
What India needs to do?
- India needs to dispel this fear, and the existing trust deficit between the two countries with special relations needs to be addressed.
- India can still return to its previous acceptability in Nepal by encouraging Nepali actors to pragmatically review the situation and take corrective action. Any delay would prove counter-productive for India’s image.
[4] India’s rise and global order
What happened?
The recently held Nuclear Security Summit held at Washington and the shared bet made by both the countries will yield joint benefits will be demonstrated in coming years to come
India-US partnership
- India’s rise is as significant a feature of today’s international landscape as any other. The same is true of its partnership with the US—between two of the world’s largest democracies, two of the world’s largest economies and two countries that for the first time have a deep stake in each other’s success.
- The essential prerequisite to taking this leap is India’s own economic revitalization. Washington can contribute towards this outcome by providing capital, technology and expertise, but what New Delhi does for itself will matter far more in comparison.
Why is the partnership important?
- In the security realm, after years of “non-alignment”, India looks to the US as its largest defence supplier and both engage in more bilateral military exercises than either does with any other country.
- In the economic realm, bilateral and people-to-people ties are growing tighter by the day. Two decades ago, two-way trade was at $8 billion a year. Today, it is on the verge of $100 billion. From Silicon Valley to Bengaluru and Wall Street to Mumbai, Indians and Americans are making a profound impact on one another and in the world.
- The real value of the partnership will come when both nations begin to view the other as indispensable for resolving the challenges at the core of today’s global disorder.
- If India’s economic success is substantial and sustainable, much is possible. This begins with the Indo-Pacific, where together the US and India can help build a regional order that protects convergent values and interests, starting with stronger engagement with Japan, Australia and the smaller South-East Asian states.
Beyond the Indo-Pacific, India plays a critical role in nearly every region and issue of consequence—from the future of democracy to nuclear nonproliferation, great power politics to climate, and the impact of technological innovation on international affairs. In each of these areas and others, a common approach will be critical to enhancing the value of the strategic partnership.
[5] India’s new federal polity takes root
Issue
State Governments have now more freedom in mobilisation of resources.
How
- Because of the implementation of the recommendations of the 14th Finance Commission (FFC) (chaired by former RBI governor Y.V. Reddy), State Government budgets are now beginning to reflect the radical makeover in fiscal relations between the Union government and the states.
- And by launching the Ujwal Discom Assurance Yojana or UDAY, the Union government has made an unprecedented clean-up of the power sector by giving it a structural fix.
Fourteenth Finance Commission (FFC)
- It abandoned the idea of tied aid—in the form of centrally sponsored programmes and grants—and instead trusted states to manage their own fiscal future.
- Because of this the states got the freedom to prioritize spending, and the new formula sharply increased the share—from 32% to 42% of net Union tax receipts—of fiscal resources accruing to states.
- It further allowed states committing to greater fiscal discipline greater leeway to borrow from the market to fund their development priorities.
- It had sowed the seeds of cooperative federalism as states have been accorded unprecedented fiscal freedom and for the first time, public expenditure has now come decisively under the jurisdiction of states.
Ujwal DISCOM Assurance Yojna (UDAY)
- UDAY Scheme has been launched by Union Ministry of Power for financial restructuring of debt of power distribution companies.
- It aims for financial revival and turnaround of Power Distribution companies (DISCOMs) and also ensures a sustainable permanent solution to the problem.
- By becoming part of it, states power DISCOMs can convert their debt into state bonds as well as roll out number of measures to improve efficiency at power plants.
- It seeks to make DISCOMs financially and operationally healthy so they can supply adequate power at affordable rates and play important role in Union Government’s ambition of meeting target of 100% Village electrification and 24X7 Power For All.
Way ahead
The implementation of the Goods and Services Tax will make the federal polity more stronger and states will have more freedom to mobilise their resources.
GS PAPER 3
[1] GST will happen soon, Modi tells entrepreneurs in Saudi
Story
In a bid to boost confidence of Saudi investors in India’s economy, Prime Minister Narendra Modi told a select group of Saudi entrepreneurs in Riyadh during the last day of his visit that India will increase ease of doing business and bring in the long awaited Goods and Services Tax (GST).
What India said
- Highlighting fast-evolving bilateral priorities, India and Saudi Arabia on Sunday agreed to diversify more bilateral trade and investment into the non-oil sector.
- Stable tax regime and his government has successfully removed the retrospective taxation policy creating ease of doing business.
- Commitment to a more congenial business climate in India.
- To boost the non-oil sector trade, there was agreement on a Framework for Investment Promotion Cooperation between Invest India and the Saudi Arabian General Investment Authority (SAGIA).
What Saudi Arabia communicated
While Saudi Arabia briefed India about the grand coalition that it has formed with three dozen predominantly Sunni-majority countries, both sides also agreed to work jointly at the level of the United Nations to deal with terror sponsors
Joint statement
A joint statement issued after the talks called on states to cut off any kind of support and financing to terrorists operating and perpetrating terrorism from their territories against other states and bring perpetrators of acts of terrorism to justice
Four other bilateral agreements were signed focused on financial intelligence, handicrafts, labour cooperation and technical cooperation between the Bureau of Indian Standards (BIS) and the Saudi Standards, Meteorology and Quality Organisation.
What is GST?
Goods and Services Tax” would be a comprehensive indirect tax on manufacture, sale and consumption of goods and services throughout India, to replace taxes levied by the Central and State governments
122nd amendment bill 2014 for National Goods and Services tax Bill
[2] Revisiting the EPF rollback
What is EPF
- The Employees’ Provident Fund Organisation (abbreviated to EPFO), is a statutory body of the Government of India under the Ministry of Labour and Employment. It administers a compulsory contributory Provident Fund Scheme, Pension Scheme and an Insurance Scheme
- India’s largest retirement fund, the Employees’ Provident Fund Organisation, with oversight over Rs. 10 lakh crore, is a captive financier of government debt thanks to investment norms set by the Finance Ministry and has the appetite for longer term debt
- The Finance Ministry prodded the EPFO to invest in equities for years so that it acts as a stabilising force against fickle foreign investment flows and EPF savings have made a modest foray into Dalal Street this year.
Why tax EPF
- Finance Minister Arun Jaitley’s Budget 2015-16 promised to set up a Public Debt Management Agency to bring the government’s external borrowings and domestic debt under one roof
- Multiple theories were floated by the Finance Ministry to justify the proposal to tax EPF savings prior to this, such as the need to promote the national pension system (NPS) set up by the Ministry and deprive the well-off from milking tax breaks.
- The government would prefer to raise more cash through longer-term securities — anything between Rs. 2.64 lakh crore to Rs. 3.36 lakh crore could be raised via bonds with tenures of ten years or more. The calendar is meant to enable investors ‘to plan their investment efficiently and provide stability’ to the government securities market.
- As high small savings rates make it difficult for banks that compete with them for deposits to lower their lending rates and effectively distort the transmission of monetary policy changes effected by the Central Bank on the ground.
Why was it rolled back
- If the EPF tax had not been rolled back, it would have forced distress sales of government securities.
- The revenue expected from the tax on EPF savings was just around Rs. 200-300 crore, people started to protest the move
- In the week after the Budget, HR managers fielded frantic calls from employees urgently seeking to withdraw their EPF balances and stop fresh voluntary contributions from April 1
- If the EPF tax had not been rolled back, it would have forced distress sales of government securities and shut the tap on higher inflows that would have automatically financed fresh public debt.
[3] The need to pre-empt nuclear terrorism
Issue
Takeaways from the recently held Nuclear Security Summit (NSS)
Nuclear Security Summit
- The idea of Nuclear Security Summit (NSS) was mooted by the US President Barack Obama in 2009 and the first summit was held in 2010 in Washington.
- In this 4th edition of summit, heads of about 53 countries and representatives of five international organisations including the UNO, International Atomic Energy Agency (IAEA), European Union (EU), Interpol took part.
- Russia, which has 7,300 warheads was absent from this summit because of diplomatic stand-off with US over the crisis in Syria and Iraq.
Important Points
- The prime focus of the summit was on North Korea and the terrorist organisation ISIS (Islamic State of Iraq and Syria). It discussed strategies to block ISIS from obtaining radioactive material and setting off nuclear bomb.
- It took stock of the measures being taken by all countries to safeguard nuclear materials and facilities and also prevent non-state actors gaining access to them.
- It highlighted achievements and commitments of several countries towards safeguarding nuclear devices and technologies and reducing the threat of nuclear terrorism.
- It discussed pre-emptively safeguarding stockpiles of highly enriched uranium (HEU).
India’s achievement in improving nuclear security
- India has established a rigorous legislative framework for developing nuclear resources and a Global Centre for Nuclear Energy Partnership,
- It has contributed $2 million towards the Nuclear Security Fun
- India has participated in UN and IAEA joint mechanisms to strengthen nuclear security.
India needs to do more
- India has refused to sign 2014 Nuclear Security Implementation, which is based on national commitments to the application of international principles and guidelines, including peer reviews.
- Nuclear Security Implementation is considered as most significant instrument to build a robust nuclear security system.
- India cannot be complacent over securing vulnerable nuclear material, and the first step has to be a willingness to speak openly about the risks of terrorism and sabotage posed by its clandestine nuclear weapons development sites, and not just on its safeguarded civilian nuclear energy programme.
[4] Reserve Bank may cut rate by 25 bps
Issue
Bankers expect the central bank to address structural issues in liquidity management.
Factors on the basis of which there is speculation that RBI may cut rate by 25 bps
- General budget stayed on the path of fiscal consolidation.
- Progress has been made on the reforms front
- Retail inflation for February grew by 5.18 per cent, the slowest in four months due to lower food inflation.
[5] Rail, road connectivity to top Board of Trade agenda
News
The issue of better rail and road connectivity from export clusters to ports and airports at the state-level is expected to top the agenda during the meeting of the Board of Trade (BoT).
Board of Trade (BoT) is headed by Commerce and Industry Minister Nirmala Sitharaman.
Agenda of the BoT
- To evolve steps to boost India’s exports
- To discuss the recent cutback in government aid for export marketing under the Market Access Initiative Scheme
- To discuss problems faced by exporters in getting refund of duty and taxes from the government.
Why road-rail connectivity is the topmost priority?
- Recently, it was pointed out that ‘poor (export-related) infrastructure’ was the top-most factor hampering exports, and that the role of the states was crucial in addressing this.
- Many States face shortage of funds or have different priorities and they neglect export-related infrastructure, which in turn has added to the logistics cost for exporters.
- Now the allocation for the Assistance to States for Infrastructure Development of Exports (ASIDE) Scheme(ASIDE) is practically nil.It was responsible for bridging the gaps in export-related infrastructure.
- But, because of higher allocation to the States in the Central taxes (in accordance with the Finance Commission’s suggestion), it has been left to the States to fund such infrastructure projects
[6] India’s gross fiscal deficit to exceed target
Issue
IMF(International monetary fund) says at 6-7 per cent of GDP, India’s General Government (Centre plus States) fiscal deficit is well above the norm for most emerging markets and in the worry zone.
What is fiscal deficit
- Fiscal deficit is when a government’s total expenditures exceed the revenue that it generates (excluding money from borrowings).Deficit differs from debt, which is an accumulation of yearly deficits.
- Fiscal deficits raise the issue of sustainability of public debt and the market perception of the sustainability
- You don’t want to be in a situation where the market and rating agencies worry whether you can remain solvent and can pay up
What has happened
- India’s gross fiscal deficit for 2015-2016 could be 6.9 per cent of GDP, wider than the budget estimate of 6.3 per cent, according to an analysis.
- The IMF estimates that the average fiscal deficit for the emerging market and middle-income economies was 1.1 per cent in 2015.
- The IMF calculates fiscal deficit differently than how it is done in India. It excludes disinvestment proceeds, which are essentially capital receipts, from the calculations for instance.
- Its estimate for India of 7.2 per cent for 2015 is, therefore, higher than the official estimates.
Reasons for deficit to increase
- The revenue shortfalls can partly be attributed to the rapid fall in oil prices and the resultant disappointment in state governments’ value-added-tax collections
- Though States cut expenditure to reduce the deficit, they by and large avoided touching capital spending, which saw only a minor decrease. Much of the hit was taken by current expenditure
- The deficit widened despite the higher-than-expected funds transfers from the Centre on account of the implementation of the 14th Finance Commission award
- Budget documents also shows that for 2016-17 while States have made much more realistic revenue assumptions, they might have at the same time underestimated expenditure
Some solution to counter fiscal deficit problem
- Lower levels of government borrowings can bring down borrowing costs for all borrowers – government and private–and thus restart the investments cycle and spur growth.
- It has also been suggested by a number of public finance experts that in the revised FRBM framework, the Government must also commit to not borrow to finance consumption spending
- Higher taxes increase revenue and help to reduce the budget deficit. Like spending cuts, they could cause lower spending and lead to a fall in economic growth. Again it depends on the timing of tax increases
- One of the best ways to reduce the budget deficit as a % of GDP, is to promote economic growth. If the economy grows, then the government will increase tax revenue, without raising taxes
FRBMA
The Fiscal Responsibility and Budget Management Act, 2003 (FRBMA) is an Act of the Parliament of India to institutionalise financial discipline, reduce India’s fiscal deficit, improve macroeconomic management and the overall management of the public funds by moving towards a balanced budget.
About IMF
- Headquartered at Washington D.C, US
- Promote international monetary cooperation, facilitate international trade, foster sustainable economic growth, make resources available to members experiencing balance of payments difficulties
- IMF conditionality is a set of policies or conditions that the IMF requires in exchange for financial resources.
- The IMF was originally laid out as a part of the Bretton Woods system exchange agreement in 1944. During the Great Depression, countries sharply raised barriers to trade in an attempt to improve their failing economies. This led to the devaluation of national currencies and a decline in world trade
[7] Unhealthy pallor
Issue
Investment rate continues to fall even as industrial and agricultural pickup is anaemic
How is the economy improving?
- The GDP growth rate is recovering but slowly. It was 5.6 per cent in FY13, 6.6 per cent in FY14, 7.2 per cent in FY15 and is expected to be 7.6 per cent in FY16.
- Wholesale inflation has been near zero for a while even as retail inflation is below 6 per cent, which is the RBI-mandated level.
- Total FDI inflow for the first nine months of the financial year registered a 40 per cent jump over FY15 to reach the highest ever mark of $29.4 billion.
Warning signs also exist
- Agriculture is expected to grow by 1.1 per cent in FY16, but even this marginal growth, which is more due to a low base effect, hides the widespread agrarian distress that is threatening to derail the rural economy.
- Bank credit growth is higher than in FY15 yet it is mostly in the retail segment, not in manufacturing. The lack of credit pickup in manufacturing does not portend well for its credible revival.
- Industrial production in FY16 is stagnant at FY15 levels. In fact, Department of Industrial Policy and Promotion data shows that even though the number of industrial investment proposals received in the calendar year 2015 was higher than in 2014, in terms of actual valuation they were short by one-fourth.
Investment is the main concern
- Continuous decline in the investment rate, which has fallen from 33.4 per cent in FY13 to 31.6 in FY14 and 30.8 in FY15. It is expected to fall further to 29.4 per cent in FY16.
- The other big disappointment is the massive pullout by foreign institutional investors, mirrored by the sharp fall in stock indices.
- There is also little evidence that India’s best-in-class growth is generating commensurate jobs. And unless the government addresses and resolves thorny issues, such as land acquisition, regulatory clearances and the financial health of public-sector banks, most of the parameters will remain range-bound in the coming year.
[8] The gas opportunity
Background
The Hydrocarbon Exploration Licensing Policy (Help) announced by the Union government on March 10 has been welcomed by most commentators. While it moves the policy framework in the right direction, the policy continues to cause trouble by the conflict between consumers and producers.
Why is it necessary
- The new hydrocarbon policy can help India reduce its import dependency
- As per the IEA report, India has proven oil reserves of 5.7 billion barrels (recoverable reserves of 24 billion barrels), compared with an annual crude demand of 1.4 billion barrels, and rising. The oil reserves are thus meagre.
- Gas resources are projected at a much larger 7,900 bcm of recoverable reserves (more than 200 times the present annual production).
- There’s a compelling opportunity for gas, which India must seize to reduce import dependency and shift to a lower carbon trajectory.
- Natural gas is the cleanest fossil fuel and also has lower amounts of sulphur dioxide and nitrous oxides than other fossil fuels.
- Help 2016 is more about gas than oil. While the overall thrust is positive, concerns regarding the contractual regime and gas pricing formula remain, and will need to be addressed.
How
The most significant shifts under Help are:
- Production/ profit-sharing contracts (PSCs) to revenue-sharing contracts (RSCs)
- Pricing and marketing freedom for gas produced from deepwater, ultra-deepwater and high pressure high temperature (HPHT) fields.
The Open Acreage Licensing Policy and single licence for all hydrocarbons are also important developments.
Some constraints
- The marketing and pricing freedom for new gas produced from deepwater, ultra-deepwater and HPHT fields, though better than before, is constrained by a cap on gas prices (there’s no such cap on oil prices).
- The introduction of coal price into the calculation is problematic since gas cannot be a substitute for coal for power generation, except at very low gas prices, as shown by the recent US experience.
- An artificial depression of gas prices only seeks to perpetuate an untenable bias in favour of the power sector. Almost the entire current gas production continues to remain hostage to highly depressed prices.
- There’s no roadmap for moving to import parity pricing for gas, as has already happened for oil. India’s full gas potential can be exploited only when the policy for artificial suppression of gas prices is given up.
- The gas pricing framework throws up the inherent policy bias against producers and in favour of consumers. The focus on Make in India essentially calls for a shift in priority from consumers to producers.
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