9 PM Daily Current Affairs Brief – 01 February 2017

The Hindu

Context

Demonetisation will have an impact on economic growth

Article contains views of Chief Economic Adviser and mentions pointers from Economic Survey itself.

Main points of Economic Survey shall be dealt with in a separate post.

Give it a go-through once

The Hindu

Context

A few hours after the President gave his assent on Tuesday to the Tamil Nadu amendments in the Prevention of Cruelty Act of 1960 to allow Jallikattu, the Supreme Court refused to stay the new State law

Petition declined

Allowing the Central government to withdraw its January 7, 2016 notification permitting jallikattu, the Bench declined the plea of NGO Compassion Unlimited Plus Action for an interim stay on the operation of the Prevention of Cruelty to Animals (Tamil Nadu Amendment) Act, 2017

Bench’s position

Basis of the challenge: It asked the organisation and other animal rights activists the ‘basis’ of their challenge to the new State law

• Preservation of culture: Referring to the amendments made by the Tamil Nadu Assembly to the 1960 Central Act, Bench pointed out that the declared object of the new legislation is the preservation of a particular breed of bulls
• Within the ambit of culture or not?: Court will decide on whether Jallikattu comes within the ambit of ‘culture’ meant in Article 29 (1) and whether this kind of a sport or event or activity is safe. Conservation of a culture should not involve inflicting unnecessary pain [on] or suffering to animals

Article 29 (1)

Center’s arguments

• Article 29 (1) of the Constitution mandates that citizens have the right to take measures to “conserve their culture.”
• Article 48: If Jallikattu is cruelty, what about slaughtering of animals? Slaughtering is done not only for food but also in the name of religion like halaal and sacrifices of goats, etc. Section 11 (3) (e) of the 1960 Act, which is a Special Act, exempts slaughter for food despite the fact that Article 48 prohibits slaughter”

• Bench’s counter: Slaughtering for food comes within the purview of Doctrine of Necessity. Section 11 (3) (e) permits slaughter for food but also mandates that the animal should be killed without inflicting upon it unnecessary pain and suffering
  

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The Hindu

Context

Diplomats say the meeting is critical as it will require consensus among members

 What has happened?

Indian and Pakistani officials will meet to finalise the budget and agenda of the SAARC during the February 1-2 meeting in Kathmandu.

• Significance:

1. The meeting will mark the beginning of the annual calendar of events of the organisation which failed to meet in Islamabad for a summit and is in focus as it is the first time high officials of member-countries will meet since the cancellation of the summit
2. The meeting in Kathmandu will be critical as it will require consensus among members for finalizing budget of the organisation

The Hindu

Context

The Economic Survey presented on the eve of the Union Budget has been dominated by a singular action of the government

Economic survey’s view on Demonetization and its impact

• Difficult to predict: Economic survey acknowledges the complexities in assessing its potential impact as well as the lack of historical precedent to make reliable predictions
• Short-term costs and long-term benefits: Survey asserts that although there have been short term costs to economy, there will be long term benefits

• Reduction in GDP: Real GDP growth in the current fiscal, the Survey projects, will see a likely reduction by one quarter to half a percentage point relative to the baseline of about 7% as a result of the demand shock (a sudden event that increases or decreasesdemandfor goods or services temporarily) triggered by demonetisation

 Recommendations of the survey

Devoting a whole chapter to demonetisation, the Survey recommends

• Fast, demand-driven remonetisation
• Further tax reforms, including bringing land and real estate under the ambit of the Goods and Services Tax
• Reducing tax rates and stamp duties
  

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The Hindu

Context

The welfare challenge lies in providing assistance to needy households to ensure adequate diets without creating conditions in which they opt for inferior diets that are too heavy on cereals

 A disconnect

In the first few paragraphs, author has depicted an apparent disconnect between an improvement in the proportion of households receiving PDS subsidies and corresponding improvement that should be witnessed in malnutrition

• Source of the data: State-wise data has been taken from Annual Health Survey/District Level Health Surveys of 2012-14 as well as National Family Health Survey IV of 2015-16
• Rajasthan: Proportion of households receiving PDS subsidies in Rajasthan increased by about 15 percentage points, underweight declined by 3 percentage points
• Madhya Pradesh experienced increase in the PDS but a sharper decline underweight (17 percentage points)
• Gujarat shows a drop in PDS use but records a modest improvement in underweight statistics (5 percentage points)
• Andhra Pradesh: The number of people receiving PDS rose to76 % in 2011-12 but underweight rate seems to be stuck around 32% with hardly any improvement

This is the apparent disconnect which the author is trying to expose here in this article

 A more complex relation

Author states that a recently released report based on India Human Development Survey of 2004-05 and 2011-12 suggests that the relationship between the PDS and nutrition may be more complex

• Survey organised by: Jointly by researchers from National Council of Applied Economic Research and University of Maryland
• USP: It is the first nationwide survey to interview the same households at two points in time
• What has survey done? Households with similar income, family size, land ownership and place of residence have been compared
  • One group is with Below Poverty Line (BPL) or Antyodaya Anna Yojana (AAY) card and the other group is without these cards
• What do results suggest?

For households with BPL or AAY card:-

• Access to PDS subsidy changes allocation behavior: When items like rice, wheat and other cereals are available cheaply households try to get more of their required calories from cereals and less from milk, fruits and vegetables
  • Cereal consumption is high: Results show that households with BPL/AAY cards consume a monthly per capita average of 11.87 kg of cereals, but only 2.77 litres of milk
  • Food consumption forms 56% of household budget

For households without BPL or AAY card:-

• Lesser consumption of cereals: Households without BPL/AAY cards but at the same income level, consume somewhat less cereals (11.22 kg) but more milk (3.21 litres)
• Food consumption forms 58% of household budget

Why money saved from buying cereals in families with BPL or AAY card is not being used to buy fruits, vegetables and nuts?

Because school and medical costs are rising and households face many other demands on their purse, these savings seem to be spent on non-food items

Previous study

Author states that a previous study done in a similar manner and published in joint NCAER/Brookings journal, India Policy Forumfound that

• No effect of subsidy access to child nutrition: Households with a BPL/AAY card were no better than households without PDS subsidies when it came to child nutrition

Reason: Dietary diversity (eating different kinds of foods) is important for balanced nutrition. Access to cheap PDS cereals reduces this habit and people consume more and more of cereals on a daily basis leading to nutritional deficiencies which ultimately results in no visible improvements in child nutrition.

Q: So, should food subsidies be discontinued?

A: No because as per the NCAER report,

• Access to PDS is vital in maintaining dietary diversity: For very poor households or households that experience income declines of 20% or more between the two surveys, access to the PDS is very important for preserving food intake and dietary diversity

Survey findings:

• Households with BPL/AAY card: When faced with a sharp income decline, households with BPL/AAY cards reduce their cereal intake by 770 g per capita per month, and maintain their milk intake
• Households without BPL/AAY card: In contrast, households who can’t avail of food subsidies reduced their monthly per capita cereal intake by 930 g and milk intake by 280 milliliters

The Challenge

Author states that the challenge lies in providing assistance to needy households without creating conditions that force them towards inferior eating habits

Author suggests

• Cash transfers: Cash transfers may be one way of dealing with this challenge. They would allow households to invest in better diets without restricting what they consume. Currently they are given rice, and other cereals which limits their choice
  • However, success of cash transfers would depend on the ability to effectively administer transfers and reduce leakages

Conclusion

Author concludes by stating thatifthe mechanisms for effective administration of the UBI are in place, it is possible to make a case for replacing PDS by cash transfers on nutritional grounds

The Hindu

Context

In the light of recent Bhangar violence in Kolkata WB, the article states that despite the new land acquisition law, questions of resettlement and rehabilitation persist

What happened?

On 18^th January 2017 hundreds of angry locals blocked major roads in Bhangar, 40 km from the state capital Kolkata, demanding an assurance from Chief Minister Mamata Banerjee that their land will not be forcibly acquired by the government for a power sub-station

• Agitations have left two dead, several arrested and many injured since November 2016

 The Bhangar story

In the violence in Bhangar, the Trinamool Congress that agitated against the high-handedness of the Communist Party of India (Marxist) in Nandigram and Singur claims the people first agreed to part with 14 acres of land and then outsiders created unrest.

• No knowledge about full extent of the project: The local residents claim that they had no knowledge of the full extent of the project. In negotiations with the government and the Power Grid Corporation of India Limited, they were informed only of a power sub-station that would improve the power supply of the area. They discovered belatedly that on completion, the Bhangar sub-station would receive power from the Sagardighi thermal power plant and the Farakka unit that would then be transmitted via high-tension wires to Kolkata, the northeastern States and Purnea in Bihar
• Demand for an EIA:They demand an environmental impact assessment to ascertain the adverse impacts of the high-transmission lines on the local population, agriculture and ecology
• Land acquired fairly: State representatives claim that land was acquired with consent, compensation was negotiated with the residents, and outsiders are instigating violent agitations.

Author’s contention

Author contends that if the new land acquisition law was improvement over the previous one and was enacted to comprehensively address opposition to land acquisition, why do governments still get land acquisition wrong?

Issues plaguing new land acquisition law

• Access to information: Author states that the information regarding projects is seldom accessible and those affected discover it by accident or by exercising their RTI
• Prior informed consent is a farce: There are no clear procedures for establishing consent in the case of private sector involvement and there is complete exemption for state-led projects
• Meagre compensation: Compensation offered is very little to offset the loss of livelihood and biodiversity. Small and marginal farmers are provided with too little a compensation and once that is finished, they are left to fend for themselves

State intervention

Author states that wherever there is an agitation towards land acquisition by locals, it is termed as being under influence of outsiders by the state.

• Local infrastructure devalued: The idea of infrastructure as understood by state is such that it benefits only the capitalist side of the puzzle.Existing agrarian and local infrastructure is devalued, rendered backward, and considered in need of improvement for achieving greater economic growth

 Examples:

Author cites example of Narmada BachaoAndolan (NBA), Protest over Dholera Smart City project wherein the water that was promised to peasants in Gujarat by the construction of the SSP is now to be officially diverted to supply real estate and infrastructure projects for a city& the POSCO agitation, to demonstrate that those protesting against such infrastructure projects backed by the state, are locals and not outsiders

In the ensuing paragraphs, author presents us with the following questions,

Q: Who pays for the losses of life, livelihood, peace and well-being of the local residents during months and years, sometimes decades, of agitation?

Q: What of the loss to the exchequer, and ultimately the Indian public, for all the effort made to suppress agitations and democratic principles by the state’s sovereign assertions over the greater common good?

Q: Where does the state source its sovereign power over citizens in a democracy?

Eminent Domain

State acquisition of land is done under the doctrine of Eminent Domain. It implies the right of a government or its agent to expropriate private property for public use, with payment of compensation

 Conclusion

Author concludes by stating that the Eminent Domain is a colonial era legacy that should be done away with

The Hindu

Context

The Economic Survey recommended the Centre to incentivize good fiscal work by States to keep the overall fiscal performance on track

Improvementsin financial position of the states

The Economic Survey pointed out that there has been an improvement in the financial position of the States over the last few years.

• “The average revenue deficit has been eliminated, while the average fiscal deficit was curbed to less than 3% of GSDP. The average debt to GSDP ratio has also fallen
• Exogenous (External) factors: Survey states that the cause of the progress is mostly due to external factors most notably assistance from the Centre in the form of increased revenue transfers, the assumption of state debt, and the introduction of centrally sponsored schemes.

Increase in fiscal challenges

Survey pointed out that Pay Commission recommendations, and mounting payments from the UDAY bonds will lead to increase in fiscal challenges for the States. Hence, there is a need “to review how fiscal performance can be kept on track.”

Redistributive Resource Transfer (RRT)

What is RRT?

Redistributive Resource Transfer or RRT to a state (from the Centre) is defined as gross devolution to the state adjusted for the respective state’s share in aggregate GDP.

• The Survey has further suggested that Redistributive Resource Transfers should be significantly linked to fiscal and governance efforts on the part of the States
• Negative relationship b/w RRT & various economic outcomes: Survey has pointed out that there is no evidence of a positive relationship between these transfers and various economic outcomes, including per capita consumption, GSDP growth, development of manufacturing, own tax revenue effort, and institutional quality. Instead, there is a suggestive evidence of a negative relationship. For example, larger RRT flows seem to negatively affect fiscal effort
• Recommendation: Use a part of the RRTs or redistribute the gains from resource use, as a Universal Basic Income directly to households in relevant states which receive large RRT flows and are more reliant on natural resource revenues
• Top ten recipients of RRT: Sikkim, Arunachal Pradesh, Mizoram, Nagaland, Manipur, Meghalaya, Tripura, Jammu and Kashmir, Himachal Pradesh and Assam.
  

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The Hindu

Context
Revision of GDP estimates

What has happened?

Government has marginally revised upwards GDP growth for 2015-16 to 7.9 per cent from the earlier estimate of 7.6 per cent after factoring in latest data on agriculture and industrial production

Give the rest of the article a go-through

The Hindu

Context

India has “changed utterly” over the last 13 years since the Fiscal Responsibility and Budget Management (FRBM) was enshrined in law for prudent fiscal management and therefore, the FRBM operational framework designed in 2003 “needs to be modified to reflect the India of today and even more importantly, the India of tomorrow,” according to the Economic Survey

Significance of the recommendation

The recommendation of the survey assumes significance in the wake of N.K. Singh panel;sreport on revising the FRBM Act

A lower fiscal deficit target

The government has set a target for fiscal deficit (the gap between expenditure and revenue for the financial year) of 3.5% of GDP for FY’17, a lower target than the 3.9% set for 2015-16 which was achieved. In value terms, the 3.5% is Rs. 5.33 lakh crore.

Indian Express

Context

In the present article, author has tried to prove his contention that demonetization move by the government was a completely political move with no economic rationale. Read on to find out how he does that.

 Three reasons for demonetization

Author states that economic theory and historical precedents provide us with 3 reasons for which demonetization can be done

1. Hyperinflation: A period of rapid inflation usually caused by rapid increase in money. People do not want to hold on to money because its value changes by the minute. For eg: If eggs cost 10rs now, they might cost 100rs a minute or hour later. The value of money has degraded and it continues to do so. Hence, people no longer want to keep cash with them. Monetary system as a whole begins to collapse and under such circumstances demonetization can be a legitimate move

 Read More: Hyperinflation has been explained quite beautifully here

1. Counterfeit currency: If most part of the currency in circulation is counterfeit it makes sense to demonetise. It restores integrity to the monetary system

1. Attacking organised crime: Rarely used in routine transactions of citizenry, high-value notes primarily help the operations of smugglers and criminals. As an attack on organised crime, such high-denomination notes can be decommissioned without hurting law-abiding citizens.

 Author’s contention

None of the above conditions prevailed in India on November 8.

• Low inflation rate: India’s inflation rate is low
• Low size of counterfeit currency: The estimated size of counterfeit currency is small
• Large-value notes issued again: The crime-fighting purpose of large-value notes was undermined by the issuance of new Rs 2,000 notes

 Moreover, if only an estimated 6-8 per cent of the black economy was in cash, it is unclear how an overnight decommissioning of high-value notes meaningfully attacked the problem of corruption.

Rest of the article presents the economic views and political motivations of our PM that might have been the reason for demonetization as per the author.

Not relevant as per exam but can be given a light read

Indian Express

Context

Economic reforms are not, or not just, about overcoming vested interests; they are increasingly about shared narratives on problems and solutions. Economic Survey builds on this idea

A brief commentary on what 2017 Economic Survey is all about, by none other than the Chief Economic Advisor (CEA) Arvind Subramanian himself

Give it a go-through once

Live Mint

Context

Article reflects on themes that should guide the economic policy

Guiding themes

1. Focus on Market failures: The policy should focus on market failures. Free markets work in enhancing prosperity but there are areas where state intervention is needed. However, in India, the state is dominant in sectors where it is not required and lacks capacity in areas where the intervention is actually desired. It often intervenes with no evidence of market failure, which affects resource allocation. This needs to change
2. Policy intervention should be seen from a long-term perspective. Often, policy changes are made with narrow objectives, focusing on one sector or area. Government should avoid such ideas
3. Efficient government spending: The government should spend more efficiently. There are demands for increasing spending in various sectors of the economy and they are often legitimate as India needs improvement in a number of areas

• Cost of public spending: Public spending has a cost. Kelkar and others have calculated that the marginal cost of one rupee of public spending to society is around Rs3. Therefore, the government should spend carefully as the cost to society is much higher than what gets recorded in the books

1. Factoring in the change of behavior: Individuals, including politicians, are driven by incentives. Policy changes should factor in the possibility that people can change their behaviour. Insights from public choice theory (a body of theory developed by James Buchanan and Gordon Tullock to try to explain how public decisions are made. It involves the interaction of the voting public, the politicians, the bureaucracy and political action committees) show that politicians and bureaucrats also work in self-interest

• Reducing fiscal profligacy: Fiscal profligacy is termed as a fiscal policy characterized by higher government spending in short-term which results in higher growth but is unsustainable in the long run. What is needed is an agency like the US Congressional Budget Office which independently reviews government finances so that the public in general is better informed. This will help reduce fiscal profligacy.

1. Policy should promote competition. A high level of competition is desirable in a market economy as it leads to efficient allocation of capital (i.e. a competitor who yields best returns will receive the capital)

• The government has done well by getting the bankruptcy code passed as it will facilitate the closing of firms and the shifting of capital to more productive sectors of the economy

Conclusion

Author concludes his article by stating that following these broad principles in policymaking will help build credibility and lead to better economic outcomes in the medium to long run.

Live Mint

Context

The only sustainable solution is robust infrastructure and sufficient manpower, not controlling the prices of drugs

Author asks

Author presents us with following question at the start of the article itself and states that they need to be pondered upon before deciding any policy measure directed at health sector

Q: What do patients actually want? Will they settle for compromised, sub-standard healthcare as long as prices are affordable? Or does the vast majority prefer the best quality possible at rational cost?

Dramatic transition: What needs to be done?

Author states that India is witnessing a dramatic transition in disease burden, with non-communicable diseases taking centre stage.The only sustainable solution lies in

• Robust infrastructure
• Effective resource mobilization
• Capacity-building within our states

 Author’s contention

Author contends that we need to improve the quality of doctors and nurses, healthcare delivery systems, better hygiene and sanitation levels, and not just focus on controlling the prices of drugs

Barriers to access

Author points out that the access to healthcare for India’s vast population remains an enormous challenge. The real barriers to access are

• Deficient infrastructure: A study by IMS Health found that, while a majority of our population resides in rural and tier-II/III/IV towns, healthcare infrastructure, including hospitals, hospital beds per patient, path labs, diagnostic centers and trained doctors, is severely limited. This needs to be addressed on an urgent basis
• Manpower constraints

Biggest issue: Low healthcare spending

The biggest issue is our low spending on healthcare. India stands right at the bottom of the list when it comes to budget allocation for healthcare

• A small health budget: In the World Health Statistics 2015, WHO ranked India 187th among 194 countries and yet our health budget is abysmally low.  From being a meagre 0.9% of GDP (gross domestic product) in 2005, (according to the Economic Survey 2015-16), government expenditure (Central and state governments combined) on health as a percentage of GDP has gone up by a whisker to about 1.3% while other developing nations, such as Thailand and some African countries, spend over 5% of their GDP on health

Other problems

• Low health insurance coverage: The prevalence of health insurance coverage is very low in the country. The number covered under health insurance policies during the financial year 2015-16 was 358.9 million, which is approximately 30% of India’s population
• IRDA Obligations 2015:The Insurance Regulatory and Development Authority of India (IRDA) has notified IRDA (Rural and Social Sector) Obligations, 2015 that mandates for every insurance company to offer insurance coverage to the rural and defined social sector population. This is a step in the right direction

Some positives

Not all is lost, though. Some promising steps have been taken recently

• National Health Mission: Under the National Health Mission, support is being provided to states and union territories to strengthen their healthcare systems and provide accessible, affordable and quality healthcare to all citizens
• Universal Health Coverage: Universal health coverage wherein people will be able to access the quality health services that they need, without suffering financial hardship, is a key goal of the 12th Plan

Read More: Universal Health Coverage (UHC)

• Rashtriya SwasthyaBima Yojana (RSBY): The government of India has been implementing the Rashtriya SwasthyaBima Yojana (RSBY) since 2008
  • Centrally Sponsored Scheme: This is a centrally sponsored health insurance scheme which covers our below poverty line population and 11 other defined categories (Mahatma Gandhi National Rural Employment Guarantee Scheme workers, construction workers, domestic workers, sanitation workers, mine workers, licensed railway porters, street vendors, beedi workers, rickshaw pullers, ragpickers and auto/taxi drivers) that are enrolled under the RSBY
  • Health insurance:This population is entitled to cashless health insurance coverage of up to Rs30000 per annum per family
  • Out-of-pocket expenditure, up to Rs30000 per family each year, is provided under the RSBY

Way forward

Author states that India needs a health policy which encompasses views from all the stake holders including patients & patient groups