- Front Page / NATIONAL [The Hindu]
- Budget before polls gets green light from SC
- Private schools need govt nod before hiking fees: SC
- SC for daily drug dosage regimen for TB patients
- UAE signals a ‘Look East’ policy
- What mackerel and a volcano can tell us about climate change
- Editorial/OPINION [The Hindu]
- ECONOMY [The Hindu]
- N.K. Singh panel submits report on FRBM Act
- India rejects attempts by EU, Canada for global investment agreement
- ‘Use Aadhaar e-KYC to verify mobile users’
- Indian Express
- Live Mint
Front Page / NATIONAL [The Hindu]
 Budget before polls gets green light from SC
Why in News?
- Because of assembly election in states like Punjab, Uttarakhand, Uttar Pradesh, Goa and Manipur, a PIL has been filed in Supreme Court demanding to postpone the date of union budget presentation.
Supreme Court’s view:
- Supreme Court has rejected the petition saying that Presentation of the Central budget has nothing to do with state assembly elections.
- SC observed that there is no illustration to support that the presentation of Union Budget would influence voters mind in state election.
Election Commission’s view:
- Meanwhile, the Election Commission also cleared the way for the government to present the budget.
- However, it gave few directives such as:
- Government should not announce any schemes specific to the poll-bound states, which may have the effect of influencing the voters.
- Government should not highlight the government’s achievements in respect of the five states in the Budget speech, that would disturb the level-playing field.
- This will pave the way for budget presentation on February 1.
- It will also pave the way for free and fair elections in five states.
 Private schools need govt nod before hiking fees: SC
Why in News?
- A committee of private unaided schools filed an appeal in Supreme Court against a Delhi High Court order that schools located on land allotted by the Delhi Development Authority (DDA) should take prior permission from the government before raising their fee structure.
Supreme Court Directive:
- Supreme Court bench refused to interfere with the order of the Delhi High Court.
- The Delhi High Court had passed the order on a petition filed by an NGO, Justice for All.
- Delhi high court directed that those schools which were granted subsidized land by the Delhi Development Authority (DDA) in the national capital would not be able to hike fees without approval from the government.
- This will help in regulating the growing fees in private schools.
- This will help in curbing the commercialization of education.
 SC for daily drug dosage regimen for TB patients
- Supreme Court has ordered the Government to change the dosage of Tuberculosis drugs from thrice a week to daily
- The Court has given 9 months time to Government to comply with it
Why SC has ordered it?
- A PIL has been filed by a TB specialist doctor, Raman Kakkar to change the protocol for TB treatment
- The doctor argued that the current treatment regime of thrice a week to be ‘unscientific’ and ‘improper’
- The current form of treatment is also responsible for relapses (TB occurring again) and development of a drug resistant strain of TB
- The relapse cases are harder to treat than first time infections
The daily dosage treatment for TB has been approved by WHO recently to stop relapse and deaths during treatment
 UAE signals a ‘Look East’ policy
- United Arab Emirates (UAE) is going to participate in India’s Republic Day celebrations
- Crown Prince of Abu Dhabi will be the chief guest at the Republic Day parade
- UAE’s troops will march in India’s Republic day parade
- It is likely that UAE will highlight its Look East Policy on this day
Why It is Significant?
- Participation of a contingent of UAE’s military in the celebrations would indicate its willingness to play a more active role in the region
- It is also an indicator of the UAE’s growing power in the Indian Ocean
- It also signifies the UAE and GCC’s (Gulf Cooperation Council) new ‘Look East’ policy of engaging Asia as a counterbalance to the West.”
- It is also an indicator of GCC’s effort to exercise regional influence after the Arab Spring has left a power vacuum and to counter similar efforts by Iran, which UAE regards as a threat
- It also indicates UAE has been carrying out military modernization in recent years. According to SIPRI, UAE was one five biggest arms importer in the world between 2011 and 2015.
Strategic Partnership between India and UAE?
- UAE and India are likely to conclude a comprehensive strategic partnership
The Diaspora Perspective:
- The Strategic partnership can be recognition of the unique role of India’s immigrant population in the UAE’s development story
- There has been continuous Indian presence in the UAE from around 18th century
- In the present day, Indians make up 30% of the country’s population — the single largest expatriate community in the UAE.
 What mackerel and a volcano can tell us about climate change
What is mackerel?
- It is a predatory marine fish with a greenish-blue back.
- According to a research, an Indonesian volcanic eruption, a 200-year-old climate disaster and a surge in the consumption of mackerel tell us lot about today’s era of global warming.
- Scientists have made this assessment while conducting research about a long-ago calamity in New England that was caused by the eruption of Mount Tambora half a world away i.e in Indonesia in 1815.
- A cooled climate led to deaths of livestock and changed fish patterns in New England, leaving many people dependent on the mackerel, an edible fish that was less affected than many animals.
- The researchers assert that bit of history gives clues about what food security could be like in the modern era of climate change.
- According to scientists how we respond to these events is going to be critically important for how we come out of this in the long term and can learn from the past how people dealt with the unanticipated.
- The study states there is a parallel between the need for immediate adaptation after Tambora and the challenges in coping with the climate-driven devastation caused by storms, floods and droughts today.
About Tambora Eruption
- The Tambora eruption was one of the most powerful in recorded history, and was followed by a short time of climate change specifically, global cooling and severe weather.
- Its impact on weather, food availability and human and animals deaths worldwide has been studied extensively.
- The year that followed the eruption, 1816, is often described as the “Year Without a Summer.”
- Researchers found that alewives, a fish used for everything from fertilizer to food by 19th-Century New Englanders, did not fare well. But mackerel had better survival rates and became a critical source of protein and jobs.
- As crops failed and famine began to spread, the little fish emerged as a staff of life. It’s a scenario similar to what parts of the developing world are experiencing today as climate change affects food security.
Importance of this finding
- Understanding how adaptive responses to extreme events can trigger unintended consequences may advance long-term planning for in an uncertain future.
- The report illustrates how abrupt changes in climate can have unexpected consequences long after conditions moderate.
- Good stewardship of our natural resources can help buffer against some climate impacts. Unlike the people in 1815, we have an idea of what’s coming, and we need to make sure we are prepared.
Editorial/OPINION [The Hindu]
 The price of fiscal folly
Two main concerns of union budget:
- Controlling borrowing by the government.
- Proposal on how best the government should allocate its expenditure.
RBI governor’s view:
- The RBI governor has cautioned the government against increasing its borrowing.
- General perception is that government borrowing tends to crowd out private investment. This article tries to analyze the above arguments. Analysis of this is as follows:
- Directly or indirectly, every expenditure will serve as a draught on today’s resources, i.e., labour and capital equipment.
- This is equally true of public and private expenditure, the only difference being that in the case of the public expenditure it is its very rationale that resources are drawn into production thus pre-empting their remaining idle.
- Unlike natural capital, these resources are man-made, and expenditure can actually create more of them.
- Furthermore, these newly-minted resources are inherited by future generations who far from being short-changed are left with more income-earning assets than they would have had were the government to desist from borrowing to spend today.
- Future generations would have to pay more taxes to retire the government’s debt, but so long as the returns are greater than the interest burden, future generations are unambiguously better off.
- This is reflected in the fact that at least some sections of India better off now that in the 1950s because the Government of India had borrowed to build housing for public servants and the Indian Institutes of Technology and Management.
- Presumably, it is the possibility of a rise in the interest rate that unleashes the challenge in the form of the argument of crowding out, whereby a rise in public spending raises the interest rate faced by the private sector.
- ‘Quantitative easing’ in the United States was precisely such a mechanism whereby the central bank ensured that an expansionary fiscal policy following the financial crisis did not result in a rise in the interest rate.
- Far from government spending via borrowing crowding out private expenditure, it leads to a ‘crowding in’ whereby the demand generated by government spending expands the market for private investors, raising the level of economic activity today and even in the future.
- Of course, this requires the existence of unemployed resources, which is mostly the case in a large part of the economy. So, the assertion that greater public spending would crowd out private investment is based jointly on a refusal to accept accommodating monetary policy as valid and the assumption that the economy is at full employment.
Idea of the universal basic income:
- Recently, the case has been made for the provision by government of a universal basic income (UBI).
- This idea has been floating around the capitals of the western world for a while.
- The economist Vijay Joshi has in his book, India’s Long Road, proposed that every citizen be given an income transfer equivalent to what is needed to raise those currently deemed poor to above the official poverty line.
- He shows that this would involve a transfer of rupees 3,500 per capita per annum.
- It is claimed, is that it would eliminate poverty and yet leave some over to actually raise public investment.
- Generally, it is imagined that the idea of UBI is based on the social democratic imagination, but the welfarism that it implies is neither socialist nor democratic.
- However, it is distinctly at odds with Karl Marx’s vision of a decent society as one which draws from “each according to their abilities to each according to their needs”.
- Enthusiasts of the UBI would need to account for a scheme in which the able-bodied receive as much as the infirm and infants receive as much as their mothers. There appears to be a mismatch between rights and responsibilities here.
- The usefulness of the accounting reproduced above is mainly to show us how much subsidies cost in terms of a potential benefit foregone by households. It attains some salience when we recognize that certain subsidies in India are regressive and others do not even entail a transfer, such as when food grain rots in the godowns of the Food Corporation of India while getting accounted as food subsidy in the books.
- For close to thirty years since 1947 the Central government’s subsidy bill had been meager. It is only recently that it has burgeoned, both in response to vote-bank politics and as political parties compete to showcase their compassion.
- But the answer to the accumulating subsidy bill lies less in moving to the distribution of its cash equivalent as much as to transferring the potential saving from their elimination into public investment.
- Not only does public investment have a greater impact on growth than subsidies in their present form but, to return to the issue of inter-generational equity, the capital formation that it entails benefits future generations by enhancing the productive capacity of the economy.
- And, also in our present state of development and given the current state of the public finances, the UBI would leave India bereft of public goods and services.
- Once everyone has been given a certain amount of income under the auspices of the state, it gets absolved of all responsibility for providing these goods and services which the private sector has no incentive to provide.
Importance of public goods:
- During the Second World War the national debt in the U.S. rose sharply to enable the government to engage in combat. The U.S. economy was immediately energized and after the War there followed unparalleled prosperity for the next generation, enabling the government to repay the public debt with ease.
- Public borrowing is not necessarily bad but borrowing to distribute for consumption is to be guarded against. As monies are fungible, when, the Government of India has debt outstanding, launching the UBI would amount precisely to that.
- The idea that the nascent Indian state should showily distribute public revenues in the manner of its erstwhile maharajahs had made the rounds soon after the country gained independence. It is very likely the clamour that had led Jawaharlal Nehru to remark in Parliament, in response to a no-confidence motion against his government,
- “We have always to choose between benefits accruing today, or tomorrow, or the day after. From the country’s point of view, if we spend the money we now have for some petty immediate benefits, there will not be any permanent benefit.”
 Our democratic deficit
Why in News?
- Recently, Oxfam has published its report: “An economy for the 99 percent’”.
- Report finds that eight rich people own as much wealth as half the world’s population in 2016.
- In India, the richest 1% of Indians holds as much wealth as that held by 58% of the Indian population.
Impact – Analysis:
- Evidence from human history shows that, this kind of inequality was the norm and the real challenge was how to fashion a stable government.
- Wealth is a good proxy for the ability to influence politics via legislation or campaign contributions.
- According to Aristotle, in a democracy, the poor were equal to the rich along one dimension (the freedom to vote), they would always vote to make everybody equal on all dimensions. Thus, confiscation of wealth and redistribution is the natural tendency of democracies, in response to which the rich would plunge the system into chaos.
- In an oligarchy (rule by the rich), the problem was that since the rich were unequal to the poor on one dimension (wealth), they would always vote to make everyone unequal on all dimensions. Thus, the oligarchs would vote to confiscate wealth and accumulate it, seeing which the poor would understandably revolt.
- To address this problem, societies devised ‘class warfare constitutions’. This type of constitution thinks of societies as comprising conflicting, groups with different end goals. These constitutions devise a tiered system of representation which ensures that a majority of the population have a part in their daily governance. Thus, we saw guilds, communities, caste, and class-based representation in royal courts.
- After the rise of the republican system of government, specific houses for specific classes came into fashion. The state could only be stable if the constitutional arrangement reflected the fragmentary nature of society itself.
- This was the reason that the U.S. needed two houses of government, one for the rich, the well-born, and the able and the other for the common people of the country.
- Even the Romans considered this constitutive tension of classes while designing their government.
- However, these conditions were changed in the era after American constitution was drafted in 1787 and the radical aspirations of the French Revolution began to permeate across the North Atlantic.
- Hence, the American framers decided to change this trend by designing a “Middle Class Constitution”.
- In this arrangement, there are no specific restrictions on who can belong to which part of the government. The poor could enter the Upper House, while the rich could be part of the Lower House.
- The American Constitution was not “a design premised on the inevitability of class conflict”.
- The ‘middle class constitution’ was possible in the 1770s because America was a relatively egalitarian place blessed with a wide open space in its west and the absence of any feudal or aristocratic class that was historically entrenched.
- The entire voting population of the newly born country was the middle class. The prototypical tensions between the rich and the poor that Aristotle wrote about didn’t figure in this calculus.
- Since then this premise of radical equality of man across income or class levels has informed most constitutional arrangements, including India’s – even if material conditions that birthed such a framework have rarely existed since the 1770s.
- A well-functioning “middle class” constitution relies on relative equality in income and accessibility to resources for self-improvement.
- This allows for a homogeneity in end goals and policies. Failing which, what studies like the Oxfam report tell us is not just that there is inequality of income, but that the inequality of power puts our democratic frameworks in peril.
- The strategically extremist positions that result in constitutional gridlocks will not just be commonplace, but also corrode the efficacy of a ‘middle class’ constitution – the dignity of man.
ECONOMY [The Hindu]
 N.K. Singh panel submits report on FRBM Act
- K. Singh panel submitted its report on revising the Fiscal Responsibility and Budget Management Act to our Finance Minister.
- This assumes importance because we have only around one week left for the budget to be presented.
- The five-member committee was constituted in May 2016 by our Finance Minister during the previous budget
- The committee was asked to review the Fiscal Responsibility and Budget Management Act
Why it is Important?
- India has a high debt to GDP ratio. When fiscal discipline is enforced this ratio can be expected to fall
- Fiscal management assumes more importance in the post-demonetisation era because of the decrease in consumption expenditure, the government could be tempted to increase public spending to boost consumption
- The government has set a fiscal deficit target of 3.5% of GDP for FY17, a lower target than the 3.9 per cent set for 2015-16, which was achieved.
- The Government will examine this report and take appropriate action
 India rejects attempts by EU, Canada for global investment agreement
- An informal attempt has been made by the European Union (EU) and Canada to work towards a global investment agreement at the World Trade Organization (WTO) level
- The agreement would incorporate a contentious Investor-State Dispute Settlement (ISDS) mechanism
- India along with Brazil, Argentina and some other nations, has rejected this
- At the meeting of trade ministers of select countries held on the sidelines of the recently held World Economic Forum in Switzerland
Why it is Contentious?
- The ISDS mechanism permits companies to drag governments to international arbitration without exhausting the local remedies and claim huge amounts as compensation citing losses they suffered due to reasons, including policy changes
- India summarily rejected such an idea. Japan also opposed the idea on the grounds of the costs involved in international arbitration
Nirmala Sitharaman’s Views:
- “Only after all local options have been exhausted for settling disputes between a corporate and a government, we want to permit issues to be taken up in international arbitration tribunals”
- “Such provisions could be a part of bilateral agreements but they can’t be allowed in a multilateral agreement”
Other Issues Discussed:
- In the same trade ministers’ meeting, India also pushed for discussions on its proposal for a Trade Facilitation in Services (TFS) Agreement at the WTO-level
- TFS primarily aims to facilitate easier movement of skilled workers and professionals across borders for short-term work
 ‘Use Aadhaar e-KYC to verify mobile users’
- The Telecom Regulatory Authority of India (TRAI) has recommended the use of Aadhaar-based e-KYC for verification of existing mobile subscribers
- TRAI has also recommended that the use of Aadhaar-based e-KYC be permitted for outstation customers
Why it is important?
- Aadhaar linked e-KYC service provides a mechanism to verify the identity of a person electronically and instantaneously from the source itself, based on the biometrics of a person
- Thus, it takes care of the issues relating to fake or forged identity proof and manual entry into the system etc
Why TRAI wants this?
- TRAI has received several cases from state police departments on forged SIM cards. These forged cards pose a security challenge
Will it be Mandatory?
- TRAI said the process should be optional to the service providers as well as mobile subscribers and could not be made mandatory
- TRAI is of the view that a scheme could be formulated to encourage the existing subscribers to undergo the e-KYC process.
 Reclaiming the Gulf
- Crown prince of Abu Dhabi, Sheikh Mohammed bin Zayed Al Nahyan, will be the chief guest at the Republic Day celebrations of 2017.
- He will only be the third leader in 70 years from the Middle East to grace the occasion. The other two leaders were the president of Iran, Mohammed Khatami (2003), and King Abdullah of Saudi Arabia (2006).
Importance of Gulf for India
- No other region outside of the subcontinent is so critical for India’s security and prosperity than the Middle East. Yet, the region never gets sustained high-level political attention in Delhi.
Phases of India- Middle East relationship
- In the first phase, India’s emphasis was on anti-Western and anti-Israel solidarity with the Middle East. This was driven in part by the presumed need to prevent Pakistan from scoring a march over India by playing up its religious affinity with the region.
- But it also prevented India from coming to terms with the many other contradictions of the region — between republics and monarchies, conservative regimes and radical Islamists, Shia and Sunni, to name a few. Despite expansive goodwill for India in the region, Delhi seemed to have little to offer beyond rhetorical support.
- Delhi’s emphasis on self-reliance saw the dismantlement of the strong economic links that emerged between the undivided subcontinent and the Middle East through the 19th century.
- The oil boom in the Gulf saw the dramatic expansion of India’s interdependence region — through labour exports and energy imports. Delhi, however, was ill-equipped in building on this interdependence in the first phase. As it emphasised non-alignment and opposed military alliances, independent India discarded the legacy of providing security to many regimes in the Gulf and the greater Middle East.
- The second phase, which began at the turn of the 1990s, saw a more pragmatic Indian approach to the region.
- Delhi normalised diplomatic relations with Israel without having to sacrifice its expansive interests in the rest of the Middle East.
- As the scale of India’s economic interdependence on the Gulf grew rapidly in the reform era, Delhi began to move away from mercantilism to deepening trade and investment links with the region.
- The second phase also saw the renewal of military exchanges and security cooperation with the countries of the region. But the profound convulsions affecting the region seemed to prevent bolder Indian military partnerships in the Gulf.
- That the region does not figure high on Delhi’s political radar was marked by the fact that Prime Minister Manmohan Singh travelled to the region only four times during his decade-long tenure — two of those trips were to attend the non-aligned summits.
- Also the first months of the NDA government seemed to suggest Prime Minister Narendra Modi might be more interested in Israel than the rest of the region.
- There was a solid corrective in the last two years. Even though government has brought the Israel partnership into the open, but it has also devoted much energy to engaging the Gulf states. As pointed out by PM at the Raisina Dialogue in Delhi, “we have redefined, in a short span of time, and despite uncertainty and conflict, our partnerships with Gulf and West Asia, including Saudi Arabia, UAE, Qatar and Iran”.
- The prime minister added that Delhi’s intensive engagement has helped “protect and promote our security interests, nurture strong economic and energy ties and advance the material and social welfare of around eight million Indians”
- India’s current intensive engagement with the UAE is a test case for India’s credibility in the region.
- Amidst the shifting external and internal balance of power in the Middle East, the region is eager to see India return to its traditional role as a major economic and security partner.
- On its part, the UAE has laid out a bold agenda for bilateral cooperation in areas ranging from investments in civilian infrastructure to defence production. It is ready for deeper collaboration on counter-terrorism and regional security.
- A small military contingent from the UAE will join the military march on Republic Day is a powerful reminder of India’s historic role as a security provider in the region and the opportunity today for reclaiming that role.
- For this Delhi has to overcome its bureaucratic inertia that has so consistently limited the nation’s international prospects and repeatedly frustrated India’s putative partners.
 The right processes for a good budget
- Decision making is a difficult ask, especially when the decision is going to affect millions.
- The presentation of the annual budget is one such important occasion wherein the Union finance minister is expected to lay out difficult choices while explaining the rationale in a manner which soothes those likely to be hurt.
Challenges before finance Minister
- Economy is still grappling with the impact of demonetisation, while simultaneously being force-fed digital payments despite inadequate infrastructure.
- Protectionist voices are globally gaining political mileage and threatening to disrupt the movement of people, capital, goods and services that we have grown accustomed to.
Recommendation for Budget making
- A transparent policymaking process is recommended like several governments.
- For instance, the UK publishes Tax Information and Impact Notes on proposed tax policy changes to provide a clear explanation of the policy objective together with the details of the tax impact on the exchequer, economy, individuals, businesses, civil society organizations—as well as any other specific area of impact.
- In addition, at least three months prior to the introduction of the Finance Bill, it publishes consolidated draft clauses for inclusion in the Finance Bill, for public comments. This provides taxpayers with more certainty, and a window for pre-legislative scrutiny. Details of public consultation along with government responses to suggestions are available for review in the public domain.
- With every budget, the UK also publishes a comprehensive document on “Policy Costs” which sets out the assumptions and methodologies underlying costing for tax and annual expenditure of policy decisions having a fiscally significant impact on public finances.
- The document also explains the general methodology used to calculate the cost or yield of each government policy.
- A comprehensive document on “Data Sources” is also published to facilitate transparency, public scrutiny and accountability.
- Taking into account the concerns of the common man, another dedicated document the UK publishes relates to distributional analysis of the “Impact on Households” of the government’s tax, welfare and spending decisions.
- The UK has also introduced several organization-level reforms to complement its process reforms. It has set up an Office of Tax Simplification (OTS) to provide advice on simplifying the UK tax system with the objective of reducing the compliance burden on both businesses and individual taxpayers.
- In addition, it has in place an Office for Budget Responsibility (OBR) to examine and report on the sustainability of public finances. While the OTS aids in the assessment of impact of policy proposals on households, the policy costs estimated by the government are reviewed and certified by the OBR.
- To adopt reforms as comprehensive as the UK will require significant preparation and resources, it is time the Indian government at least made a beginning.
- In almost all the pre-budget consultations with the finance minister over the past few years, economist have argued for competition reforms, which includes the adoption of a Regulatory Impact Assessment (RIA)—similar to one of the ex-ante impact assessment process reforms adopted by the UK. Unfortunately, they have met with limited success.
- Also Since 2011, almost every other high-level expert committee has made this suggestion. These include the Planning Commission’s working group on business regulatory framework, the Financial Sector Legislative Reforms Commission, the Damodaran committee and the Ajay Shankar committee, among others.
- Even the recently executed memorandum of understanding (MoU) between the UK and India on ease of doing business includes cooperation on RIA.
- It is time that a structured ex-ante assessment framework is integrated in the government decision-making process to ensure that right policy choices are made, to the extent possible.
- Through this the knee-jerk reactions originating from the sub-optimal wisdom of a close coterie of government advisers can be avoided.